Pune houses an important segment of the automotive and precision engineering industry supply chain, including component suppliers, assembly facilities associated with OEMs and design centers supporting international groups in their manufacturing of vehicles and machinery. Almost all of these companies have ongoing business dealings with their overseas subsidiaries, involving import of components, payment of fees for technology and design, billing of engineering services, among other things and all of which involve transfer pricing arrangements that have just recently been overhauled. The Income-tax Act, 2025, applicable from 1 April 2026, supersedes the old Act enacted in 1961 and the new provisions are now contained in a revised Chapter X (sections 161-173) of the Act and the Income-tax Rules, 2026, promulgated by the CBDT on 20 March 2026, govern the latest procedures that automotive and engineering groups have to adopt.
This article covers what these groups should know about intercompany pricing under the current regime.
Related Party Transactions Across Automotive Supply Chains
The typical set of transactions that takes place in the automotive business cluster in Pune will be made up of a number of related party transactions conducted simultaneously within a single group, namely, importing of components and raw material from subsidiaries located outside India, exporting of finished or semi-finished products to the same, payment of royalties for vehicle platforms and manufacturing technologies, and engineering/designing services, which may be provided in either direction among members of the group. It is essential to carry out separate arm's length analysis for each of these types of transactions.
Component Procurement, Technical and Engineering Services
Procurement of components from related entities is quite common in automobile manufacturing, but the challenge of dual compliances with respect to these transactions is not understood by many the requirement to comply with the provisions for transfer pricing for income taxes as well as with the provisions of valuation by SVB of Indian Customs needs to be adhered to in respect of such transactions. Fees related to technical and engineering services, such as those provided in terms of design support, process engineering and technical services from the parent company’s R&D centers across the world, need to be considered. Keeping procurement, technical fee and royalty streams documented separately, with a clear basis for each, makes it far easier to defend the group's position under either regime.
Functional Analysis of Manufacturing and Distribution Entities
A properly built functional, asset and risk (FAR) analysis remains the foundation of any automotive transfer pricing study. It needs to distinguish clearly between contract or toll manufacturers operating with limited risk on a cost-plus basis and full-risk manufacturing or distribution entities that carry inventory risk, warranty exposure and market development responsibility. The Income-tax Act, 2025 sharpens the statutory definitions of associated enterprise (Section 162) and international transaction (Section 163) and the Income-tax Rules, 2026 reinforce documentation expectations through a strengthened local file requirement under Rule 84 together making it more important than before that the FAR write-up accurately reflects each entity's real risk profile rather than a template description.
Royalty, Service Fee and Margin Benchmarking
Royalty payments for platform technology, brand use or manufacturing know-how together with technical and management service fees, need independent benchmarking against external comparables they cannot simply be absorbed into the manufacturing entity's overall margin. On the manufacturing side, most operations outside a narrow safe harbour category still require full benchmarking using the Transactional Net Margin Method against a proper comparable set. Where the entity qualifies as a manufacturer and exporter of core or non-core auto components with at least 90% of turnover from OEM sales, a dedicated safe harbour under Rule 89 applies currently set at 12% operating margin for core auto components (which now also covers lithium-ion batteries for electric and hybrid vehicles) and 8.5% for non-core components, subject to a revenue threshold of ₹300 crore. Engineering groups outside this specific category, or manufacturers who don't meet the OEM sales threshold, need to rely on conventional benchmarking rather than safe harbour.
Intercompany Procurement and Pricing Controls
The establishment of effective internal controls with respect to intercompany pricing minimizes risks on the part of tax and customs. The company should have a clear pricing policy on the cost of components, royalties and services, which is consistently followed throughout the year any mid-year changes or year-end adjustments of the prices and making sure that the purchase order and invoice follow the pricing method. It is often the case that even with an established pricing policy, inconsistency in the implementation thereof results in disputes during TP analysis and customs valuation.
Agreements, Invoicing and Supporting Documentation
Every transfer pricing position depends on the underlying paperwork holding up under scrutiny. Intercompany agreements should set out the pricing methodology, royalty base, service scope and risk allocation between the Pune entity and its overseas affiliates in clear terms, since these are exactly the documents Customs will request during an SVB review as well. The Income-tax Rules, 2026 mandate a three-tiered documentation structure Master File, Local File and Country-by-Country Report with stricter electronic filing deadlines than the earlier regime. A transfer pricing consultant reviewing this documentation will typically check that invoices, cost sheets and royalty computations tie back precisely to what the agreements describe.
Form 3CEB and Annual Compliance Requirements
The accountant's report long known as Form 3CEB has been renumbered as Form 48 under the Income-tax Rules, 2026, now spanning eleven clauses across six parts with expanded disclosure requirements, including specific fields for any safe harbour margin claimed. Form 48 must be filed for all international transactions component imports, royalties and service fees alike even where part of the activity is covered by safe harbour. Form 3CEB filing services in Pune supporting automotive and engineering clients need to work from this new form structure and the revised compliance timelines that apply from Tax Year 2026-27 onward.
Year-End Review and Audit Preparedness
Automotive margins are particularly sensitive to raw material price movements, currency fluctuations, and production volume swings through the year, making a year-end review against the targeted arm's length range or against the applicable safe harbour margin, if opted for an important step before books close. On the customs side, failing to reflect year-end price adjustments in import declarations is a well-known trigger for SVB scrutiny, since a retrospective correction that doesn't show up in customs records can itself raise questions. A newly introduced block assessment mechanism under the 2026 Rules also allows multiple tax years to be examined together in a single proceeding, which raises the importance of getting the position right consistently across years rather than treating each year in isolation.
Professional Advisory Support for Automotive and Engineering Groups in Pune
SKMC Global provides transfer pricing advisory services in Pune for automotive, auto component and engineering companies involved in related-party transactions. With evolving requirements under the Income-tax Act, 2025 and Income-tax Rules, 2026, businesses need careful transfer pricing planning and documentation. SKMC Global assists manufacturers with Functional, Asset and Risk (FAR) analysis, margin benchmarking, applicable safe harbour provisions and transfer pricing compliance. For engineering and manufacturing groups in Pune, our advisory support focuses on accurate functional analysis, defensible benchmarking and compliance with applicable tax regulations. This structured approach helps businesses maintain audit readiness, reduce tax adjustment risks and manage potential transfer pricing disputes.