Background
The Central Board of Direct Taxes (CBDT) of India has set the Transfer Pricing tolerance range applicable for the tax year 2024-25. This decision intends to clarify transactions and reduce potential tax disputes by defining the acceptable adjustment limits in related party transactions.
What Is the Tolerance Range on Transfer Pricing?
The tolerance range in Transfer Pricing allows companies to comply with their tax obligations within a specific margin without additional adjustments. This limit, set by the tax authority, ensures that related entity transactions are within an acceptable range to avoid tax disputes and extensive audits.
New Limits for Fiscal Year 2024-25
For FY 2024-25, the CBDT has defined the tolerance range for Transfer Pricing in India as follows:
- Related Company Transactions: Generally, companies should ensure margin on their transactions by maintaining a tolerance of 1% for wholesale transactions and 3% for others.
- Consistent Application: This range shall apply to all industries with certain exceptions for highly regulated transactions.
This adjustment is intended to maintain alignment with international practices and provide greater predictability to multinationals operating in India
Benefits of a Defined Tolerance Range
The determination of a specific tolerance range actually benefits companies in multiple ways:
- Reduced Adjustments: It minimizes the need for tax corrections.
- Tax Certainty: It provides a clear framework for Transfer Pricing planning.
- Reduced Audit Risk: By operating within the range, companies can reduce the risk of detailed reviews by the authorities.
Implications for International Businesses
The definition of the tolerance range allows multinational companies in India to plan and structure their Transfer Pricing effectively. It gives greater certainty and predictability in calculating their tax obligations, which is especially important in the current global context.
Conclusion
Establishing a tolerance range for Transfer Pricing in India is a positive business development. By providing a clearer regulatory framework, the CBDT facilitates a more reliable and attractive tax environment for foreign investment in the country.
Call to Action
Do you need assistance in Transfer Pricing planning within the new tolerance ranges?
Contact us at TPC Group for customized support to ensure your company’s tax compliance in India.
Source: Devdiscourse
