Overview: What Are Specified Domestic Transactions (SDTs)?

Specified Domestic Transactions (SDTs) are domestic arrangements between related parties that are subject to transfer pricing regulations under Indian tax law. Though commonly associated with international transactions, India’s tax regime mandates disclosure and arm’s length pricing for certain high-value domestic transactions as well.

These transactions must be reported in Form 3CEB, certified by a Chartered Accountant, and submitted alongside the Income Tax Return (ITR) if the total value exceeds ₹20 crore in a financial year (as per prevailing limits under Section 92BA of the Income Tax Act)

Legal Definition Under Section 92BA

Section 92BA of the Income Tax Act, 1961 outlines six categories of domestic transactions that fall under the purview of SDTs:

  1. Payments to Specified Related Parties under Section 40A(2)(b)

  2. Inter-unit Transfers under Section 80A

  3. Internal Transfers for Infrastructure or SEZ Units under Section 80-IA(8)

  4. Transactions Between Interrelated Undertakings under Section 80-IA(10)

  5. Deductions under Chapter VI-A or Section 10AA involving eligible units

  6. Any other transactions notified by the CBDT

These transactions are not international in nature, but still require pricing to be at arm’s length, as if conducted with an unrelated third party.

Who Are Considered ‘Related Parties’ Under Section 40A(2)(b)?

When evaluating whether a transaction is classified as an SDT, it is essential to understand the scope of related party relationships, including:

  • For Individuals: Any relative (spouse, sibling, parent, child).

  • For Companies, LLPs, Firms, AOPs:

    • Directors, Partners, or Members and their relatives

    • Any individual or entity holding substantial interest (20%+ ownership or voting power)

    • Enterprises under common control

Example: A payment to a director’s spouse for professional services rendered by their firm can be considered an SDT if the aggregate value crosses the threshold.

Section 80A & Inter-Unit Transfers

If a business transfers goods or services from one division or unit to another and claims tax deductions (such as under Section 80-IA, 80-IB, etc.), the transfer must be recorded at market value.

These internal transactions must reflect fair pricing, especially if one of the units is tax-exempt or enjoys preferential deductions.

Requirement of Form 3CEB Filing

What is Form 3CEB?

Form 3CEB is a prescribed audit report format under Rule 10E of the Income Tax Rules. It must be certified by a Chartered Accountant (CA) and submitted electronically through the income tax portal when:

  • The taxpayer has entered into one or more specified domestic transactions

  • The aggregate transaction value exceeds the threshold prescribed (₹20 crore or more)

When is it Required?

The Form 3CEB is mandatory under Section 92E and should be filed on or before the due date of furnishing the Income Tax Return (usually 31st October for companies).

Detailed Format of Form 3CEB (Structure & Contents)

The format of Form 3CEB consists of two major parts:

Part A: Basic Details

  • Name, PAN, Address of the assessee

  • Details of the accountant certifying the report

  • Nature of business activity

Part B: Details of International Transactions (if applicable)

(Skip if only SDTs are being reported)

Part C: Details of Specified Domestic Transactions

Each SDT must be declared with:

  • Nature of the transaction (e.g., services rendered, goods sold, interest paid)

  • Name and PAN of related party

  • Total transaction value

  • Method used to determine arm’s length price (e.g., CUP, TNMM)

  • Transfer Pricing justification

This section is vital to demonstrate that pricing was consistent with market value and that there’s no tax avoidance intent.

Common Types of SDTs in Practice

Type of Transaction Compliance Required
Remuneration to Related Directors Section 40A(2)(b) + Arm’s Length
Intra-group Supply of Goods Section 80A or 80-IA
Management Fees Paid to Group Entity Report in Form 3CEB
Shared Services (HR, Finance, IT) Price Allocation Method Needed
Lease or Rent Paid to Director’s Family Member Covered under Related Party Norms

Key Considerations for Taxpayers

  • Maintain Transfer Pricing Documentation: File Form 3CEB with supporting TP study report.

  • Disclose All SDTs Clearly: Incomplete or incorrect reporting can lead to penalties under Section 271BA.

  • Conduct Benchmarking: Show that transaction pricing aligns with market norms.

  • Work with a Chartered Accountant: Certification is not a formality — errors can attract scrutiny.

Penalties for Non-Compliance

Default Penalty Applicable
Failure to file Form 3CEB ₹1,00,000 (Section 271BA)
Incorrect Disclosure 2% of the transaction value (Section 271G)
Failure to maintain documentation ₹2,00,000 (Section 271AA)

Conclusion: Ensure Compliance with SDT Rules & Form 3CEB

As transfer pricing regulations expand into domestic transactions, businesses must be proactive in identifying, documenting, and reporting Specified Domestic Transactions.

By partnering with a qualified Chartered Accountant, you can:

✅ Avoid penalties
✅ Maintain transparency
✅ Ensure tax efficiency and compliance

Need help preparing or filing Form 3CEB?
Our expert professional team specializes in transfer pricing, SDT audits, and high-value tax compliance for businesses across India.