The Central Board of Direct Taxes (CBDT) notified the tolerance limit of 1% for wholesale traders and 3% for others under transfer pricing for Assessment Year 2020-21.
The Central Government hereby notifies that where the variation between the arm’s length price determined under section 92C of the Income-tax Act, 1961 and the price at which the international transaction or specified domestic transaction has actually been undertaken does not exceed 1% of the latter in respect of wholesale trading and 3% of the latter in all other cases, the price at which the international transaction or specified domestic transaction has actually been undertaken shall be deemed to be the arm’s length price for the assessment year 2020-2021.
The word “wholesale trading” means an international transaction or specified domestic transaction of trading in goods, which fulfills the two conditions.
Firstly, the purchase cost of finished goods is eighty percent. or more of the total cost pertaining to such trading activities.
Secondly, the average monthly closing inventory of such goods is 10% or less of sales pertaining to such trading activities.
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