CBDT notifies the price variation tolerance limits for Arm’s Length Price (ALP) determination for transfer pricing u/s 92C, in respect of AY 2021-22. Accordingly, if variation does not exceed 1% of the wholesale price and 3% otherwise of international or specified domestic transactions, then actual transaction price shall be taken as ALP. These limits are similar to those notified in respect of AY 2020-21.
CBDT Income Tax Notification 124/2021 dt. 29/10/2021: Transfer Pricing (ALP) Variation Tolerance Limits AY 2021-22
S.O. 4586(E).- In exercise of the powers conferred by the third proviso to sub-section (2) of section 92C of the Income-tax Act, 1961 (43 of 1961) (hereafter referred to as the “said Act”), read with proviso to sub-rule (7) of rule 10CA of the Income-tax Rules, 1962, the Central Government hereby notifies that where the variation between the arm’s length price determined under section 92C and the price at which the international transaction or specified domestic transaction has actually been undertaken does not exceed one per cent of the latter in respect of wholesale trading and three per cent of the latter in all other cases, 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 for Assessment Year 2021-22.
Explanation.- For the purposes of this notification, “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 eighty per cent or more of the total cost pertaining to such trading activities; and
(ii) average monthly closing inventory of such goods is ten per cent or less of sales pertaining to such trading activities.
The notification provides for tolerance range of one per cent for wholesale trading and three per cent in all other cases for assessment year 2021-2022. It is certified that none will be adversely affected by the retrospective effect being given to the notification.
In the past also, the CBDT has notified such price variation tolerance limits for ALP determination under transfer pricing, e.g. Notifications 83/2020 dt. 19/10/2020 (AY 2020-21), 64/2019 dt. 13/09/2019 (AY 2019-20), 50/2017 dt. 09/06/2017 (AY 2017-18 and 2018-19), 57/2016 dt. 14/07/2016 (AY 2016-17), 86/2015 dt. 29/10/2015 (AY 2015-16), etc.