Income Tax Act 2025: Section 162 for Tax Year 2026-27

Meaning of associated enterprise

[Section-162 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]

Section 162(1) of Income Tax Act 2025

162(1) In this Chapter, “associated enterprise”, in relation to another enterprise, means an enterprise—

• (a) which participates, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise; or
• (b) in respect of which one or more persons who participate, directly or indirectly, or through one or more intermediaries, in its management or control or capital, are the same persons who participate, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise.

Section 162(2) of Income Tax Act 2025

162(2) Without affecting the generality of the provisions of sub-section (1), two enterprises shall be deemed to be associated enterprises if, at any time during the tax year,—

• (a) one enterprise holds, directly or indirectly, shares carrying at least 26% of the voting power in the other enterprise; or
• (b) any person or enterprise holds, directly or indirectly, shares carrying at least 26% of the voting power in each of such enterprises; or
• (c) a loan advanced by one enterprise to the other enterprise constitutes at least 51% of the book value of the total assets of the other enterprise; or
• (d) one enterprise guarantees at least 10% of the total borrowings of the other enterprise; or
• (e) more than half of the board of directors or members of the governing board, or one or more executive directors or executive members of the governing board of one enterprise, are appointed by the other enterprise; or
• (f) more than half of the directors or members of the governing board, or one or more of the executive directors or members of the governing board, of each of the two enterprises are appointed by the same person or persons; or
• (g) the manufacture or processing of goods or articles or business carried out by one enterprise is wholly dependent on the use of know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, or any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process, of which the other enterprise is the owner or in respect of which the other enterprise has exclusive rights; or
• (h) 90% or more of the raw materials and consumables required for the manufacture or processing of goods or articles carried out by one enterprise, are supplied by the other enterprise, or by persons specified by the other enterprise, and the prices and other conditions relating to the supply are influenced by such other enterprise; or
• (i) the goods or articles manufactured or processed by one enterprise, are sold to the other enterprise or to persons specified by the other enterprise, and the prices and other conditions relating thereto are influenced by such other enterprise; or
• (j) where one enterprise is controlled by an individual, the other enterprise is also controlled by such individual or his relative or jointly by such individual and relative of such individual; or
• (k) where one enterprise is controlled by a Hindu undivided family, the other enterprise is controlled by a member of such Hindu undivided family or by a relative of a member of such Hindu undivided family or jointly by such member and his relative; or
• (l) where one enterprise is a firm, association of persons or body of individuals, the other enterprise holds at least 10% interest in such firm, association of persons or body of individuals; or
• (m) there exists between the two enterprises, any relationship of mutual interest, as prescribed.

Section 162(3) of Income Tax Act 2025

162(3) In relation to a specified domestic transaction entered into by an assessee, associated enterprise shall also include—

• (a) other units or undertakings or businesses of such assessee in respect of a transaction referred to in section 122 or 140(9);
• (b) any other person referred to in section 140(13) or 205(4) in respect of a transaction referred to therein; and
• (c) other units, undertakings, enterprises or business of such assessee, or other person referred to in section 140(13) in respect of a transaction referred to in section 144 or the transactions referred to in Chapter VIII to which the provisions of section 140(9) or (13) are applicable.

FAQs on Section 162 of Income Tax Act 2025

What is the meaning of an associated enterprise under the Income Tax Act, 2025?
An associated enterprise, in relation to another enterprise, is one that participates directly or indirectly, or through intermediaries, in the management, control, or capital of the other enterprise, or where the same persons participate in the management, control, or capital of both enterprises.

Does direct or indirect participation make an enterprise associated?
Yes, even indirect participation through one or more intermediaries in the management, control, or capital is sufficient to constitute an associated enterprise.

When are two enterprises deemed to be associated enterprises under this Act?
Two enterprises are deemed to be associated if they satisfy any of the specific conditions mentioned in Section 162(2), such as shareholding, loan dependency, board control, or transfer of intellectual property, among others.

Is a 26% shareholding sufficient to make two enterprises associated?
Yes, if one enterprise holds at least 26% of the voting power in the other, or if a person/enterprise holds 26% or more in both enterprises, they are deemed associated.

Can a loan create an associated enterprise relationship?
Yes, if a loan from one enterprise constitutes at least 51% of the book value of the total assets of the other enterprise, they are deemed to be associated.

Does guaranteeing borrowings lead to associated enterprise classification?
Yes, if one enterprise guarantees at least 10% of the total borrowings of the other enterprise.

What if one enterprise appoints the majority of board members of another?
If more than half of the board or key executives of one enterprise are appointed by another, they are deemed to be associated enterprises.

Are enterprises considered associated if they rely on each other’s intellectual property?
Yes, if the business of one enterprise is wholly dependent on the intellectual property or similar rights held by the other enterprise.

Does dependence on raw materials or sales affect associated enterprise status?
Yes, if 90% or more of raw materials are supplied by one enterprise, or if sales are made to one enterprise or persons specified by it, and pricing is influenced, then they are associated.

Is common control by an individual a factor in determining associated enterprises?
Yes, if both enterprises are controlled by the same individual or their relatives, they are associated enterprises.

What if a Hindu Undivided Family (HUF) controls both enterprises?
Where one enterprise is controlled by an HUF and the other by a member or relative of the HUF, or jointly by them, they are considered associated.

Can a firm and another enterprise be associated based on ownership?
Yes, if the other enterprise holds at least 10% interest in the firm, association of persons, or body of individuals.

What does “mutual interest” mean in the context of associated enterprises?
If a prescribed relationship of mutual interest exists between two enterprises, they are deemed associated under clause (m) of Section 162(2).

Can units or undertakings of the same assessee be considered associated enterprises?
Yes, under Section 162(3), different units or businesses of the same assessee can be associated for specified domestic transactions.

Are certain persons under Sections 140(13) or 205(4) treated as associated enterprises?
Yes, for transactions referred to in those sections, the persons involved are also treated as associated enterprises.

Do specified domestic transactions expand the definition of associated enterprise?
Yes, in cases involving transactions under Section 122, 140(9), 140(13), 144, or Chapter VIII, the definition includes broader relationships within or across units or persons.

Is it necessary for the association conditions to be met throughout the tax year?
No, the conditions need to be satisfied at any time during the tax year.

Does control include non-ownership influence?
Yes, control can be established through influence over decision-making even without ownership of shares.

Are joint control and participation by relatives relevant?
Yes, joint control by an individual and their relative can result in enterprises being associated.

Can intermediary entities create an associated enterprise relationship?
Yes, participation through one or more intermediaries in management, control, or capital can lead to association.