The Central Board of Direct Taxes (CBDT) in India has issued Notification No. 116/2024 specifying the transfer pricing tolerance range for Assessment Year (AY) 2024-25 as per the provision of sub-rule (7) of rule 10CA. This tolerance range is applicable for international or certain domestic It is crucial for taxpayers involved in transactions and ensures that pricing within a certain range is considered to comply with arm’s length standards. In particular, the tolerance range has been determined as 1% for transactions classified as “wholesale trade” in accordance with the previous year’s specifications and 3% for all other transactions. To qualify as a “wholesale trade,” a transaction must meet certain criteria: The purchasing cost of finished goods must constitute at least 80% of the total trading cost, and the average monthly closing inventory must not exceed 10% of sales. The purpose of this communication is to provide taxpayers with greater certainty regarding transfer pricing compliance and reduce the risk of transaction pricing disputes.

Government of India
Ministry of Finance
Revenue Department
Central Board of Direct Taxes
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New Delhi, 29^This October, 2024

Press release

Transfer Pricing Tolerance Range Notification for AY 2024-25 under the provision of sub-rule (7) of rule 10CA of the Income Tax Rules, 1962

The proviso to sub-rule (7) of sub-rule (7) of Rule 10CA provides that: “If the difference between the arm’s length price at which the international transaction or the particular domestic transaction is actually effected does not exceed such percentage, three per cent, as may be notified in the Official Gazette in this behalf by the Central Government.” “The price at which the international transaction or the specific domestic transaction exceeds the price at which it is actually carried out will be considered as the arm’s length price.”

Accordingly, CBDT has now issued notification number 116/2024 dated 18 October 2024 Reporting the tolerance range for AY 2024-25. The tolerance range is as follows:

(a) As notified last year, the tolerance ranges will be 1% for “wholesale trade” transactions and 3% for others, respectively; and

(b) The term ‘wholesale trade’ shall be defined as an international transaction or a specific domestic transaction for trade in goods that meets all of the following conditions:

I. The purchase cost of the finished goods is 80% or more of the total cost of such business activities; And

ii. The average monthly closing merchandise inventory is 10% or less of the sales associated with such business activities.

Communicating the tolerance range will provide certainty to taxpayers and reduce the perception of risk regarding the pricing of the transaction in transfer pricing.

(V. Rajitha)
Income Tax Commissioner
(Media and Technical Policy) &
Official Spokesperson, CBDT