Central Government Sets Arm’s Length Price Thresholds for Wholesale and Other Transactions under Income Tax Act

The Central Government has set specific thresholds for determining arm’s length prices in international and specified domestic transactions under the Income Tax Act. For the assessment year 2024-2025, the variation between the arm’s length price and the actual transaction price must not exceed one percent for wholesale trading and three percent for other cases. If the variation falls within these limits, the actual transaction price will be considered the arm’s length price for tax purposes. The notification also clarifies the criteria for classifying transactions as wholesale trading, ensuring that only high-volume, low-inventory turnover transactions are subject to the stricter one percent variation limit. This move aims to prevent tax avoidance and ensure fair market terms in related party transactions.