Section 170 — Secondary Adjustment | ITA 2025

Section 170 — - SECONDARY ADJUSTMENT IN CERTAIN CASES

Section 170 is the substantive equivalent of 1961 s. 92CE -- the SECONDARY ADJUSTMENT framework introduced FA 2017 with FA 2019 / FA 2021 refinements. Where TP primary-adjustment increases income (e.g., AO's TP-adjustment / APA implementation / safe harbour application / MAP resolution), the EXCESS MONEY (i.e., the amount equal to TP-adjustment) is treated as ADVANCE / LOAN to the foreign AE; the assessee must REPATRIATE this excess to India within prescribed time (90 days from due date of return) OR pay deemed-interest at LIBOR+300bps (post FA 2019) / SBI base rate (pre-FA 2019). Threshold: applies only if primary adjustment > INR 1 crore. Anti-abuse: prevents assessee from retaining the money offshore at AE-level despite primary adjustment having brought it into Indian tax base. ONE-TIME OPTION (FA 2019): assessee may pay 18% additional tax on excess money (deemed dividend treatment) in lieu of repatriation.

Statutory text — Income-tax Act, 2025

Marginal note -- Secondary adjustment in certain cases

170.

(1) An assessee shall make a secondary adjustment in every case where primary adjustment of one crore rupees or more to the transfer price—

(a) has been made by the assessee 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.

(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 may be prescribed.

(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.

(4) The interest on advance as referred to in sub-section (2) shall be computed in such manner as may be prescribed.

(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.

(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.

(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).

(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 pay- ment of such tax.

(9) For the purposes of this section,—

(a) “arm’s length price” shall have the meaning assigned to it in section 173(a)83;

(b) “excess money” means the difference between the arm’s length price determined in primary adjustment and the price at which the inter- national 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. Maintenance, keeping and furnishing of information and document by certain persons.

Corresponding provision — 1961 regime

INCOME-TAX ACT, 2025	INCOME-TAX ACT, 1961
INCOME-TAX ACT, 2025 -- s. 170	INCOME-TAX ACT, 1961 -- s. 92CE [FA 2017]
Secondary adjustment trigger / repatriation requirement	1961 s. 92CE(1)
Time-limit / deemed interest (LIBOR+300bps post FA 2019)	1961 s. 92CE(2)
INR 1 crore threshold	1961 s. 92CE(3)
18% one-time payment option (FA 2019)	1961 s. 92CE(2A)

STATUTORY ARCHITECTURE

ECONOMIC RATIONALE: Primary TP adjustment increases assessee's Indian taxable income, but the INCOME has not actually flowed to Indian assessee (it remains with foreign AE). Secondary adjustment forces alignment of book reality with tax-treatment by mandating repatriation. Cash-flow alignment principle. TRIGGERS: (a) AO-determined TP adjustment > INR 1 cr; OR (b) APA-implemented adjustment > INR 1 cr; OR (c) Safe harbour adjustment > INR 1 cr; OR (d) MAP / appeal-resolved adjustment > INR 1 cr. REPATRIATION TIMELINE: 90 days from s. 263(1) due date for the year of primary adjustment. DEEMED INTEREST: post-FA 2019 -- LIBOR + 300 bps for foreign-currency receivables (or SOFR equivalent post LIBOR retirement); SBI base rate + 300 bps for INR receivables. Pre-FA 2019 -- 6-month LIBOR + 300 bps universally. ONE-TIME 18% PAYMENT (FA 2019): assessee may pay 18% additional tax + 12% surcharge = ~20% effective on excess money in lieu of repatriation -- deemed-dividend-style. Useful when repatriation impractical (e.g., AE solvency / regulatory issues).

PLANNING NOTES

(i) THRESHOLD MONITORING -- track INR 1 cr threshold per AE per year; below threshold, no secondary adjustment. (ii) REPATRIATION OPERATIONS -- 90-day window strict; FEMA / RBI Authorised Dealer A2 form for inward remittance; document FIRC. (iii) DEEMED INTEREST CALCULATION -- LIBOR / SOFR / SBI base + 300 bps; daily compute from due date till repatriation. (iv) 18% OPTION -- model 18% lump-sum vs deemed-interest stream; for high-amount adjustments, lump-sum often cheaper. (v) MAP COORDINATION -- secondary adjustment can complicate MAP; consider waiver where MAP resolution expected.

CROSS-REFERENCES

Section 161 / 165 / 166 -- TP charging / ALP / TPO.
Section 168 -- APA.
Section 263(1) -- Return-filing due date.
FEMA / RBI Authorised Dealer regulations -- inward remittance.
Income-tax Rules, 2026 r. 10CB -- secondary adjustment computation.

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