Executive Summary:
This notification, issued by the Ministry of Finance, specifies the permissible tolerance range for variations between the arm's length price and the actual transaction price in international or specified domestic transactions under Section 92C of the Income-tax Act. It sets a tolerance range of one percent for wholesale trading and three percent for all other cases. This applies to the assessment year 2019-2020.
Key Points / Main Content:
* **Tolerance Range for Arm's Length Price:**
* For wholesale trading: 1% variation is allowed.
* For all other cases: 3% variation is allowed.
* **Applicability:**
* Applies to international transactions and specified domestic transactions.
* Applies to the assessment year 2019-2020.
* **Definition of Wholesale Trading:**
* Purchase cost of finished goods is 80% or more of total trading costs.
* Average monthly closing inventory is 10% or less of sales.
Impact Analysis:
* **Taxpayers Involved in International or Specified Domestic Transactions:**
* *Impact:* Taxpayers can use the specified tolerance ranges to determine if their transaction prices are considered at arm's length.
* *Action Required:* Ensure that variations between the arm's length price and the actual transaction price do not exceed the specified percentages to comply with the Income-tax Act.
* **Tax Authorities:**
* *Impact:* Tax authorities will use these tolerance ranges when assessing the arm's length price of international and specified domestic transactions.
* *Action Required:* Apply the specified tolerance ranges when reviewing transfer pricing documentation and assessing tax liabilities for the assessment year 2019-2020.
Key Entities Referenced
Ministry of Finance: The government ministry responsible for financial matters, including revenue.
Incometax Act, 1961: The primary law governing income tax in India.
Section 92C: A section of the Incometax Act, 1961 concerning the determination of arms length price in international transactions.
Incometax Rules, 1962: The rules framed under the Incometax Act, 1961, providing detailed procedures and guidelines.
Rule 10CA: A rule within the Incometax Rules, 1962, relevant to the determination of arms length price.
Central Government: The executive authority of the Union of India.
Assessment Year 2019-2020: The assessment year for which the tolerance range for arms length price is specified.
Neha Nautiyal: Under Secretary in the Department of Revenue, Ministry of Finance.
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MINISTRY OF FINANCE
(Department of Revenue)
NOTIFICATION
New Delhi, the 13th September, 2019
(Income-tax)
S.O. 3272(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)(hereinafter 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
2019-2020.
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. 64/2019/F. No. 500/1/2014-APA-II]
NEHA NAUTIYAL, 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 2019-20. It is certified that none will be adversely affected by the retrospective effect being given to
the notification.
Uploaded by Dte. of Printing at Government of India Press, Ring Road, Mayapuri, New Delhi-110064
and Published by the Controller of Publications, Delhi-110054.