Rule 123 — Maintenance and furnishing of information and document by constituent entity of an international group under section 171. Made under s.171, s.263, s.511 of the Income-tax Act, 2025.
Rule 123 gives effect to Section 171, Section 263 and Section 511 of the Income-tax Act, 2025. A rule cannot go beyond the section it serves: where the two seem to differ, the section governs.
The rule sets the master file obligation of a constituent entity of an international group under section 171.
Sub-rule (1) applies the keeping-and-maintaining obligation where two conditions are met together: clause (a), that the consolidated group revenue of the international group as reflected in its consolidated financial statement for the accounting year exceeds five hundred crore rupees; and clause (b), that the aggregate value of international transactions either exceeds fifty crore rupees during the accounting year as per the books of account, or, in respect of purchase, sale, transfer, lease or use of intangible property during the accounting year as per the books of account, exceeds ten crore rupees. An entity meeting both must keep and maintain fourteen items, lettered (A) to (N): a list of all entities of the group with their addresses; a chart of the legal status of the constituent entity and the ownership structure of the entire group; a description of the group's business during the accounting year, itself broken into nine sub-items covering the nature of the business, the important drivers of profits, the supply chain for the five largest products or services by revenue and any other products or services amounting to more than 5% of consolidated group revenue, important service arrangements among members other than for research and development services, the capabilities of the main service providers within the group, transfer pricing policies for allocating service costs and pricing intra-group services, the major geographical markets, a description of the functions performed, assets employed and risks assumed by constituent entities contributing at least 10% of the group's revenues or assets or profits, and important business restructurings, acquisitions and divestments; the group's overall strategy for development, ownership and exploitation of intangible property including the location and management of principal research and development facilities; a list of group entities engaged in development and management of intangible property with addresses; a list of the important intangible property or groups of intangible property owned by the group with the names and addresses of the legal owners; a list and brief description of important intangible property agreements including cost contribution arrangements, principal research service agreements and licence agreements; a detailed description of the transfer pricing policies for research and development and intangible property; a description of important transfers of interest in intangible property among group entities with names, addresses and compensation; a detailed description of the group's financing arrangements including the names and addresses of the top ten unrelated lenders; a list of group entities providing central financing functions with their place of operation and of effective management; a detailed description of the transfer pricing policies for financing arrangements among group entities; a copy of the annual consolidated financial statement of the group; and a list and brief description of existing unilateral advance pricing agreements and other tax rulings for allocation of income among countries.
Sub-rule (2) requires that information and those documents to be furnished to the Joint Director referred to in rule 124(1), in Form No. 56, on or before the due date for furnishing the return of income specified under section 263(1)(c). Sub-rule (3) requires the constituent entity to furnish Part A of Form No. 56 even if the conditions in sub-rule (1) are not satisfied. Sub-rule (4) allows a single filing where more than one constituent entity of the group is required to file: any one of them may furnish Form No. 56 if the group has designated it for the purpose and the information has been conveyed in Form No. 57 to that Joint Director thirty days before the due date of furnishing Form No. 56.
Sub-rule (5) requires the information and documents to be kept and maintained for nine years from the end of the relevant tax year. Sub-rule (6) fixes the rate of exchange for calculating the rupee value of consolidated group revenue in foreign currency as the telegraphic transfer buying rate on the last day of the accounting year. Sub-rule (7) takes "accounting year", "consolidated financial statement" and "international group" from section 511(10), and "telegraphic transfer buying rate" from rule 207.
Section 171 requires a constituent entity of an international group to keep and furnish prescribed information, leaving the content, the thresholds, the form and the retention period to be prescribed. The rule supplies all four. The two-limb threshold is what keeps the master file confined to groups that are both large and materially transacting across borders, and sub-rule (3) is the counterweight: the Department still learns of every constituent entity, because Part A is filed whether or not the thresholds are crossed.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Consolidated group revenue threshold | Exceeds five hundred crore rupees | As reflected in the consolidated financial statement of the international group for the accounting year; must be met together with the clause (b) test | Sub-rule (1)(a) |
| Aggregate value of international transactions threshold | Exceeds fifty crore rupees | During the accounting year, as per the books of account | Sub-rule (1)(b)(i) |
| Intangible property transactions threshold | Exceeds ten crore rupees | In respect of purchase, sale, transfer, lease or use of intangible property during the accounting year, as per the books of account; an alternative to the fifty crore rupees test | Sub-rule (1)(b)(ii) |
| Products or services whose supply chain must be described beyond the five largest | More than 5% of consolidated group revenue | Any other products including services amounting to more than that proportion | Sub-rule (1), item (C)(III) |
| Contribution level at which an entity's functions, assets and risks must be described | At least 10% of the revenues or assets or profits of the group | Applies to constituent entities of the international group | Sub-rule (1), item (C)(VIII) |
| Number of unrelated lenders to be named in the financing description | Top ten | Names and addresses, as part of the detailed description of the group's financing arrangements | Sub-rule (1), item (J) |
| Time limit for furnishing Form No. 56 | On or before the due date for furnishing the return of income as specified under section 263(1)(c) | Furnished to the Joint Director referred to in rule 124(1) | Sub-rule (2) |
| Lead time for intimating the designated entity | Thirty days before the due date of furnishing the Form No. 56 | Information conveyed in Form No. 57 to the Joint Director referred to in rule 124(1) | Sub-rule (4)(b) |
| Retention period for the information and documents | Nine years | From the end of the relevant tax year | Sub-rule (5) |
The threshold is one test in two parts, not two tests. Clause (a) and clause (b) are joined by "and", so a group above five hundred crore rupees of consolidated revenue with small Indian transactions is outside sub-rule (1); but within clause (b) the two limbs are alternatives joined by "or", so ten crore rupees of intangible property dealings pulls an entity in even where total international transactions are below fifty crore rupees. Sub-rule (3) is easy to miss and applies to every constituent entity regardless: Part A of Form No. 56 is furnished even if the sub-rule (1) conditions are not satisfied. The single-filing concession in sub-rule (4) has a hard lead time — the Form No. 57 intimation must reach the Joint Director thirty days before the Form No. 56 due date — so the designation cannot be made at the last moment. The nine-year retention in sub-rule (5) runs from the end of the relevant tax year and outlasts the filing by a long way. Where consolidated group revenue is in a foreign currency, sub-rule (6) fixes conversion at the telegraphic transfer buying rate on the last day of the accounting year, so the threshold is tested at one rate and not at the rates prevailing through the year.
An Indian subsidiary belongs to a group whose consolidated financial statement shows revenue of Rs 900 crore for the accounting year. Its international transactions for the year total Rs 32 crore, below the fifty crore rupees limb, but its payments for the use of group intangible property come to Rs 14 crore, above the ten crore rupees limb. Both clause (a) and clause (b) are therefore satisfied and the subsidiary must keep items (A) to (N) and furnish Form No. 56 by the section 263(1)(c) due date, retaining the material for nine years from the end of the relevant tax year. A second Indian entity in the same group could file instead, but only if the group designates it and Form No. 57 reaches the Joint Director thirty days before that due date.
A multinational group's Indian entity meets it each year when the master file is assembled and Form No. 56 is filed alongside the return; entities below the thresholds still meet it through the Part A filing, and the whole file surfaces again in transfer pricing proceedings.
The constituent entity shall furnish Part A of Form No. 56 even if the conditions specified in sub-rule (1) are not satisfied.
The information and documents specified in sub-rule (1) shall be kept and maintained for a period of nine years from the end of the relevant tax year.
the information has been conveyed in Form No. 57 to the Joint Director referred to in rule 124(1) in this behalf, thirty days before the due date of furnishing the Form No. 56