Associated enterprise under section 92A: the tests, with examples
Transfer pricing applies only to transactions between associated enterprises. Section 92A decides who they are. Most cases turn on one of thirteen tests in section 92A(2), and some catch businesses that never think of themselves as part of a group.
Reviewed by Vijay Dhawan, CA on · Published
The basic rule in section 92A(1)
Two enterprises are associated when one participates, directly or indirectly or through intermediaries, in the management, control or capital of the other. They are also associated when the same person or persons participate in the management, control or capital of both.
"Enterprise" is defined widely in section 92F(iii). It covers companies, LLPs, firms and individuals carrying on business, and it includes a permanent establishment. A branch or project office of a foreign company in India is therefore an enterprise in its own right.
In practice the thirteen deemed tests in section 92A(2) decide most cases. Meeting any one of them at any time during the year is enough, even if the relationship lasted only a few weeks.
The thirteen tests in section 92A(2)
| Clause of s.92A(2) | Test | Example |
|---|---|---|
| (a) | One holds, directly or indirectly, shares carrying 26% or more of the voting power in the other | A US company holds 30% of an Indian company |
| (b) | Any person or enterprise holds 26% or more of the voting power in each of them | A Singapore holding company owns 60% of an Indian company and 100% of a UAE company |
| (c) | A loan from one is 51% or more of the book value of the other's total assets | A foreign lender's loan is ₹6 crore and the Indian borrower's total assets are ₹10 crore |
| (d) | One guarantees 10% or more of the other's total borrowings | A parent guarantees ₹2 crore of a subsidiary's ₹15 crore of borrowings |
| (e) | More than half the board, or one or more executive directors, of one are appointed by the other | A foreign investor with 15% of the shares appoints the Indian company's managing director |
| (f) | More than half the board, or one or more executive directors, of each are appointed by the same person or persons | One investor appoints the whole-time directors of both companies |
| (g) | One's manufacture or business is wholly dependent on know-how, patents, trademarks, licences or similar rights owned by the other | An Indian unit makes products only under a foreign company's exclusive patent licence |
| (h) | 90% or more of the raw materials and consumables come from the other, or persons it specifies, on prices and terms it influences | All key inputs are bought from suppliers chosen by a foreign brand owner at prices it sets |
| (i) | Goods made are sold to the other, or persons it specifies, on prices and terms it influences | An Indian factory sells its whole output to a foreign buyer that fixes the price |
| (j) | One is controlled by an individual, and the other by that individual, a relative, or jointly | A promoter controls an Indian company and a Dubai trading company |
| (k) | One is controlled by an HUF, and the other by a member, a relative of a member, or jointly | An HUF business and a foreign company run by the karta's son |
| (l) | One is a firm, AOP or BOI, and the other holds 10% or more of the interest in it | A foreign company holds a 15% share in an Indian LLP |
| (m) | Any relationship of mutual interest that may be prescribed | No such relationship has been prescribed |
Situations that catch people out
- Minority investors with board seats. A foreign investor with only 10% of the shares becomes an associated enterprise under clause (e) if it appoints even one executive director.
- Lenders. A large loan from a foreign lender can create association under clause (c), with no shareholding at all.
- Promoter-controlled companies abroad. Under clause (j), an Indian company and a foreign company controlled by the same promoter or by relatives are associated, even with no common shareholding between the companies.
- LLPs with foreign partners. An LLP is a firm for income-tax purposes, so a foreign partner with a 10% interest is an associated enterprise under clause (l).
- Dependent suppliers and buyers. Clauses (g), (h) and (i) can apply to licensed manufacturers and captive exporters that have no ownership link with the other party.
Deemed international transactions with third parties
Section 92B(2) extends transfer pricing to a transaction with an unrelated person if an associated enterprise has a prior agreement with that person about the transaction, or decides its terms in substance. Since 2014 this applies whether the unrelated person is resident or not. A sale to an Indian distributor on terms fixed by your foreign parent can therefore be a deemed international transaction.
Associated enterprise is not the same as related party
Accountants and company secretaries meet several overlapping definitions. Each list is drawn for a different purpose, and none of them can be used in place of section 92A. Build the associated enterprise list separately and reconcile it with the related party note in the accounts.
| Term | Law | Used for |
|---|---|---|
| Associated enterprise | Section 92A, Income-tax Act | Transfer pricing on international and specified domestic transactions |
| Related person | Section 40A(2)(b), Income-tax Act | Disallowance of excessive payments to relatives and connected persons |
| Related party | Section 2(76), Companies Act, 2013 | Board and shareholder approval of contracts under section 188 |
| Related party | Ind AS 24 and AS 18 | Disclosure in the financial statements |
What follows once an enterprise is associated
- Every international transaction with it must be at arm's length. Our guide on the arm's length price explains the range and the median rule.
- A chartered accountant must report the transactions in Form 3CEB, which becomes Form 48 from tax year 2026-27.
- If the aggregate value is above ₹1 crore, a TP study under Rule 10D is mandatory.
- If the group is international, master file Part A is also due.
- Interest above ₹1 crore a year paid to a non-resident associated enterprise is also capped at 30% of EBITDA under the section 94B interest limitation.
The associated enterprise concept continues under the Income-tax Act, 2025 from tax year 2026-27. See our Form 3CEB filing and transfer pricing services pages for the filing itself.
Transfer Pricing Study + Form 3CEB from ₹49,999, by a CA.
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See what is included and the full priceFrequently asked questions
What is an associated enterprise?
An enterprise that participates in the management, control or capital of another, directly or indirectly, or two enterprises in which the same persons participate. Section 92A(2) lists thirteen situations in which two enterprises are deemed associated.
Is 26% shareholding the only test?
No. Loans of 51% or more of total assets, guarantees of 10% or more of borrowings, board appointments, dependence on the other's intangibles, raw material supply and sales control, and common control by an individual or HUF are also tests.
Does one executive director make a company an associated enterprise?
Yes. Clause (e) of section 92A(2) applies when one or more executive directors of one enterprise are appointed by the other, regardless of the shareholding.
Is a foreign partner in an Indian LLP an associated enterprise?
Yes, if the partner holds 10% or more of the interest in the LLP, under clause (l), because an LLP is a firm for income-tax purposes.
Is an associated enterprise the same as a related party?
No. Related party under the Companies Act and Ind AS 24 and related person under section 40A(2)(b) serve other purposes. Transfer pricing uses only section 92A.
Have an overseas group company or investor?
We map your associated enterprises and file Form 3CEB from ₹9,999.
Keep reading.
Arm’s Length Price: Meaning, Range and a Worked Example
The arm's length price, the 35th to 65th percentile range, the median rule, the 3% tolerance and a worked TNMM example.
Read guide→GuideSection 94B Interest Limitation (Now Section 177): The 30% EBITDA Cap
The 30% of EBITDA cap on interest to non-resident associated enterprises, with a worked example, exclusions and the eight-year carry-forward.
Read guide→GuideIntercompany Agreements for Transfer Pricing: What to Include, With a Clause Checklist
Which intercompany agreements you need, a clause-by-clause checklist, the approvals, and why a back-dated agreement does more harm than none.
Read guide→Official references
The statutory sources behind this page. We keep our guidance aligned to them — verify anything time-sensitive directly.
- Ministry of Corporate AffairsCompanies Act filings, forms and fee schedules
- Income Tax DepartmentReturns, forms, rates and e-filing utilities
- GST PortalRegistration, returns and rate notifications
Facts on this page are checked against these sources; the date of the last check is shown at the top of the page. It is general guidance, not advice on your specific facts. How we write and check our guides.