India set new tolerance limits for transfer pricing assessments for the 2025–26 fiscal year.
India’s Ministry of Finance (MoF) has issued a notification on 6 November 2025, setting tolerance limits for arm’s length pricing in international and specified domestic transactions for the assessment year 2025-26.
Under the new rules, the price at which a transaction is actually undertaken will be deemed the arm’s length price if the variation from the computed arm’s length price does not exceed 1% for wholesale trading and 3% for all other transactions. Wholesale trading is defined as transactions where the purchase cost of finished goods is at least 80% of total trading costs and the average monthly inventory is 10% or less of sales.
The notification, issued under section 92C(2) of the Income-tax Act, 1961, and related Income-tax Rules, aims to provide a clear margin of tolerance for taxpayers, ensuring administrative ease while reducing potential disputes.
An accompanying memorandum clarified that the limits apply without any adverse retrospective effect. The move is intended to simplify transfer pricing assessments and provide certainty for businesses engaged in cross-border and domestic transactions.
The notification is expected to offer clarity and ease compliance for Indian businesses involved in international and domestic transactions, while reducing the scope for disputes over transfer pricing assessments.
