The Central Board of Direct Taxes (CBDT) in its notification dated 13th September, 2019 has notified the transfer pricing tolerance limit for computation of Arm’s Length Price (ALP) applicable to assessment year 2019-2020.
As per the notification, when the variation between ALP determined under section 92C of Income Tax Act and the actual price at which the international transaction or specified domestic transaction has been undertaken, does not exceed 1% (for wholesale trading) and 3% (for other cases) , then the price at which the international transaction has taken place shall be deemed to be the arm’s length price for the assessment year 2019-2020.
CBDT has added an explanation on meaning of Wholesale trading. “Wholesale trading” means an international transaction or specified domestic transaction of trading in goods, which fulfils the following conditions, namely:-
(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 such goods is 10% or less of sales pertaining to such trading activities.
Click here to read the notification.
