FinMin Notifies 1% and 3% Tolerance Range for Transfer Pricing Adjustments u/s 92C(2) of Income Tax [Read Notification]

The Ministry of Finance (Department of Revenue) has issued Notification No. 157/2025 [S.O. 5053(E)] dated November 6, 2025, announcing new limits for transfer pricing differences under Section 92C(2) of the Income Tax Act, 1961.

These limits apply for the Assessment Year 2025-26 and define how much variation is allowed between the price charged in a transaction and the price considered to be at arm’s length (that is, a fair market price between unrelated parties).

According to the notification, if the difference between the actual transaction price and the arm’s length price does not exceed 1 percent for wholesale trading or 3 percent for all other cases, the actual transaction price will be accepted as the arm’s length price. This means no transfer pricing adjustment will be required if the price variation stays within these limits.

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The government has also clearly defined what counts as wholesale trading. It refers to the trading of finished goods where the purchase cost of such goods is at least 80 percent of the total cost of the trading activity, and the average monthly closing inventory is 10 percent or less of the total sales.

Businesses that do not meet these conditions will fall under the “all other cases” category and get the 3 percent tolerance benefit.

This notification helps companies involved in international transactions or specified domestic transactions with their associated enterprises. It reduces the risk of small pricing differences being challenged by the tax department.

The Ministry also clarified that the notification will apply retrospectively for the Assessment Year 2025-26 but will not negatively impact any taxpayer.

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