Section 162 - Meaning of associated enterprise
Do not restrict the analysis to shareholding. A company with no equity link may still be an associated enterprise because of finance, guarantees, board appointment, technology dependence, supply concentration, sales control or common management.
Reviewed by CA Nikhil Gupta · Updated 9 October 2026
Current law and effective date
Section 162 is controlled against the consolidated Income-tax Act, 2025 as amended by the Finance Act, 2026. The Act and Income-tax Rules, 2026 operate from 1 April 2026; earlier years and saved proceedings require the repeal-and-savings framework rather than automatic migration.
Primary statute: Income Tax Department consolidated Act | Rules: Notified Income-tax Rules, 2026
Finance Act 2026 amendment source: Official Notes on Clauses / amendment materials
2-minute decode
Do not restrict the analysis to shareholding. A company with no equity link may still be an associated enterprise because of finance, guarantees, board appointment, technology dependence, supply concentration, sales control or common management.
Who should use this section
Enterprises testing whether direct, indirect or common management, control, capital, financing, supply, board or family links create associated-enterprise status.
Old-law bridge
section 92A
The old-law bridge is navigational, not automatic precedent transfer. Match the 1961 Act wording, saved proceedings, current 2025 Act text and effective date before importing an older interpretation.
Finance Act 2026 / current-law note
Finance Act, 2026 substituted section 162(2)(c). The operative clause no longer carries the former direct reference to section 144; apply the substituted text from 1 April 2026.
Professional alert
Application caution Apply every statutory test to both enterprises and through intermediaries. The relationship is tested during the tax year, not only on the closing date.
Connected Income-tax Rules, 2026 and Forms
| Rule | Current control | Form |
|---|---|---|
| Rule 77-81 | Transfer-pricing definitions and associated-enterprise framework | - |
Worked application
Foreign Parent P owns only 20% of Indian Company I, but guarantees 15% of I's total borrowings. The guarantee test can independently create an associated-enterprise relationship.
Evidence / compliance checklist
- group structure chart (section 162 evidence control 1).
- share registers and voting rights (section 162 evidence control 2).
- loan and guarantee schedules (section 162 evidence control 3).
- board appointment rights (section 162 evidence control 4).
Common mistake
A common section 162 error is to apply the old-law label or headline rate without rebuilding the current statutory conditions. For “Meaning of associated enterprise”, the safer control is to test the exact taxpayer/transaction facts, the operative tax year, every linked Rule/Form and the Finance Act 2026 consolidated wording. Application caution Apply every statutory test to both enterprises and through intermediaries. The relationship is tested during the tax year, not only on the closing date.
Recommended approach
For section 162, start with the legal trigger in “Meaning of associated enterprise”, document the evidence for that trigger, then run the computation or procedural step against the current text. As a cross-check, verify this provision-specific checkpoint: Associated-enterprise tests include not less than 26% voting power in specified cases.
Thresholds, periods and timing checkpoints
- Associated-enterprise tests include not less than 26% voting power in specified cases.
- Loan test includes debt equal to at least 51% of the borrower's total-asset book value.
- Guarantee test includes at least 10% of total borrowings, subject to the statutory wording.
Related provisions and interaction map
Section 162 forms part of the sections 161-173 transfer-pricing code; apply Rules 77-124 only as relevant and cross-check sections 263, 286/296 plus treaty / PE provisions for this section.
Provision summary - verify verbatim text in the official Act
Text-status note: This guide does not reproduce the complete verbatim provision for section 162. Use the linked official consolidated Act before quoting sub-section language or preparing a filing, opinion or litigation document.
Primary-source trail
Statute: Income-tax Act, 2025 as amended by Finance Act, 2026
Rules: Income-tax Rules, 2026
Law navigation: Income Tax Department 2025 Act / Rules hub
Quoting note: Use the official consolidated Act for verbatim legislative language.
FAQs
Does an old Income-tax Act, 1961 case automatically decide section 162?
No. The old-law bridge helps research, but transferability depends on materially matching language, transition rules and any Finance Act 2026 change.
Which text should be quoted in advice or litigation?
Quote the consolidated official statute for the relevant tax year. If this page presents a provision summary rather than complete statutory text, use the official consolidated Act for verbatim legislative language.