Intercompany Loans and Receivables: Preparing Data for Transfer Pricing Review

Scope: FY 2025-26 / AY 2026-27 under Sections 92 to 92F of the Income-tax Act, 1961 and relevant Income-tax Rules, 1962; later tax years require their own law/form check. Verification date: 11 October 2026.

Identify the arrangement before calculating interest

A loan, a long-outstanding trade receivable and a temporary intercompany settlement can have different facts. Begin with the agreement and transaction history. Do not calculate one blanket interest adjustment on every debit balance in the group ledger.

Relevant international financing transactions require assessment under the transfer pricing framework. The reporting and pricing conclusion depends on the actual arrangement. Terms, currency, credit profile and other economic conditions matter; a domestic lending rate is not automatically appropriate for every foreign-currency loan.

Prepare a dated financing register

Record lender/borrower, relationship, currency, principal, disbursements, repayments, interest terms, security, maturity and amendments. Maintain a movement schedule for the period, supported by bank entries and agreements.

Separate principal from interest accrued and paid. Reconcile the foreign-currency balance and booked INR amount, explaining relevant exchange movements. The ledger balance can change without a new loan or repayment because of currency translation.

An illustrative interest calculation

Assume a fictional USD loan has principal of USD 1,000,000, an agreed illustrative annual rate of 6% and a 90-day accrual using an actual/365 convention. With no principal movements, the calculation is USD 1,000,000 × 6% × 90 ÷ 365 = USD 14,794.52.

This is a calculation example, not an arm's-length recommendation. Verify the actual contract's rate, day-count basis and compounding terms. If principal changes, split the period into dated intervals rather than applying the closing principal to the entire year.

Review trade receivables separately

Build invoice-level outstanding data containing invoice date, agreed due date, receipts, disputes and closing balance. Distinguish normal trading credit from extended or altered arrangements. Capture actual payment patterns and commercial terms with unrelated customers where relevant.

Do not assume that every balance beyond a universal number of days requires the same adjustment. The legal, economic and reporting assessment needs the actual facts and relevant pricing analysis. Equally, a “trade receivable” ledger label should not stop an enquiry into unusually extended credit.

Prevent double counting

Keep sales revenue and receivable balances in separate columns. The balance outstanding is not another sale. If a financing-related assessment is required, document its basis and period without adding the same invoice value twice to transaction totals.

Also check whether interest has already been charged or included in another agreed adjustment. A second calculation over the same period can duplicate an amount already recognised.

Final review pack

• Approved AE and residence assessment.
• Agreement, amendments and bank-backed movements.
• Principal and interest reconciliation in currency and INR.
• Invoice ageing for relevant receivables.
• Reviewed method, comparability analysis and reporting conclusion.

Financials prepared through assureOffice can support the borrowing, interest and receivables reconciliation. Retain the transfer pricing data pack separately and compare it with Form 3CEB. A well-organised movement file lets the reviewer assess the real transaction rather than reconstruct it from a closing ledger balance.

Distinguish contractual data from analysis

Keep the agreement's currency, rate, payment terms and maturity separate from the pricing conclusion. The contractual rate is a fact to be recorded; whether the arrangement is at arm's length requires the relevant analysis. Likewise, an overdue ledger does not automatically prove that every outstanding day attracts an adjustment.

Reconcile interest accruals, payments and foreign-exchange movements independently. If the loan principal changes during the year, calculate using the actual dated movements rather than applying one annual rate to the closing balance. Retain the day-count convention and assumptions so another reviewer can reproduce the illustration and identify where the actual facts differ.

Related articles

• Form 3CEB Reconciliation: Matching Transactions with Books and Financial Statements
• Trade Receivables Ageing under Schedule III: A Worked Excel Example
• Loans, Deposits and Advances in Tax Audit: A Transaction Review Checklist

Sources and references

• Rule 10D — transfer pricing information and documents
• Income Tax Department — transfer pricing guidance
• CBDT Form 3CEB