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India maintains tolerance band for transfer pricing adjustments

India’s taxpayers have received welcome news from the Income Tax Department that the tolerance band for transfer pricing adjustments will remain at 5% for financial year 2011 to 2012.

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However, for financial year 2012 to 2013 the tolerance band will go down to 3%.

Taxpayers can be reassured though that transactions during the 2011 to 2012 year that vary from the arm’s-length price by up to 5% will not be subject to an adjustment.

Section 92 of the Income Tax Act 1961 states: “...the Central Government hereby notifies that where the variation between the arm's-length price determined under section 92C and the price at which the international transaction has actually been undertaken does not exceed 5% of the latter, the price at which the international transaction has actually been undertaken shall be deemed to be the arm's-length price for assessment year 2012-13.”

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