This content is from: India

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.

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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