Central Board of Direct Taxes (CBDT) in India has issued Notification No. 116/2024, establishing the tolerance range for transfer pricing for Assessment Year (AY) 2024-25, as per the proviso to sub-rule (7) of rule 10CA of the Income-tax Rules, 1962. This tolerance range is crucial for taxpayers involved in international or specified domestic transactions, ensuring that pricing within a certain range will be deemed compliant with arm’s length standards. Specifically, the tolerance range is set at 1% for transactions classified as “wholesale trading” and 3% for all other transactions, consistent with the previous year’s specifications. For a transaction to qualify as “wholesale trading,” it must meet specific criteria: the purchase cost of finished goods must constitute at least 80% of the total trading cost, and the average monthly closing inventory must not exceed 10% of sales. This notification aims to provide taxpayers with greater certainty in transfer pricing compliance and reduce the risk of disputes related to transaction pricing.
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
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New Delhi, 29th October, 2024
Press Release
Notification of Tolerance Range for Transfer Pricing for A.Y 2024-25 as per proviso to sub-rule (7) of rule 10CA of the Income-tax Rules, 1962
Proviso to sub-rule(7) of rule 10CA sub-rule(7) provides that, “if the variation between the arm’s length price so determined at which the international transaction or specified domestic transaction has actually been undertaken does not exceed such percentage not exceeding three percent of the latter, as may be notified by the Central Government in the Official Gazette in this behalf, 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.”
Accordingly, CBDT has now issued notification no. 116/2024 dated October 18, 2024 notifying the tolerance range for AY 2024-25. The tolerance range is as follows:
(a) The tolerance ranges shall be 1% for transactions in the nature of “wholesale trading” and 3% for others, respectively, as notified last year and
(b) The term ‘wholesale trading’, shall be defined as an international transaction or specified domestic transaction of trading in goods which fulfil all the following conditions:
i. Purchase cost of finished goods is 80% or more of the total cost pertaining to such trading activities; and
ii. Average monthly closing inventory of goods is 10% or less of sales pertaining to such trading activities.
The notification of tolerance range shall provide certainty to taxpayers and reduce the risk perception associated with pricing of a transaction in transfer pricing.
(V. Rajitha)
Commissioner of Income Tax
(Media & Technical Policy) &
Official Spokesperson, CBDT
