Section 170 — Secondary adjustment in certain cases. Successor to s.92CE of the 1961 Act.
Section 170 is in Chapter X — Special Provisions Relating to Avoidance of Tax, which runs from section 161 to section 177.
Sub-section (1) makes a secondary adjustment compulsory wherever a primary adjustment to the transfer price of one crore rupees or more arises in any of five ways — made by the assessee himself in his return, made by the Assessing Officer and accepted by him, determined by an advance pricing agreement under section 168, made under the safe harbour rules under section 167, or arising from a mutual agreement procedure resolution under a section 159 agreement. Sub-section (2) then deems the excess money lying with the associated enterprise to be an advance made by the assessee to that enterprise where the primary adjustment has increased the assessee's total income or reduced its loss and the money is not repatriated to India within the prescribed time; sub-section (3) allows the repatriation to come from any non-resident associated enterprise, and sub-section (4) leaves the computation of interest on the deemed advance to be prescribed. Sub-section (5) offers an alternative: the assessee may instead pay additional income-tax at 18% on the unrepatriated excess money, which sub-section (6) makes a final payment with no credit to anyone, sub-section (7) makes non-deductible, and sub-section (8) treats as ending the obligation to make the secondary adjustment and to compute interest from the date of that payment. Sub-section (9) defines arm's length price by reference to section 173(a) and defines excess money, primary adjustment and secondary adjustment.
A primary transfer pricing adjustment corrects the taxable profit on paper but leaves the cash in the wrong place; the secondary adjustment forces the books, and ultimately the cash, to follow. The one crore rupee floor keeps small adjustments out, and the 18% option in sub-section (5) lets an assessee who cannot or will not bring the money back settle the position once and stop interest accruing.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Floor below which no secondary adjustment is required | One crore rupees | The primary adjustment to the transfer price must be one crore rupees or more, arising in one of the five ways in clauses (a) to (e) | 170(1) |
| Optional additional income-tax on unrepatriated excess money | 18% | At the assessee's option, on the excess money or part of it not repatriated within the prescribed time; it is a final payment and no credit may be claimed | 170(5), with (6) |
| Time allowed for repatriation of the excess money | As may be prescribed | The section does not itself state the period; it is fixed by rules | 170(2)(b) |
| Rate of interest on the deemed advance | Computed in such manner as may be prescribed | The section states no rate; the manner of computation is prescribed elsewhere | 170(4) |
Once a primary adjustment of one crore rupees or more sticks — including one you make yourself in the return, or one that comes out of an advance pricing agreement, the safe harbour rules or a mutual agreement procedure resolution — you must either bring the excess money back to India within the prescribed time or accept that it is treated as an advance to the associated enterprise carrying interest computed in the prescribed manner. The money can be repatriated from any non-resident associated enterprise, not only the one that holds it. The 18% route is a choice, not a penalty imposed on you, but it is one-way: the tax is final, no credit is available to you or anyone else, and no deduction is allowed for the amount on which it was paid. Paying it stops the secondary adjustment obligation and the running of interest from the date of payment.
A company accepts a transfer pricing adjustment of Rs. 4 crore made by the Assessing Officer — comfortably over the one crore rupee floor — so sub-section (1)(b) makes a secondary adjustment compulsory. The Rs. 4 crore of excess money is with its overseas associated enterprise; if it is not repatriated to India within the time prescribed, which this section does not itself fix, sub-section (2) deems it an advance by the company, carrying interest computed in the manner prescribed, again not stated here. The company may instead elect under sub-section (5) to pay additional income-tax at 18% on the Rs. 4 crore, that is Rs. 72 lakh. That is a one-way door: sub-section (6) makes it the final payment with no credit to the company or anyone else, sub-section (7) denies any deduction for the Rs. 4 crore, and sub-section (8) stops the secondary adjustment and the interest only from the date the tax is paid.
You meet it once a primary adjustment has stuck — in your own return where you make one, or in the assessment order, an advance pricing agreement under section 168, the safe harbour rules under section 167, or a mutual agreement procedure resolution under a section 159 agreement — and then in the repatriation record or in the payment of the 18% additional income-tax. The repatriation period and the interest computation come from the rules, not from the section.
where the excess money or part thereof has not been repatriated within the prescribed time, the assessee may, at his option, pay additional income-tax at the rate of 18% on such excess money or part thereof
See the full 1961 to 2025 concordance.
All of them are in the Rules 2026 index.
