CBDT notifies Tolerance Range for Transfer Pricing for A.Y 2024-25 [Read Notification]
This notification aims to provide greater certainty for taxpayers and mitigate the perceived risks associated with pricing transactions in transfer pricing
CBDT – CBDT notifie – CBDT notifies Tolerance Range – Taxscan
CBDT – CBDT notifie – CBDT notifies Tolerance Range – Taxscan
The Central Board of Direct Taxes ( CBDT ) has officially notified the tolerance range for transfer pricing applicable for Assessment Year (A.Y.) 2024-25 through notification no. 116/2024, issued on October 18, 2024.
According to the proviso to sub-rule (7) of rule 10CA of the Income-tax Rules, 1962, if the variation between the arm’s length price and the actual transaction price does not exceed a specified percentage—up to three percent—determined by the Central Government, the actual transaction price will be regarded as the arm's length price.
For the current assessment year, the CBDT has set the tolerance ranges at 1% for transactions classified as “wholesale trading” and 3% for all other types of transactions. This classification is crucial for determining compliance and ensuring fair taxation in international trade activities.
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The term ‘wholesale trading’ is defined in the notification as an international transaction or specified domestic transaction of trading in goods that meets specific criteria. Notably, the purchase cost of finished goods must constitute 80% or more of the total costs related to those trading activities, while the average monthly closing inventory of goods should not exceed 10% of sales related to these activities.
The 'tolerance range' means that if the arm's length price varies up to one per cent of the transaction price for wholesale trading and three per cent for other taxpayers, then the transaction price would be the arm's length price under the transfer pricing rules.
Under tax laws, transfer pricing refers to the pricing of the goods and services that are exchanged between related companies.
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Arm's length price refers to the price which is applied in a transaction between entities other than related parties.
To Read the full text of the Notification CLICK HERE
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