Central Government, through Notification No. 116/2024 dated October 18, 2024, has set the tolerance range for variations in arm’s length price under Section 92C of the Income-tax Act, 1961, for the assessment year 2024-25. For international or specified domestic transactions involving wholesale trading, the permissible variation between the arm’s length price and the actual transaction price is up to 1%. For all other cases, the tolerance limit is set at 3%. “Wholesale trading” is defined as transactions where at least 80% of the total cost pertains to the purchase of finished goods, and the average monthly closing inventory does not exceed 10% of sales. The notification is applicable retrospectively, and the government has certified that no individual or entity will be adversely affected by this retroactive application. This tolerance range ensures compliance with transfer pricing regulations while allowing minor variations within acceptable limits.
MINISTRY OF FINANCE
(Department of Revenue)
Notification No. 116/2024-Income Tax | Dated: 18th October, 2024
S.O. 4571(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 2024-2025.
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.
[Notification No. 116/2024/F. No. 500/1/2014-APA-II]
KARTHIK CHEBOLI, Dy. 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 2024-2025. It is certified that none will be adversely affected by the retrospective effect being given to the notification.
