Report from an accountant to be furnished by persons entering into international transaction or specified domestic transaction.
172
Every person who has entered into an international transaction or specified domestic transaction during a tax year shall obtain a report from an accountant and furnish such report on or before the specified date in the prescribed form duly signed and verified in the manner as prescribed by such accountant and setting forth such particulars as prescribed.
Section Summary:
Section 172 of the Income Tax Act requires taxpayers who have engaged in international transactions or specified domestic transactions during a tax year to obtain a report from an accountant. This report must be submitted by a specified date in the prescribed format, signed, and verified by the accountant. The purpose of this section is to ensure transparency and compliance in transactions that could potentially involve transfer pricing or other tax-related complexities.
Key Changes:
- Mandatory Reporting: Unlike earlier provisions, this section explicitly mandates that taxpayers involved in international or specified domestic transactions must obtain and submit an accountant's report.
- Prescribed Form: The report must be submitted in a specific format, which is now clearly outlined in the law.
- Verification by Accountant: The report must be signed and verified by the accountant, adding an additional layer of accountability.
Practical Implications:
- For Taxpayers: Businesses or individuals involved in cross-border transactions (e.g., imports, exports, inter-company services) or specified domestic transactions (e.g., transactions with related parties in India) must ensure they engage a qualified accountant to prepare and submit the report.
- For Accountants: Accountants must ensure the report is accurate, complete, and complies with the prescribed format and verification requirements.
- Compliance Burden: Taxpayers must now factor in the time and cost of obtaining this report as part of their annual compliance process.
Critical Concepts:
- International Transaction: Any transaction between two or more associated enterprises, where at least one is a non-resident. Examples include cross-border sales, purchases, or service agreements.
- Specified Domestic Transaction: Transactions between related parties within India that meet certain criteria, such as transactions exceeding a specified monetary threshold or involving specified services.
- Prescribed Form: The format and details required in the report are specified by the tax authorities, ensuring uniformity and clarity in reporting.
Compliance Steps:
- Identify Transactions: Determine if you have entered into any international or specified domestic transactions during the tax year.
- Engage an Accountant: Hire a qualified accountant to prepare the report.
- Prepare the Report: Ensure the report includes all prescribed particulars and is verified by the accountant.
- Submit the Report: File the report by the specified due date in the prescribed format.
Examples:
- Scenario 1: A software company in India provides IT services to its parent company in the USA. This is an international transaction, and the Indian company must obtain an accountant's report under Section 172.
- Scenario 2: A manufacturing company in India sells goods to its sister company in another state. If the transaction meets the criteria for a specified domestic transaction, the company must comply with Section 172.
By adhering to Section 172, taxpayers can ensure compliance with transfer pricing regulations and avoid potential penalties for non-disclosure or inaccurate reporting.