Notification No. 124/2021 [F. No. 500/1/2014-APA-II] / S.O. 4586(E)

Last updated: 17 November 2021

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This notification introduces a tolerance range for determining the arm's length price (ALP) in international and specified domestic transactions for the Assessment Year 2021-2022. For wholesale trading, the variation between the determined ALP and the actual transaction price cannot exceed 1%. For all other cases, this tolerance is set at 3%. If the variation falls within these limits, the actual transaction price will be considered the ALP.

MINISTRY OF FINANCE

(Department of Revenue)

Notification No. 124/2021- Income Tax

New Delhi, the 29th October, 2021

S.O. 4586(E). - In exercise of the powers conferred by the third proviso to sub-section (2) of section 92C of the Income-tax Act, 1961 (43 of 196 1)(hereafter referred to as the ^„said Act^‟), read with proviso to sub-rule (7) of rule 10CA of the Income-tax Rules, 1962, 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 or specified domestic transaction has actually been undertaken does not exceed one per cent. of the latter in respect of wholesale trading and three per cent. of the latter in all other cases, the price at which the international transaction or specified domestic transaction has actually been undertaken shall be deemed to be the arm^’s length price for Assessment Year 2021-2022.

Explanation.- For the purposes of this notification, “wholesale trading” means an international transaction or specified domestic transaction of trading in goods, which fulfils the following conditions, namely:-

(i) purchase cost of finished goods is eighty per cent. or more of the total cost pertaining to such trading activities; and

(ii) average monthly closing inventory of such goods is ten per cent. or less of sales pertaining to such trading activities.

[Notification No. 124/2021/F. No. 500/1/20 14-APA-II]
NEHA NAUTIYAL, Under Secy.

Explanatory Memorandum

The notification provides for tolerance range of one per cent. for wholesale trading and three per cent. in all other cases for assessment year 2021-2022. It is certified that none will be adversely affected by the retrospective effect being given to the notification.

FAQ :

The notification sets tolerance ranges for the arm's length price (ALP) in international and specified domestic transactions for the Assessment Year 2021-2022.

For wholesale trading, the variation between the determined arm's length price and the actual transaction price must not exceed 1% of the latter.

For all other international or specified domestic transactions not classified as wholesale trading, the tolerance range is 3%.

If the variation between the determined arm's length price and the actual transaction price is within the 1% or 3% tolerance, the actual transaction price will be deemed the arm's length price.

Wholesale trading is defined as a transaction where the purchase cost of finished goods is 80% or more of the total cost, and the average monthly closing inventory is 10% or less of sales.

Notification No : 124/2021- Income Tax
Source : https://incometaxindia.gov.in/communications/notification/notification-no-124-2021.pdf

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