Oct 20, 2020
CBDT reiterates tolerance range under transfer pricing rules
The Central Board of Direct Taxes (CBDT) on Monday reiterated tolerance range of 1-3% under transfer pricing rules for the current financial year even though experts said it was expected that the tax department would provide concession given the Covid-19 pandemic.
India’s transfer pricing rules, which apply to the transaction among subsidiaries of multinational companies, set an acceptable tolerance range for the variation between arm’s length price and the transaction price, failing which the department adjusts the pricing leading to tax implication.
CBDT kept tolerance range of 1% for wholesale trading and 3% for all other transactions undertaken during the financial year ending March 31, 2020.
According to the notification, the transaction considered ‘wholesale trading’ would be those where the purchase cost of finished goods is at least 80% of the total cost of such trades. Further, the average monthly closing inventory of such goods must be 10% or less of sales on such trading activities.
“The tolerance range as laid down appears to be a mechanical follow-through of the last year notification, without appreciating the business and commercial realities in Covid-19 times,” Amit Agarwal, partner at Nangia & Co LLP said.