Constituent entities of international groups must maintain comprehensive documentation for a period of nine years from the end of the relevant tax year. Understanding this retention requirement is essential for multinational enterprises.
The Retention Requirement
Statutory Basis
Section 171 of the Income Tax Act, 2025 requires every person who has entered into an international transaction or specified domestic transaction to keep and maintain such information and document in respect thereof and for such period and in such manner, as may be prescribed.
Nine-Year Period
The information and documents must be kept and maintained for a period of nine years from the end of the relevant tax year. This extended retention period ensures that documentation is available for the entire period during which assessments may be reopened.
Scope of Documentation
International Transactions
Documentation must cover:
- International transactions entered into by the constituent entity
- Information required under Rule 84
- Master file information under Rule 123
- Any other required documentation
Supporting Documents
Supporting documents may include:
- Official publications, reports, studies, and databases
- Market research studies and technical publications
- Price publications including stock exchange and commodity market quotations
- Published accounts and financial statements
- Agreements and contracts
- Correspondence documenting terms
- Accounting documents
Retention Requirements
Physical Records
- Must be kept and maintained at the principal place of business
- May be kept at respective locations if separate books are maintained
Electronic Records
- Must remain accessible in India at all times
- Backup must be kept on a daily basis in servers physically located in India
Continued Relevance
Where a transaction continues to have effect beyond one tax year, fresh documentation need not be maintained separately in respect of each tax year, unless there is any significant change.
Consequences of Non-Compliance
Penalty
Failure to maintain documentation may attract penalty under the Act.
Disallowance
In the absence of proper documentation, deductions may be disallowed.
Best Judgment Assessment
In the absence of proper documentation, the Assessing Officer may make a best judgment assessment.
Expert Legal Guidance
Understanding documentation and retention requirements is essential for multinational enterprises. Anuj Desai & Associates provides expert advisory services on transfer pricing compliance, helping taxpayers maintain proper documentation.