Secondary adjustment in certain cases
[Section-170 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 170(1) of Income Tax Act 2025
170(1) An assessee shall make a secondary adjustment in every case where primary adjustment of one crore rupees or more to transfer price—
- (a) has been made on his own in his return of income;
- (b) made by the Assessing Officer has been accepted by him;
- (c) is determined by an advance pricing agreement entered into by him under section 168;
- (d) is made as per the safe harbour rules made under section 167; or
- (e) is arising as a result of resolution of an assessment by way of the mutual agreement procedure under an agreement entered into under section 159 for avoidance of double taxation.
Section 170(2) of Income Tax Act 2025
170(2) The excess money or part thereof available with its associated enterprise shall be deemed to be an advance made by the assessee to such associated enterprise if––
- (a) as a result of primary adjustment to the transfer price, there is an increase in the total income or reduction in the loss, as the case may be, of the assessee; and
- (b) such excess money or part thereof is not repatriated to India within the time as prescribed.
Section 170(3) of Income Tax Act 2025
170(3) The excess money or part thereof referred to in sub-section (2) may be repatriated from any of the associated enterprises of the assessee which is not a resident in India.
Section 170(4) of Income Tax Act 2025
170(4) The interest on advance as referred to in sub-section (2) shall be computed in such manner as prescribed.
Section 170(5) of Income Tax Act 2025
170(5) Without prejudice to the provisions of sub-section (2), 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, as the case may be.
Section 170(6) of Income Tax Act 2025
170(6) The tax on the excess money or part thereof so paid by the assessee under sub-section (5) shall be treated as the final payment of tax in respect of the excess money or part thereof not repatriated and no further credit thereof shall be claimed by the assessee or by any other person in respect of tax so paid.
Section 170(7) of Income Tax Act 2025
170(7) Deduction under any other provision of this Act shall not be allowed to the assessee in respect of the amount on which tax has been paid as per sub-section (5).
Section 170(8) of Income Tax Act 2025
170(8) In a case where the additional income-tax referred to in sub-section (5) is paid by the assessee, he shall not be required to make secondary adjustment under sub-section (1) and compute interest under sub-section (4) from the date of payment of such tax.
Section 170(9) of Income Tax Act 2025
170(9) In this section,—
- (a) “arm’s length price” shall have the meaning assigned to it in section 173(a);
- (b) “excess money” means the difference between the arm’s length price determined in primary adjustment and the price at which the international transaction has actually been undertaken;
- (c) “primary adjustment” to a transfer price, means the determination of transfer price as per the arm’s length principle resulting in an increase in the total income or reduction in the loss, as the case may be, of the assessee;
- (d) “secondary adjustment” means an adjustment in the books of account of the assessee and its associated enterprise to reflect that the actual allocation of profits between the assessee and its associated enterprise are consistent with the transfer price determined as a result of primary adjustment, thereby removing the imbalance between cash account and actual profit of the assessee.
FAQs on Section 170 of Income Tax Act 2025
What is a secondary adjustment under the Income Tax Act, 2025?
A secondary adjustment is an adjustment in the books of account of the assessee and its associated enterprise to align the actual allocation of profits with the arm’s length price determined through a primary adjustment.
When is a secondary adjustment required?
A secondary adjustment is mandatory if a primary adjustment of ₹1 crore or more to the transfer price is made under any of the following cases:
(a) voluntarily by the assessee in the return of income,
(b) accepted by the assessee though made by the Assessing Officer,
(c) through an Advance Pricing Agreement (APA),
(d) under the Safe Harbour Rules, or
(e) as a result of a Mutual Agreement Procedure (MAP) under a DTAA.
What is considered “excess money” for secondary adjustment?
Excess money refers to the difference between the arm’s length price determined in the primary adjustment and the price at which the international transaction actually occurred.
What happens if the excess money is not repatriated to India?
If the excess money is not repatriated to India within the prescribed time, it is deemed to be an advance made by the assessee to its associated enterprise.
From which entity can the excess money be repatriated?
The excess money can be repatriated from any associated enterprise of the assessee that is not resident in India.
Is there a prescribed time limit for repatriation of excess money?
Yes, the excess money must be repatriated within a time limit prescribed under the rules (not specified in the section but to be notified separately).
How is interest calculated on such deemed advance?
Interest on the deemed advance (i.e., the unrepatriated excess money) shall be computed in the manner prescribed under the rules.
Is there an alternative to repatriating the excess money?
Yes, the assessee may choose to pay additional income-tax at 18% on the excess money that is not repatriated within the prescribed time.
What is the consequence of paying additional income-tax on excess money?
Once the assessee pays the 18% additional income-tax on the excess money, it is treated as final tax and no further credit can be claimed by the assessee or any other person.
Can the assessee claim any deduction for the amount on which additional tax is paid?
No, no deduction is allowed under any other provision of this Act for the amount on which the additional 18% tax has been paid.
If additional tax is paid, is secondary adjustment still required?
No, if the assessee pays the additional tax under sub-section (5), no secondary adjustment or interest computation is required from the date of such tax payment.
What is the meaning of “primary adjustment” in this context?
Primary adjustment means an adjustment that increases the total income or reduces the loss of the assessee based on arm’s length pricing of a transfer price.
What is the meaning of “arm’s length price”?
Arm’s length price has the meaning assigned in section 173(a) of the Act.
Does the rule apply to transactions below ₹1 crore?
No, secondary adjustment is applicable only when the primary adjustment is ₹1 crore or more.
Is the provision applicable to both increases in income and reduction in loss?
Yes, secondary adjustment is triggered in both cases — increase in total income or reduction in loss due to a primary adjustment.
