The Ministry of Finance has issued Notification No. 157/2025-Income Tax, dated November 6, 2025, concerning the determination of Arm’s Length Price (ALP) for Assessment Year 2025-2026. Utilizing powers under the Income-tax Act, 1961, and Income-tax Rules, 1962, the Central Government has set a tolerance range for the variation between the calculated ALP and the actual transaction price for international or specified domestic transactions. If the variation does not exceed one percent of the actual price for wholesale trading, or three percent in all other cases, the actual transaction price will be deemed to be the ALP. This measure aims to simplify transfer pricing adjustments within the specified limits. “Wholesale trading” is explicitly defined as trading in goods where the purchase cost of finished goods constitutes eighty percent or more of the total trading cost, and the average monthly closing inventory is ten percent or less of the sales related to the trading activity. The notification applies retrospectively and is certified not to adversely affect any party.
MINISTRY OF FINANCE
(Department of Revenue)
New Delhi, the 6th November, 2025
Notification No. 157/2025-Income Tax | Dated : 6th November, 2025
S.O. 5053(E).— In exercise of the powers conferred by the third proviso to sub-section (2) of section 92C of the Income-tax Act, 1961 (43 of 1961)(hereafter referred to as the said Act) read with the proviso to sub-rule (7) of rule 10CA of the Income-tax Rules, 1962, the Central Government hereby notifies that where the variation between the arm’s length price determined under section 92C of the said Act and the price at which the international transaction or specified domestic transaction has actually been undertaken does not exceed, (i) one per cent. of the latter in respect of wholesale trading; and (ii) three per cent. 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 2025-2026.
Explanation.- For the purposes of this notification, “wholesale trading” means an international transaction or specified domestic transaction of trading in goods, which fulfils the following conditions, namely:-
a. purchase cost of finished goods is eighty per cent. or more of the total cost pertaining to such trading activities; and
b. average monthly closing inventory of such goods is ten per cent. or less of sales pertaining to such trading activities.
[No.157/2025/F. No. 500/1/2014-APA-II]
KARTHIK CHEBOLI, Deputy Commissioner of Income Tax (OSD)(APA-I)FT&TR -I, CBDT
Explanatory Memorandum
The notification provides for tolerance range of one per cent. for wholesale trading and three per cent. in all other cases for the assessment year 2025-2026. It is certified that none will be adversely affected by the retrospective effect being given to the notification.
