CBDT Issues Notification for Price Variation Tolerance Limits for Arm’s Length Price Determination for Assessment Year 2023-24

CBDT Issues Notification for Price Variation Tolerance Limits for Arm’s Length Price Determination for Assessment Year 2023-24

The Central Board of Direct Taxes (CBDT) has notified the tolerance limits for price variation in Arm’s Length Price (ALP) determination for transfer pricing under Section 92C of the Income Tax Act, 1961.

The notification is for Assessment Year (AY) 2023-24 and applies to both international and specified domestic transactions.

According to CBDT if the variation does not exceed 1% of the wholesale price and 3% in all other cases, then the actual transaction price shall be taken as the ALP.

Thus, CBDT has set the tolerance range of 1% for wholesale trading and 3% in all other cases for the assessment year 2023-2024.

The term ‘Wholesale trading’ means an international transaction or specified domestic transaction of trading in goods, which fulfils the following conditions:

(i) The purchase cost of finished goods is eighty percent or more of the total cost pertaining to such trading activities; and

(ii) The average monthly closing inventory of such goods is ten percent or less of sales pertaining to such trading activities.

These limits are similar to those notified for AY 2021-22 and 2022-23.

The notification certified that no one shall be adversely affected by the retrospective effect being given to the notification.