What is Section 92D of Income Tax? Procedure and Deductions

Section 92 D of the Income Tax Act makes it compulsory for every individual who deals with international or particular domestic transactions, to maintain all the documents that are mentioned under Rule 10. These documents need to be maintained on a regular basis and must be kept for a time period of 8 years starting from the relevant assessment year. In this blog we will know about section 92 D of the Income Tax Act.

What is an International Transaction?

A transaction that is done between two or more linked enterprises. Both the associated enterprises are non-Residents. The transaction will be done after establishing a mutual agreement between the associated companies/enterprises. It has been stated by the Income Tax Department that if a transaction is done between an enterprise and a person instead of  another associated enterprise, then the transaction will be treated in the same way as a transaction between two associated firms.

What is a Specified Domestic Transaction?

Those transactions in which the total amount that was pursued in the last year is more than Rs. 5 Crore. Just as the name indicates, specified domestic transactions are different from international transactions and do not include any type of international transactions.

What information needs to be maintained ?

The information that needs to be maintained by a particular person is listed as follows:

• A detailed description of the structure of ownership of the company of the taxpayer along with the details of shares held by other companies
• The profile details of the multinational group under which the company of the taxpayer works along with the name, legal status, address and the country of each of the companies that are a part of the group
• A detailed description of the taxpayer’s business and of the company with which the transactions will be done and the area of operation of the taxpayer’s business
• The terms and the nature of the international transactions that are done with each of the associated companies, the details of transference of property or services and the value of every single transaction
• A detailed description of the risks involved in the business and the assets that will be used by the taxpayer
• A proper record needs to be maintained of the uncontrolled transactions in order to analyse their comparability  with other specified transactions that have been performed
• A detailed record of the analysis that was done to check the comparability of transactions with a third party
•  A detailed description of the methods that will be used to determine the minimum price for each international transaction
• A detailed description of the tasks performed in order  to determine the minimum price for each international transaction
• All the assumptions, negotiations and policies that affected the determination of the minimum price
• Any additional information or data which may be required to determine the minimum price

This should be kept in mind that the rules that have been mentioned above can only be applied to international transactions if the total record value in the account book is more than 1 Crore Rs.

Maintaining the Documents

The documents that need to be maintained along with the information that is mentioned above are listed below:

• Official reports, publications, databases and studies from the government of the resident country of the associated company.
• Price Publications
• The reports of the studies carried out of market research and the technical publications from reputed institutions
• Published accounts and the financial statements related to the business affairs of the associated companies
• Contracts and agreements done with the associated companies in respect to the transactions
• Letters that contain the negotiated terms between the associated company and the assessee
• Documents that are issued in relation to the transactions

Presenting the Documents

The Assessing Officer may demand for all the documents and information that is maintained by the assessee. These documents and this information needs to be provided to the Assessing Officer within 30 days or the time period allotted by the authority. In order to get some additional time, the assessee needs to file an application to the Assessing Officer for the same.

Effects of Non-Maintenance

If the assessee does not comply with any of the following regulations, then he will have to face penalties which will be levied on him. The penalty will be equal to 2% of the amount of each international transaction or specified domestic transaction. In order to avoid the levying of a penalty, the taxpayer needs to follow the guidelines listed below:

• Maintain all the documents of every transaction either international or specific domestic
• Report all the specific domestic transactions and international transactions according to the requirements
• The submission of any type of false information or fake documents regarding any of the specified domestic transaction or international transactions must be avoided

Also, if a taxpayer who is a part of an international group fails to provide the required documents and information, then the taxpayer has to pay a penalty of Rs. 500000.

Conclusion

In this blog, we learned about International Transactions and Specified Domestic Transactions. We also came to know the documents and the information that needs to be maintained by an assessor. It is quite beneficial to comply with the guidelines of the Section 92 D of the Income Tax Act.