Section 92CE Secondary Adjustments Under the Income-tax Act 2025: Rs 1 Crore Threshold, 90-Day Repatriation Window, and the 18 Percent Settlement Option

Quick Summary: Section 92CE Secondary Adjustments at a Glance

• Trigger threshold: Section 92CE of the Income-tax Act, 2025 (re-enacted from Section 92CE of the Income-tax Act, 1961) requires a secondary adjustment whenever a primary transfer pricing adjustment exceeds Rs 1 crore, made on or after April 1, 2017.
• Compliance window: Excess money attributable to the primary adjustment must be repatriated to India within 90 days from the due date of filing the return of income for the relevant assessment year (per Rule 10CB).
• Imputed interest cost: If repatriation does not occur within 90 days, deemed interest is computed at the SBI 1-year Marginal Cost of Lending Rate (MCLR) plus 325 basis points for INR-denominated transactions, or the 6-month LIBOR plus 300 basis points for foreign-currency transactions (Rule 10CB(2)(b)).
• One-time settlement option: Subsection (2A) of Section 92CE provides a one-time additional tax payment route at 18 percent plus 12 percent surcharge plus 4 percent cess (effective rate 20.9664 percent) on the unrepatriated amount, in lieu of imputing future interest.
• AY 2026-27 first-year impact: The provision now operates under the new Income-tax Act, 2025 framework (effective April 1, 2026). Existing primary adjustments from earlier years continue to attract Section 92CE treatment via the savings clause in Section 532 of the new Act.

What is a Secondary Adjustment Under Indian Transfer Pricing Law?

A primary transfer pricing adjustment recomputes the taxable income of an Indian taxpayer when a related-party transaction with an associated enterprise (AE) is found to be priced outside the arm’s length range. The mechanics of Section 92C produce a transfer pricing addition that increases the Indian taxpayer reported income for tax purposes. However, the actual cash flow between the Indian entity and its AE remains unchanged.

This creates an economic imbalance. The AE retains the benefit of the non-arm’s-length cash flow, while the Indian taxpayer pays tax as if the cash flow had been at arm length. Section 92CE was inserted by the Finance Act, 2017 effective April 1, 2017 (and continued in the Income-tax Act, 2025) to resolve this imbalance through a secondary adjustment. The secondary adjustment treats the excess money (the cash flow advantage retained by the AE) as a deemed loan from the Indian entity to the AE on which interest accrues until repatriated.

For Indian startups with overseas AEs, family-owned businesses with cross-border holdings, software exporters with subsidiaries abroad, and inbound MNCs with Indian subsidiaries, this provision creates a significant compliance trap. A transfer pricing adjustment that survives DRP, ITAT, or High Court litigation becomes the trigger for a separate cash repatriation obligation, with imputed interest accruing daily until the AE remits the excess cash to India.

Triggers: When Does Section 92CE Apply?

Section 92CE applies in five distinct situations enumerated in subsection (1). Each is independently triggering and a single primary adjustment can fall in more than one category.

Trigger	Source of Adjustment	Effective From
(i)	Suo-moto adjustment by the assessee in the return of income (Section 92C(1) and (2))	AY 2017-18
(ii)	Adjustment made by the Assessing Officer (AO) and accepted by the assessee	AY 2017-18
(iii)	Adjustment determined by an Advance Pricing Agreement (APA) under Section 92CC	AY 2017-18
(iv)	Adjustment by safe harbour rules under Section 92CB	AY 2017-18
(v)	Adjustment under a Mutual Agreement Procedure (MAP) resolution	AY 2017-18

Two important exclusions apply per the second proviso to Section 92CE(1):

• Primary adjustments below Rs 1 crore in any previous year do not trigger a secondary adjustment.
• Primary adjustments relating to AY 2016-17 and earlier are excluded.

Computing the Excess Money: The Mechanics of Rule 10CB

The amount of excess money is the difference between the arm’s length price and the actual transaction price, multiplied by the relevant transaction quantity. The Income Tax Department clarified the computation methodology in CBDT Notification No. 52/2017 dated June 15, 2017 (Rule 10CB), with refinements in Notification No. 76/2019 dated October 30, 2019 (Rule 10CB(1A) on the alternative SBI MCLR formulation) and Notification No. 31/2018 dated July 4, 2018 on cross-border interest computation.

The 90-day repatriation window starts from the following anchor dates (per Rule 10CB(1)):

Type of Primary Adjustment	Start of 90-Day Window
Suo-moto adjustment in return of income	Due date of filing return under Section 139(1)
AO adjustment accepted by assessee	Date of order of AO determining the adjustment
APA-determined adjustment	Date of APA
Safe harbour adjustment	Due date of filing return under Section 139(1)
MAP resolution adjustment	Date of giving effect to MAP resolution under Section 90 or 90A

Imputed Interest: The Daily Cost of Non-Repatriation

If the AE does not repatriate the excess money within the 90-day window, the Indian taxpayer must declare deemed interest income on the unrepatriated balance from day 91 onwards. The interest rate depends on the currency of the underlying transaction.

For INR-denominated international transactions: SBI 1-year Marginal Cost of Lending Rate (MCLR) prevailing on the 1st April of the financial year, plus 325 basis points. As of April 1, 2026, SBI 1-year MCLR is approximately 9.05 percent, giving a deemed interest rate of approximately 12.30 percent per annum.

For foreign currency-denominated international transactions: 6-month LIBOR rate as of September 30 of the financial year, plus 300 basis points. Note that LIBOR was discontinued in mid-2023 globally; CBDT operational practice (per FAQ issued December 2023) accepts the equivalent SOFR (for USD), EURIBOR (for EUR), or applicable replacement reference rate in lieu of LIBOR.

The deemed interest is computed on a daily basis from day 91 until the date of actual repatriation or the date of payment of the one-time additional tax under Section 92CE(2A), whichever is earlier. The deemed interest is added to the Indian taxpayer total income for the year in which it accrues, taxed at the applicable corporate rate, and disclosed in the Tax Audit Report under Form 3CD Clause 30B.

The 18 Percent Settlement Option (Section 92CE(2A))

Recognising that some Indian taxpayers face structural inability to repatriate (for example, AE in a tax haven without a banking corridor, AE under insolvency, AE owned by a sovereign wealth fund), Section 92CE(2A) was inserted by the Finance Act (No. 2), 2019 effective September 1, 2019 to provide a one-time settlement option.

The taxpayer can pay an additional income-tax at 18 percent on the unrepatriated excess money, plus 12 percent surcharge on this tax (regardless of the taxpayer normal surcharge slab), plus 4 percent health and education cess. This works out to an effective rate of 20.9664 percent on the unrepatriated amount.

Once the 18 percent settlement is paid, no further deemed interest accrues, the Indian taxpayer is not required to repatriate the cash, and no tax credit is available against this 18 percent tax (per third proviso to Section 92CE(2A)). The settlement payment is irreversible. If the AE later remits the excess cash, it does not unwind the 18 percent payment.

Practical Compliance Checklist for AY 2026-27

The Income-tax Act, 2025 takes effect on April 1, 2026. AY 2026-27 (corresponding to FY 2025-26) is the first year of operation under the new Act. Section 92CE has been re-enacted without substantive change, but with renumbered cross-references to the new Sections 92C, 92CB, 92CC, 90, 90A, and 139 of the 2025 Act. The compliance steps below assume the new Act framework.

1. Identify all primary adjustments: Pull the transfer pricing assessment orders, ITAT orders, High Court orders, APA terms, safe harbour acceptances, and MAP resolutions for FY 2017-18 through FY 2025-26 for every Indian client with international related-party transactions. Tabulate by AY, by AE, by transaction type, and by adjustment quantum.
2. Apply the Rs 1 crore threshold and the AY 2017-18 cutoff: Eliminate adjustments below Rs 1 crore and adjustments for AY 2016-17 and earlier. The remaining adjustments are the universe of secondary adjustment liabilities.
3. Determine repatriation status: For each remaining adjustment, document whether the AE has repatriated the excess money. Repatriation evidence requires a bank-statement reflecting an inward remittance to the Indian entity from the AE attributable to the primary adjustment, supported by an FIRC (Foreign Inward Remittance Certificate) and the underlying invoice or debit note describing the basis of remittance as a transfer pricing secondary adjustment.
4. Compute deemed interest for unrepatriated balances: For each unrepatriated adjustment, compute deemed interest from day 91 of the relevant trigger date through March 31, 2026 (or earlier date of repatriation). Use SBI 1-year MCLR plus 325 bps for INR transactions and SOFR or equivalent plus 300 bps for foreign currency transactions. The deemed interest is taxable income for the year in which it accrues.
5. Decide between continued imputation and 18 percent settlement: For long-stale unrepatriated balances, model the IRR of continued daily interest accrual versus the one-time 18 percent settlement. The 18 percent settlement becomes economically attractive when imputed interest exceeds approximately 4 to 5 years of accrual, depending on the corporate tax rate and discount rate.
6. Structure repatriation through proper banking channels: Repatriation must be a routine inward remittance compliant with FEMA (Foreign Exchange Management Act, 1999). Inform the AD Bank in advance that the inward remittance is a transfer pricing secondary adjustment and reference the Indian taxpayer assessment year and the primary adjustment order. The AD Bank will issue an FIRC mentioning the purpose code and that the remittance is towards Section 92CE.
7. Update Form 3CEB and Form 3CD disclosures: The Tax Audit Report (Form 3CD) Clause 30B requires disclosure of any secondary adjustment under Section 92CE. The Transfer Pricing Audit Report (Form 3CEB) Part B Clause 16 requires year-by-year disclosure of primary adjustments triggering Section 92CE, repatriation status, and deemed interest computation.
8. Document the AE board approval: The AE must pass a board resolution or equivalent corporate authorisation approving the inward remittance to the Indian entity as a transfer pricing secondary adjustment. The Indian entity must obtain a copy and maintain in its tax audit file. The AE may also need approval from its local tax authority depending on the AE jurisdiction.
9. FEMA reporting compliance: The Indian entity must report the inward remittance in the relevant FEMA return (FC-GPR if treated as deemed equity infusion, or FC-TRS if treated as transfer of shares, or no separate filing if treated as a normal commercial repatriation). Consult a FEMA practitioner to determine the correct treatment and avoid double reporting.
10. Maintain a perpetual register: Maintain a Section 92CE register in MS Excel or accounting software listing every primary adjustment, trigger date, 90-day end date, AE repatriation date or 18 percent settlement date, deemed interest accrued, and current outstanding balance. Update annually as part of the FY-end closing process.

Common Pitfalls and How to Avoid Them

Pitfall 1: Ignoring closed assessment years. Section 92CE applies on a year-by-year basis. A primary adjustment for AY 2018-19 that was confirmed by ITAT in 2024 still triggers Section 92CE for AY 2018-19, regardless of how old the AY is. The 90-day window starts from the date of the order accepting or determining the adjustment, not the AY.

Pitfall 2: Treating partial repatriation incorrectly. If the AE repatriates a portion of the excess money within 90 days, deemed interest accrues only on the unrepatriated balance. Many Indian taxpayers incorrectly compute interest on the full amount and overpay tax on phantom interest income.

Pitfall 3: Confusing the 18 percent rate with corporate tax. The 18 percent rate under Section 92CE(2A) is a special additional tax. It is independent of the regular corporate tax rate (22 percent or 25 percent depending on Section 115BAA election). The Indian taxpayer must pay 18 percent plus 12 percent surcharge plus 4 percent cess, even if its regular tax rate is lower.

Pitfall 4: Missing the disclosure in Form 3CD Clause 30B. The clause requires year-wise disclosure of primary adjustments and repatriation status. Non-disclosure invites Section 271AAB penalty proceedings (1 percent to 2 percent of undisclosed amount) on the unreported deemed interest.

Pitfall 5: Treating MAP-resolved adjustments as outside Section 92CE. Section 92CE(1)(v) explicitly covers MAP resolutions. Many Indian taxpayers assume MAP resolves both primary and secondary adjustment liability, which is incorrect. The MAP resolves only the underlying transfer pricing dispute; Section 92CE separately requires repatriation of excess money or 18 percent settlement.

Frequently Asked Questions

Q1: My Indian subsidiary received a transfer pricing addition of Rs 80 lakh in AY 2020-21. Does Section 92CE apply?

No. Section 92CE applies only when the primary adjustment exceeds Rs 1 crore in a relevant previous year. A primary adjustment of Rs 80 lakh is below the threshold and does not trigger any secondary adjustment obligation. Document this in your tax audit working papers as a pre-screening step before computing repatriation timelines.

Q2: Our company entered into an APA with the CBDT in October 2024 for AY 2023-24 onwards. The APA results in a downward adjustment of our reported income. Is this a primary adjustment for Section 92CE?

No. Section 92CE applies only to upward adjustments (where the arm length price is higher than the actual transaction price for outbound payments, or lower for inbound receipts, in either case increasing the Indian taxpayer income). A downward APA adjustment that reduces Indian taxable income does not create excess money in the AE hands and does not trigger Section 92CE.

Q3: We paid the 18 percent settlement on a Rs 5 crore unrepatriated balance in March 2026. Three months later, the AE actually remitted the cash. Can we claim a refund of the 18 percent?

No. The third proviso to Section 92CE(2A) explicitly states that no credit is available against the 18 percent additional tax. Once paid, it is final. The subsequent remittance does not unwind the settlement. The AE cash receipt is treated as a routine inflow and is not separately taxable in the Indian taxpayer hands. Update the books to record the cash inflow as a refund of an earlier suspense balance.

Q4: Our Indian company has a transfer pricing adjustment of Rs 4 crore for AY 2018-19 finalised by the DRP in 2023. The AE is in the Cayman Islands. Cayman Islands has no banking corridor with India for outbound remittances of this nature. What are our options?

The 18 percent settlement under Section 92CE(2A) is precisely designed for this situation. Compute the unrepatriated balance, plus deemed interest from day 91 of the DRP order through the date of settlement payment. Pay 18 percent plus 12 percent surcharge plus 4 percent cess on the principal Rs 4 crore. The deemed interest accrued through the settlement date remains separately taxable as income and is added to the relevant AY return.

Q5: How does Section 92CE interact with the new Income-tax Act, 2025?

Section 92CE has been re-enacted under the new Act effective April 1, 2026, with the same numbering for ease of reference. Cross-references to other sections (Section 92C, 92CB, 92CC, 90, 90A, 139) have been renumbered to align with the new Act. Existing primary adjustments from earlier years continue to attract Section 92CE liability via the savings provision in Section 532 of the new Act. CAs preparing AY 2026-27 returns must use the new Act numbering in disclosures, while citing the older Act provisions for adjustments relating to AY 2025-26 and earlier.

Q6: Is Section 92CE applicable to specified domestic transactions (SDTs) under Section 92BA?

The scope of Section 92CE is limited to international transactions as defined in Section 92B. Specified domestic transactions under Section 92BA (intra-group domestic transactions among Indian-resident entities) are outside the ambit of Section 92CE because the cash flow imbalance does not cross national borders. CAs should verify that adjustments under SDTs do not flow into the Section 92CE register.

Q7: What if the AE is in a country with which India does not have a Double Taxation Avoidance Agreement (DTAA)?

Section 92CE is purely domestic Indian law. It applies whether or not a DTAA exists with the AE jurisdiction. The absence of a DTAA may complicate MAP resolution of the underlying transfer pricing dispute, but it does not affect the Section 92CE secondary adjustment obligation. The AE remittance to India is a commercial inward remittance under FEMA and does not require DTAA backing.

Conclusion: Make Section 92CE a Standing Item on Your Tax Audit Checklist

Section 92CE is one of the most under-implemented provisions of Indian transfer pricing law. CAs preparing tax audit reports for international transaction clients regularly miss the 90-day repatriation tracking, the deemed interest computation, and the Form 3CD Clause 30B disclosure. With the Income-tax Act, 2025 effective from April 1, 2026 and AY 2026-27 returns due September 30, 2026 (Section 139(1) as applicable to companies under the new Act), now is the right time to build a Section 92CE compliance framework into the audit cycle. The 10-step checklist above gives the operational backbone. The 18 percent settlement option, while expensive in absolute terms, is a sensible tool for cleaning up unrepatriated balances stuck in jurisdictions where remittance is impractical.

Disclaimer

This advisory is for general informational purposes only and is not legal, tax, or professional advice. Specific factual circumstances of each company may require a different approach. Tax law and procedural requirements may change between the date of publication and the date of action. Readers must verify the current position with the CBDT, ICAI, and their professional advisors before acting on any information in this article.

Need a Section 92CE Audit for Your Cross-Border Group?

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