Section 92C of the Income-tax Act governs the computation of arm’s-length price (ALP) for international and specified domestic transactions between associated enterprises

For the assessment year 2025-26, the Central Government has notified the applicable tolerance range under section 92C(2) of the Act read with rule 10CA(7) of the Rules.

• Where the variation between the arm’s-length price determined and the actual price of the international or specified domestic transaction does not exceed:
  • 1% of the actual transaction value in the case of wholesale trading, and
  • 3% of the actual transaction value in all other cases,
    the actual price at which the transaction has been undertaken shall be deemed to be the arm’s-length price.
• For this purpose, “wholesale trading” refers to trading transactions that meet both of the following conditions:
  a. The purchase cost of finished goods constitutes 80% or more of the total cost of such trading activities; and
  b. The average monthly closing inventory of such goods does not exceed 10% of sales related to such trading activities.

The notification also clarifies that the retrospective application will not adversely affect any taxpayer.