Legal basis: Companies Act 2013 s.139 (statutory audit) | Income-tax Act 1961 s.44AB r/w Rules (tax audit, Forms 3CA/3CD) | Income-tax Act 1961 s.92E r/w Rule 10E (transfer pricing report, Form 3CEB) — Effective: ongoing. Source: https://www.incometaxindia.gov.in/transfer-pricing. Last reviewed by CA Harun Raaj: September 2026.
When a Singapore-based software company registers a wholly owned private limited subsidiary in Pune to run a development team of fifteen engineers, its founders typically budget for one audit: the annual statutory audit that every company must file under the Companies Act. By the time the subsidiary completes its first full financial year, they discover there are two more: a tax audit under Section 44AB of the Income-tax Act 1961, due 30 September, and a transfer pricing report in Form 3CEB, due 30 November. Each carries its own CA certificate, its own deadline, and its own penalty for missing it. This article explains what triggers each, when the deadlines fall, and what happens if you treat three separate compliance obligations as one.
Key point: A foreign-owned Indian subsidiary with cross-border transactions typically owes three separate CA-certified filings in its first financial year — statutory audit, tax audit under Section 44AB, and transfer pricing report in Form 3CEB — each with its own due date and penalty.
Why there are three layers, not one
The three audits exist under different statutes and serve different purposes.
The statutory audit is mandated by the Companies Act 2013. It verifies that the company's financial statements present a true and fair view of its financial position and are prepared in accordance with accounting standards. Every company — regardless of size, turnover, or ownership structure — must appoint a practising Chartered Accountant or CA firm as its statutory auditor under Section 139 of the Companies Act 2013. There is no turnover threshold. The obligation applies from the first financial year.
The tax audit is mandated by the Income-tax Act 1961. Section 44AB requires a company to get its accounts audited by a CA if its total sales, turnover, or gross receipts in a financial year exceed ₹1 crore. An enhanced ₹10 crore threshold applies only when more than 95% of receipts and payments during the year are through banking channels. Since the 44AD presumptive taxation scheme is unavailable to private limited companies altogether, virtually every foreign-owned Indian company with commercial activity will cross the ₹1 crore threshold within its first operating year — triggering a mandatory tax audit.
The transfer pricing report is mandated by Section 92E of the Income-tax Act 1961. Any person who has entered into an international transaction with an associated enterprise (AE) during the previous year must obtain a report from a CA in Form 3CEB before the return due date. There is no minimum monetary threshold: one invoice to the foreign parent for $10,000 of software services is sufficient to trigger the requirement. For most foreign-owned Indian subsidiaries, international transactions with the foreign parent are the core of the business model — making Form 3CEB mandatory from the very first financial year.
Layer 1 — Statutory audit (Companies Act 2013, s.139)
Under Section 139(6) of the Companies Act 2013, the board must appoint the first statutory auditor within 30 days of incorporation; if it does not, the shareholders must appoint one within 90 days at an extraordinary general meeting. Every subsequent auditor is ratified at the AGM and the appointment is filed with the ROC in Form ADT-1. The auditor's report is filed with MCA as part of Form AOC-4 (financial statements) within 30 days of the AGM.
Penalty: Section 147 imposes a fine of ₹25,000–₹5,00,000 on the company and ₹10,000–₹1,00,000 on each officer in default for failure to comply.
This obligation applies regardless of whether the foreign investment was received under the automatic route or the government approval route under the NDI Rules 2019. It starts from the first financial year of existence.
Layer 2 — Tax audit (Income-tax Act 1961, s.44AB)
When a foreign-owned Indian private limited company's total sales, turnover, or gross receipts in a financial year exceed ₹1 crore, a tax audit is mandatory under Section 44AB of the Income-tax Act 1961.
Because the company already undergoes a statutory audit under the Companies Act, the CA completes Form 3CA (confirming the accounts are audited under another law) and the detailed Form 3CD annexure. Form 3CD covers 44 clauses; for a foreign-owned company the most critical are the related-party payment disclosures, any share capital received from the foreign parent during the year, and transfer pricing adjustment disclosures under Chapter X.
Due date for AY 2026–27 (FY 2025–26): 30 September 2026.
Note on the Income Tax Act 2025: AY 2026–27 (FY 2025–26) is governed by the old Income-tax Act 1961 and its forms. Use Forms 3CA and 3CD for AY 2026–27 filings — the ITA 2025 renumbered forms apply only from Tax Year 2026–27 onwards.
Penalty: Section 271B imposes a penalty of 0.5% of total sales, turnover, or gross receipts, subject to a maximum of ₹1,50,000, for failure to get accounts audited or furnish the report within the due date. A reasonable cause exception exists under Section 273B but is applied narrowly by assessing officers.
Layer 3 — Transfer pricing report (Income-tax Act 1961, s.92E and Rule 10E)
What triggers the Form 3CEB requirement
Sections 92 to 92F of the Income-tax Act 1961 apply whenever a company enters into an international transaction with an associated enterprise (AE). An international transaction under Section 92B is any transaction between two or more AEs, at least one of whom is a non-resident. An AE under Section 92A includes any entity where the other directly or indirectly holds 26% or more of the voting power, or where there is participation in management, capital, or control through any of the specific tests listed in Section 92A(2).
For a foreign-owned Indian private limited company, the foreign parent is almost always an AE by virtue of its shareholding alone. Common international transactions that trigger Section 92E include:
- Software development or IT-enabled services exported to the foreign parent
- Management fees or shared-service charges paid to the foreign parent
- Royalty payments for software or IP licensed from the foreign parent
- Intercompany loans in either direction
- Reimbursement of costs incurred by the foreign parent on behalf of the Indian entity
- ESOP grants from the foreign parent to Indian employees (the value of the option at grant is treated as a transaction)
There is no monetary threshold for the Form 3CEB requirement. The moment any one of these transactions exists, the report is mandatory.
What the Form 3CEB contains
Form 3CEB is a CA-certified report (under Rule 10E) in which the CA certifies: (a) that proper information and documents as prescribed under Section 92D have been maintained; and (b) for each category of international transaction, whether the price has been determined in accordance with the arm's length standard under Section 92C.
The report does not itself determine what the arm's length price is. That is the function of the transfer pricing documentation maintained under Section 92D and Rule 10D — a contemporaneous benchmarking study (functional analysis, comparable uncontrolled price or TNMM analysis, and final arm's length range determination) that the company must maintain and produce on demand. When aggregate international transactions exceed ₹1 crore, Rule 10D documentation is mandatory. When the consolidated group revenue exceeds ₹500 crore and international transactions exceed ₹50 crore (or intangibles exceed ₹10 crore), a master file in Form 3CEAA is also required under Rule 10DA.
Due date for AY 2026–27: Form 3CEB must be filed by 30 November 2026. The ITR for companies with international transactions also carries a 30 November due date (an extension of the standard 31 October deadline), giving one additional month for TP reconciliation.
Penalties:
- Section 271BA: ₹1,00,000 for failure to furnish Form 3CEB.
- Section 271G: 2% of the value of each transaction for failure to maintain or produce documentation — a potentially large exposure when aggregate service exports or management fees run into crores.
- Transfer pricing adjustment under Sections 92C/92CA: if the Assessing Officer refers the matter to the Transfer Pricing Officer and a deviation from arm's length price is found, income is upward-adjusted and tax plus interest applies on the incremental amount.
The FEMA overlap: TP documentation serves double duty
When the Indian subsidiary remits management fees, royalties, or service charges to the foreign parent, the remittance moves through an AD Category-I bank as a current account transaction under FEMA. The AD bank will expect evidence the payment is commercially justified and arm's length. Your TP documentation — the benchmarking study and Form 3CEB — is the clearest evidence available, and significantly strengthens the FEMA file for each outward remittance.
Use the structure health check tool to map which related-party transactions your structure generates.
Deadlines at a glance (AY 2026–27 / FY 2025–26)
| Obligation | Trigger | Form | Due date | Penalty |
|---|---|---|---|---|
| Statutory audit | Every company | Auditor's report + AOC-4 | AGM + 30 days (typically by 30 Sep) | ₹25,000–₹5L (company) |
| Tax audit | Turnover > ₹1 crore | Form 3CA + 3CD | 30 September 2026 | 0.5% of turnover, max ₹1.5L |
| TP report | Any international AE transaction | Form 3CEB | 30 November 2026 | ₹1,00,000 |
| TP documentation | AE transactions > ₹1 crore | Contemporaneous study | On demand | 2% per transaction |
| ITR (TP companies) | Companies with Form 3CEB | ITR-6 | 30 November 2026 | Late filing fee + interest |
Step-by-step: compliance calendar for a foreign-owned subsidiary
- Confirm statutory auditor appointment and file Form ADT-1. The books cannot be finalised without the auditor in place.
- Tax audit (deadline: 30 September 2026). If FY 2025–26 turnover exceeded ₹1 crore, complete Form 3CA + 3CD.
- Identify all international AE transactions. Include services exported, management fees, IP licensing, intercompany loans, cost recharges, and ESOP grants. Even one transaction below ₹1 crore triggers Form 3CEB.
- Commission contemporaneous TP documentation. The benchmarking study must exist before the ITR is filed. If no study exists yet, begin immediately.
- File Form 3CEB and ITR-6 by 30 November 2026. The CA certifies each transaction category in Form 3CEB; the ITR-6 is filed after it.
Sources
- Income-tax Act 1961, Section 44AB — tax audit trigger and threshold: https://www.incometaxindia.gov.in/w/as-per-section-44ab-who-is-compulsorily-required-to-get-his-accounts-audited-i.e.-who-is-covered-by-tax-audit-
- Income-tax Act 1961, Section 92E and Form 3CEB — transfer pricing report: https://www.incometaxindia.gov.in/transfer-pricing
- Rule 10D — TP documentation requirements and ₹1 crore threshold: https://www.incometaxindia.gov.in/w/rule-10d
- Companies Act 2013, Section 139 — statutory audit: https://www.indiacode.nic.in/handle/123456789/2114?sam_handle=123456789/1362
- Income-tax Department — Forms 3CA/3CB/3CD applicable for AY 2026-27 (ITA 1961): https://www.incometaxindia.gov.in/w/return-of-income
Planning India entry? Start with a structure review at makeitlegit.in/tools/india-entry-modes, then read the entity page for your structure at makeitlegit.in/entity/pvt-ltd.
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See Also
Frequently Asked Questions
Does a company with no revenue still need Form 3CEB in its first year?+
Yes, if there were any international transactions with the foreign parent — a cost reimbursement, intercompany loan, ESOP grant, or service advance. Form 3CEB under Section 92E is triggered by the existence of a transaction with an associated enterprise, not by the company's revenue.
Our turnover is ₹8 lakh — do we still need all three audits?+
You need the statutory audit under Companies Act Section 139 (every company) and Form 3CEB under Section 92E (if you had any AE transactions). You do not need a tax audit under Section 44AB since turnover is below the ₹1 crore threshold, but verify your actual sales, turnover, or gross receipts figures each financial year.
Is Form 3CEB the same as a transfer pricing audit by the Income Tax Department?+
No. Form 3CEB is a proactive filing submitted before the return due date under Rule 10E. A transfer pricing scrutiny is different: under Sections 92C/92CA the Assessing Officer may refer the case to a Transfer Pricing Officer who independently determines arm's length prices and can make upward income adjustments. Contemporaneous TP documentation under Rule 10D is the foundation of any defence before the TPO.
What is the tax audit due date for FY 2025–26?+
The tax audit under Section 44AB, evidenced by Forms 3CA and 3CD, is due 30 September 2026 for AY 2026–27 (FY 2025–26). This remains governed by the Income-tax Act 1961 rather than the renumbered forms under the Income Tax Act 2025, which apply from Tax Year 2026–27 onwards.
Does the enhanced ₹10 crore turnover threshold under Section 44AB apply to us?+
The enhanced ₹10 crore threshold applies only when more than 95% of receipts and payments during the year are through banking channels. Since the presumptive taxation scheme under Section 44AD is unavailable to private limited companies, most foreign-owned subsidiaries will still cross the standard ₹1 crore threshold within their first operating year.
Who counts as an associated enterprise under Section 92A?+
An entity is an associated enterprise under Section 92A if the other directly or indirectly holds 26% or more of its voting power, or if there is participation in management, capital, or control through any of the specific tests in Section 92A(2). For a foreign-owned Indian subsidiary, the foreign parent is almost always an AE by virtue of its shareholding alone.
What happens if we miss the Form 3CEB deadline?+
Section 271BA imposes a penalty of ₹1,00,000 for failure to furnish Form 3CEB. Separately, Section 271G imposes a penalty of 2% of the value of each transaction for failure to maintain or produce the underlying TP documentation required under Section 92D and Rule 10D.
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