Section 162 — Meaning of associated enterprise. Successor to s.92A, s.92CE, s.94B of the 1961 Act.
Section 162 is in Chapter X — Special Provisions Relating to Avoidance of Tax, which runs from section 161 to section 177.
Sub-section (1) defines "associated enterprise" for Chapter X by twelve alternative limbs. Clause (a) is the participation test: persons participating directly, indirectly or through intermediaries in the management, control or capital of one enterprise also so participating in the other; one enterprise holding at any time during the tax year, directly or indirectly, shares carrying not less than 26% of the voting power in the other; or any person or enterprise so holding not less than 26% in each of them.
The rest are separate tests, each sufficient alone: a loan of not less than 51% of the book value of the other enterprise's total assets (clause (b)); a guarantee of not less than 10% of its total borrowings (clause (c)); appointment by the other enterprise of more than half the board or governing board, or of one or more executive directors or executive members (clause (d)), or such appointments for both enterprises by the same person or persons (clause (e)); wholesale dependence of the enterprise's manufacturing, processing or business on intellectual property or technical data owned by or exclusively licensed to the other (clause (f)); supply by the other enterprise or its specified persons of 90% or more of raw materials and consumables where prices and other conditions are influenced by it (clause (g)), and the mirror on the sales side (clause (h)); common control by an individual with his relative or jointly (clause (i)) or by a Hindu undivided family with a member or a member's relative or jointly (clause (j)); a firm, association of persons or body of individuals in which the other enterprise holds not less than 10% interest (clause (k)); and any relationship of mutual interest, as may be prescribed (clause (l)).
Sub-section (2) extends the term for a specified domestic transaction to other units, undertakings or businesses of the same assessee in respect of a transaction referred to in section 122 or 140(9); any other person referred to in section 140(13) or 205(4) in respect of a transaction referred to therein; and, under clause (c) as substituted by Act No. 4 of 2026 with effect from 1 April 2026, other units, undertakings, enterprises or business of the assessee, or another person referred to in section 140(13), in respect of transactions referred to in Chapter VIII to which section 140(9) or (13) of this Act or section 80-ia(8) or (10) of the Income-tax Act, 1961 applies.
Chapter X can only apply to transactions between parties whose pricing is not the product of independent bargaining, and this section draws that boundary. It does not stop at shareholding, because influence is exercised through loans, guarantees, board appointments, technology dependence and control of the supply or sales chain just as effectively as through votes. Sub-section (2) extends the idea inward, to dealings between an assessee's own units, where the same profit-shifting risk arises within India.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Voting power making one enterprise associated with another | Not less than 26% | Shares held at any time during the tax year, directly or indirectly, by one enterprise in the other | Sub-section (1)(a)(ii) |
| Voting power through a common holder | Not less than 26% in each of such enterprises | Held at any time during the tax year, directly or indirectly, by any person or enterprise | Sub-section (1)(a)(iii) |
| Loan test | Not less than 51% of the book value of the total assets of the other enterprise | The enterprise must have advanced the loan to the other enterprise | Sub-section (1)(b) |
| Guarantee test | Not less than 10% of the total borrowings of the other enterprise | The enterprise guarantees that proportion of the other's total borrowings | Sub-section (1)(c) |
| Board appointment test | More than half of the board or governing board, or one or more executive directors or executive members | Appointed by the other enterprise under clause (d), or by the same person or persons for both under clause (e) | Sub-section (1)(d) and (e) |
| Raw material supply test | 90% or more of the raw materials and consumables | Supplied by the other enterprise or persons it specifies, and the prices and other conditions of supply are influenced by that other enterprise | Sub-section (1)(g) |
| Interest in a firm, association of persons or body of individuals | Not less than 10% interest | Held by the other enterprise in such firm, association of persons or body of individuals | Sub-section (1)(k) |
The limbs are joined by "or", so any single one makes two enterprises associated — a company with no shareholding link becomes an associated enterprise if it guarantees not less than 10% of another's borrowings. The voting tests are "at any time during the tax year", so a holding that existed for part of the year still counts, and indirect holdings are included. Clauses (g) and (h) carry an extra ingredient beyond the numbers: prices and other conditions must also be influenced by the other enterprise. Clause (l) is a pointer, not a test — the relationship of mutual interest has to be prescribed before it can be applied. On the domestic side, clause (c) as substituted by Act No. 4 of 2026 with effect from 1 April 2026 no longer refers to a transaction under section 144.
An Indian company has no shareholder in common with a foreign company, but the foreign company has guaranteed Rs. 30 crore of its total borrowings of Rs. 200 crore. That is 15%, which is not less than the 10% in clause (c), so the two are associated enterprises for Chapter X and their dealings fall to be tested though neither holds a share in the other. Had the guarantee been Rs. 15 crore that limb would fail, but the relationship would still be caught if the foreign company supplied 90% or more of the raw materials on prices and conditions it influenced under clause (g).
You meet this section when deciding whether a transaction must be reported as an international transaction or a specified domestic transaction in the transfer pricing documentation and the accountant's report for the year, and when a Transfer Pricing Officer asserts association on a limb other than shareholding. It is a definition and is never charged directly.
one enterprise holds, at any time during the tax year, directly or indirectly, shares carrying not less than 26% of the voting power in the other enterprise
which guarantees not less than 10% of the total borrowings of the other enterprise
See the full 1961 to 2025 concordance.
All of them are in the Rules 2026 index.
See the circulars index.
See the notifications index.
