CBDT vide Notification No. 46/2023 dated 26.06.2023 in S.O. 2777(E) has notified the tolerance limits for price variation of 1% of the wholesale price and 3% in all other cases in the determination of Arm’s Length Price (ALP) in transfer pricing under Section 92C of the Income Tax Act, 1961 (‘Act’) for the assessment year 2023-24 and shall apply to both international and specified domestic transactions.
As per the notification, if the variance between the actual transaction price and the actual market price does not exceed one per cent for wholesale trading and three per cent in all other cases for the assessment year 2023-2024, then the actual transaction price shall be taken as the ALP. The same tolerance limit was notified for the assessment year 2022-23 and is similar to those notified for AY 2021-22 and 2022-23.
The notification also defines “wholesale trading” to mean an international transaction or specified domestic transaction of trading in goods, which fulfils the following conditions:
(i) Purchase cost of finished goods is 80% or more of the total cost pertaining to such trading activities; and
(ii) The average monthly closing inventory of such goods is 10% or less of sales pertaining to such trading activities.
Similar to preceding years, no specific reason or clarification or explanation is given in relation to why different tolerance limit is set for wholesale traders.
Read the full text of CBDT Notification No. 46/2023 dated 26.06.2023 on Price Variation Tolerance Limit of 1%/3% to determine ALP in Transfer Pricing
MINISTRY OF FINANCE
(Department of Revenue)
NOTIFICATION
New Delhi, the 26th June, 2023
INCOME-TAX
S.O. 2777(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 of the said Act 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 2023-2024.
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.
[Notification No. 46/2023/F. No. 500/1/2014-APA-II]
Dr. VIJIT PATEL, Under Secy.
Explanatory Memorandum
The notification provides for tolerance range of one per cent. for wholesale trading and three per cent. in all other cases for assessment year 2023-2024. It is certified that none will be adversely affected by the retrospective effect being given to the notification.
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