CBDT notifies Tolerance Range for Transfer Pricing for AY 2024-25

The Income Tax Department has announced the tolerance range for the difference between arm’s length price and transfer pricing for international and selected domestic transactions in Assessment Year 2024-25.

CBDT has issued Notification No. 116/2024 dated October 18, 2024, notifying the tolerance range for AY 2024-25. The notification of the tolerance range shall provide taxpayers with clarity and decrease the risk perception associated with the pricing of a transaction under transfer pricing.

CBDT stated that the range has been maintained at the same level as previous year: 1% for “wholesale trading” and 3% for all other taxpayers. The word ‘wholesale trading‘ will be defined as an international or specified domestic transaction in which items are traded under certain conditions.

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.”

The tolerance range for transfer pricing 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 that 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.