Finance Bill 2026: Time Limit Clarified for Transfer Pricing Officer Orders

Clauses 4 and 44 of the Finance Bill, 2026 introduce clarificatory amendments to the provisions governing the time limits for passing orders by the Transfer Pricing Officer (TPO).

The amendments respond to extensive litigation on the interpretation of the statutory requirement that the TPO’s order must be passed “before sixty days prior to the expiry of the limitation period” for completion of assessment. To ensure certainty and uniformity, the Bill:

• Inserts a retrospective clarification in section 92CA of the Income-tax Act, 1961, and
• Aligns the position under the Income-tax Act, 2025 through a prospective amendment to section 166.

Background: Role of the Transfer Pricing Officer

Under both the 1961 Act and the 2025 Act:

• Where an assessee has entered into an international transaction or specified domestic transaction,
• The Assessing Officer (AO) may refer computation of the arm’s length price (ALP) to the Transfer Pricing Officer, and
• The TPO must pass an order within a statutorily defined time window, enabling the AO to complete assessment within the overall limitation period.

Ambiguity in computing this time window led to assessments being annulled on technical grounds, despite substantive compliance.

Clause 4: Clarification in the Income-tax Act, 1961

Existing Provision

Section 92CA(3A) of the Income-tax Act, 1961 requires the TPO to pass an order before sixty days prior to the date on which the limitation period under section 153 or 153B expires. Courts differed on whether:

• The date of limitation should be included or excluded while counting the sixty days.

This divergence resulted in significant litigation and uncertainty.

What Does Clause 4 Introduce?

Clause 4 inserts a new sub-section (3AA) in section 92CA, which statutorily prescribes the manner of computing the sixty-day period. It clarifies that:

• Where limitation expires on 31 March (non-leap year) → TPO order may be passed up to 30 January
• Where limitation expires on 31 March (leap year) → TPO order may be passed up to 31 January
• Where limitation expires on 31 December → TPO order may be passed up to 1 November

Retrospective Operation

• The clarification applies retrospectively from 1 June 2007
• It operates notwithstanding any judgment, order or decree of any court

Implications

• Confirms the legislative intent that the limitation date is included in computing the sixty days
• Neutralises contrary judicial interpretations on this narrow procedural issue
• Brings certainty to past, pending, and future proceedings under the 1961 Act

Importantly, the amendment does not extend the limitation period; it only clarifies its computation.

Clause 44: Corresponding Clarification Under the Income-tax Act, 2025

Existing Provision

Section 166(7) of the Income-tax Act, 2025 provides that where a reference is made to the TPO, the order must be passed sixty days before the expiry of the limitation period under section 286 or 296.

Although drafted more simply, similar interpretational issues could arise without explicit computation rules.

What Does Clause 44 Change?

Clause 44 amends section 166(7) to clarify that the TPO’s order must be passed before one month prior to the month in which the limitation period expires. Accordingly:

• If limitation expires on 31 March → order must be passed on or before 31 January
• If limitation expires on 31 December → order must be passed on or before 31 October

Effective Date

• Applicable from 1 April 2026
• Applies to tax year 2026-27 and subsequent years

Why Amendments Were Made in Both Acts

• The Income-tax Act, 1961 required a retrospective clarification to address existing litigation
• The Income-tax Act, 2025, intended to reduce ambiguity, incorporates the clarified position prospectively and in clearer terms

This ensures consistency of interpretation across the outgoing and incoming tax regimes.

Nature and Scope of the Amendments

What the Amendments Do

• Clarify how the statutory time limit for TPO orders is computed
• Reduce avoidable litigation based on procedural technicalities
• Provide certainty to taxpayers and tax authorities

What the Amendments Do Not Do

• ❌ Do not extend or curtail the overall assessment limitation period
• ❌ Do not alter transfer pricing methodology or ALP determination
• ❌ Do not introduce new compliance requirements

These are procedural and clarificatory amendments, not substantive changes.

Effective Dates at a Glance

Conclusion

Clauses 4 and 44 of the Finance Bill, 2026 provide much-needed clarity on the computation of time limits for Transfer Pricing Officer orders. By expressly defining how the sixty-day period is to be calculated and aligning both tax statutes with legislative intent, the amendments aim to eliminate technical disputes and enhance procedural certainty in transfer pricing assessments.

The changes reinforce the principle that tax disputes should turn on substance rather than computational ambiguities, strengthening confidence in the transfer pricing framework.

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