Meaning of international transaction
[Section-163 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 163(1) of Income Tax Act 2025
163(1) In this Chapter, “international transaction” means a transaction between two or more associated enterprises, one of which is necessarily a non-resident, and includes—
- (a) the purchase, sale, transfer, lease or use of tangible property, including building, transportation vehicle, machinery, equipment, tools, plant, furniture, commodity or any other article, product or thing;
- (b) the purchase, sale, transfer, lease or use of intangible property, including the transfer of ownership or the provision of use of rights regarding land use, copyrights, patents, trademarks, licences, franchises, customer list, marketing channel, brand, commercial secret, know-how, industrial property right, exterior design or practical and new design or any other business or commercial rights of similar nature;
- (c) capital financing, lending and borrowing of money, including,––
- (i) any type of long-term or short-term borrowing, lending or guarantee; or
- (ii) purchase or sale of marketable securities; or
- (iii) any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business;
- (d) provision of services, including provision of market research, market development, marketing management, administration, technical service, repairs, design, consultation, agency, scientific research, legal or accounting service;
- (e) a transaction of business restructuring or reorganisation, entered into by an enterprise with an associated enterprise, irrespective of the fact that it has any bearing on the profit, income, losses or assets of such enterprises at the time of the transaction or at any future date;
- (f) a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises; and
- (g) any other transaction having a bearing on the profits, income, losses or assets of such enterprises.
Section 163(2) of Income Tax Act 2025
163(2) A transaction entered into by an enterprise with a person other than an associated enterprise (“other person”) shall, for sub-section (1), be deemed to be an international transaction entered into between two associated enterprises, if—
- (a) there exists a prior agreement in relation to the relevant transaction between such other person and the associated enterprise; or
- (b) the terms of the relevant transaction are determined, in substance, between such other person and the associated enterprise,
and the enterprise or the associated enterprise or both of them are non-residents, irrespective of whether the other person is a non-resident or not.
Section 163(3) of Income Tax Act 2025
163(3) The expression “intangible property” shall include the following,—
- (a) marketing related intangible assets, such as, trademarks, trade names, brand names, logos;
- (b) technology related intangible assets, such as, process patents, patent applications, technical documentation such as laboratory notebooks, technical know-how;
- (c) artistic related intangible assets, such as, literary works and copyrights, musical compositions, copyrights, maps, engravings;
- (d) data processing related intangible assets, such as, proprietary computer software, software copyrights, automated databases, and integrated circuit masks and masters;
- (e) engineering related intangible assets, such as, industrial design, product patents, trade secrets, engineering drawing and schematics, blueprints, proprietary documentation;
- (f) customer related intangible assets, such as, customer lists, customer contracts, customer relationship, open purchase orders;
- (g) contract related intangible assets, such as, favourable supplier, contracts, licence agreements, franchise agreements, non-compete agreements;
- (h) human capital related intangible assets, such as, trained and organised work force, employment agreements, union contracts;
- (i) location related intangible assets, such as, leasehold interest, mineral exploitation rights, easements, air rights, water rights;
- (j) goodwill related intangible assets, such as, institutional goodwill, professional practice goodwill, personal goodwill of professional, celebrity goodwill, general business going concern value;
- (k) methods, programmes, systems, procedures, campaigns, surveys, studies, forecasts, estimates, customer lists or technical data; and
- (l) any other similar item that derives its value from its intellectual content rather than its physical attributes.
FAQs on Section 163 of Income Tax Act 2025
What is an international transaction under the Income Tax Act, 2025?
An international transaction is a transaction between two or more associated enterprises, at least one of which is a non-resident, involving various types of property, financing, services, or arrangements that may affect their financial outcomes.
Who qualifies as associated enterprises for international transactions?
The Act does not define associated enterprises in Section 163, but for a transaction to be considered international, at least one party must be a non-resident and the enterprises must be associated.
Does the transaction need to involve both enterprises being non-residents?
No, only one of the associated enterprises must be a non-resident.
What types of tangible property are covered in an international transaction?
This includes purchase, sale, transfer, lease or use of buildings, vehicles, machinery, tools, plants, furniture, commodities, or any other physical items.
What is included under intangible property in an international transaction?
Intangible property includes rights or use related to land, patents, trademarks, licenses, franchises, know-how, commercial secrets, brands, and other similar assets.
Is capital financing between associated enterprises an international transaction?
Yes, capital financing, including loans, guarantees, advances, and marketable securities transactions, qualifies as an international transaction.
Are services between associated enterprises considered international transactions?
Yes, provision of services such as consulting, legal, accounting, technical support, repairs, marketing, or scientific research is covered.
Do business restructuring or reorganisations fall under international transactions?
Yes, even if such restructuring does not have an immediate bearing on income, profits, losses, or assets.
Can cost-sharing agreements be treated as international transactions?
Yes, mutual agreements or arrangements for cost allocation or contributions related to services or facilities provided among associated enterprises are included.
Are all transactions that impact financial outcomes between associated enterprises covered?
Yes, any transaction that has a bearing on profits, income, losses or assets of the enterprises qualifies.
Can a transaction with an unrelated party be deemed an international transaction?
Yes, if there is a prior agreement or the terms are effectively set between the unrelated party and an associated enterprise, and one of them is a non-resident.
Does the unrelated party also have to be a non-resident for the transaction to qualify?
No, even if the unrelated party is a resident, the transaction may still be deemed international if the control conditions are met.
What are examples of marketing-related intangible assets under this section?
These include trademarks, trade names, brand names, and logos.
What are technology-related intangible assets?
These include patents, technical documentation, and technical know-how.
What is meant by artistic-related intangible assets?
These include literary works, copyrights, music compositions, maps, and engravings.
What data-related intangible assets are recognised?
These include proprietary software, databases, and integrated circuit designs.
What engineering-related intangible assets are included?
Industrial designs, product patents, trade secrets, blueprints, and technical drawings are included.
Are customer-related intangibles considered?
Yes, including customer lists, contracts, relationships, and open orders.
What constitutes contract-related intangible assets?
Examples include favourable supply contracts, licenses, franchises, and non-compete agreements.
Are human capital elements included as intangible property?
Yes, like trained workforce, employment agreements, and union contracts.
Do location-related rights qualify as intangible property?
Yes, including leasehold interests, mineral rights, easements, and air or water rights.
What types of goodwill are covered under intangible assets?
Institutional goodwill, celebrity goodwill, professional goodwill, and general business going concern value are all included.
Can methodologies and proprietary systems be intangible assets?
Yes, including methods, programs, surveys, forecasts, studies, and customer or technical data.
Is there a catch-all provision for other intangible assets?
Yes, any item that derives its value from intellectual content rather than physical form is included.
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