If the transfer price charged by a taxpayer is within a certain percentage of the arm’s length price determined under section 92C of India’s Income Tax Act no adjustment is required. In previous years there has been some misunderstanding as to the operation of this “tolerance band” within which transfer prices do not need to be adjusted.
For determining when the price of international transactions between related parties will be deemed to be at arm’s length for Assessment Year 2013-14 (i.e., FY 2012-13), India’s central government has issued Notification No. 30/2013 [F. No. 500/185/2011 FTD 1] (15 April 2013), establishing the “tolerance band”.
According to the notification, the transaction price will be deemed to be at arm’s length if the variation between the price of the international transaction (or a specified domestic transaction) and the price determined under section 92C does not exceed the tolerance band of 1% for wholesale traders and 3% in all other cases for FY 2012-13.
