Tolerance Limit for Computation of ALP

Central Government vide Notification No. 83/2020 dated 19.10.2020 has notified the tolerance limit of 1% for wholesale trading and 3% for others for computation of arm’s length prices for Assessment Year 2020-21

If the arm’s length price determined under section 92C of Income Tax Act, 1961 does not exceed the tolerance level (%) of actual value of international transaction, then the actual value shall be deemed to be the arm’s length price.

For qualification of an international transaction as “Wholesale trading”, it must fulfil the following conditions:

  • Purchase cost of finished goods is eighty per cent or more of the total cost pertaining to such trading activities; and
  • Average monthly closing inventory of such goods is ten per cent or less of sales pertaining to such trading activities.

Source:  Notification No. 83/2020/F. No. 500/1/2014-APA-II

-Jaskaran Singh
Direct Tax Associate
ShineWing India