The Ministry of Finance, Department of Revenue, has issued Notification No. S.O. 5053(E) dated November 6, 2025, specifying the tolerance range for determining the arm's length price (ALP) under Section 92C of the Income-tax Act, 1961, for the Assessment Year 2025-26.
As per the notification, the Central Government has set the following permissible variations between the ALP and the actual transaction price for international or specified domestic transactions:
- 1% in the case of wholesale trading, and
- 3% in all other cases.
If the price variation remains within these limits, the actual transaction price shall be deemed to be the arm's length price for the relevant assessment year.
For the purpose of this notification, "wholesale trading" refers to transactions where:a) The purchase cost of finished goods constitutes 80% or more of the total cost related to trading activities; andb) The average monthly closing inventory of such goods is 10% or less of the sales for those trading activities.
The notification, issued under Rule 10CA(7) of the Income-tax Rules, 1962, provides clarity for taxpayers and ensures consistency in the determination of transfer pricing margins. The Central Board of Direct Taxes (CBDT) has also stated that the retrospective application of this notification will not adversely affect any taxpayer.
This move aligns with the government's efforts to simplify transfer pricing compliance and provide predictability for multinational enterprises (MNEs) and entities engaged in cross-border or specified domestic transactions.
Official copy of the notification has been attached
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