In transfer pricing and international taxation, a primary adjustment refers to the initial correction made by a tax authority when it determines that the price of a cross-border transaction between related parties (such as a parent company and its Indian subsidiary) does not conform to the arm's length principle. The tax authority increases the taxable income of the entity in its jurisdiction to reflect what the income would have been under fair market pricing. In India, the Income Tax Act's transfer pricing provisions empower the tax department to make primary adjustments, which can result in corresponding adjustments in the other country to avoid double taxation.
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