Income tax department keeps tolerance range intact for transfer pricing

The income tax department has kept the tolerance range for variation between arm's length price (ALP) and transfer pricing for international and specified domestic transactions intact for the assessment year 2023-24.

The limit is kept at one per cent for wholesale traders and three per cent for all other taxpayers, according to a notification issued by the Central Board of Direct Taxes (CBDT). The limit has been the same for the last few years.

This means that if ALP varies up to one per cent of the transaction price for wholesale traders and three per cent for other taxpayers, the transaction price would be taken as ALP under the transfer pricing rules.

 

Unlike business transactions between related parties, the transactions between unrelated parties are done at an open market price. Accordingly, ALP is measured as the price that should have been charged between related parties had those parties not related to each other.  

Under transfer-pricing regulations in India, the entire transfer pricing mechanism is based on computation of income arising out of cross-border transactions with regard to the arm’s length price.

Industry was expecting a higher tolerance range for variation this time.

“It would have been worthwhile if the said range could have been revisited and reviewed,” Amit Maheshwari, tax partner at AKM, said.