The notice identifying information is: Notification No. 30/2013 [F. No. 500/185/2011 FTD 1] (15 April 2013).
If the actual price of the transaction is within the tolerance band, then a transfer pricing adjustment will not be made.
3% or 1%
The April 2013 notice provides that the transaction price will be deemed to be at arm’s length if the variation between that price of the international transaction (or a specified domestic transaction) and the price determined under section 92C does not exceed:
- 1%—for transactions entered into by “wholesale traders”
- 3%—for all other transactions
In other words, no transfer pricing adjustment will be warranted if the transaction price of the related-party international transaction is within 3% variation of the price determined under section 92C (1% if a transaction involves wholesale traders).
Previously, the tolerance band was a +/- 5% variation. Read TaxNewsFlash-Transfer Pricing: India - Tolerance band of 5% applies for AY 2012-13
Wholesale trader not defined
The term “wholesale trader” is not defined by India’s income tax law. However, the term is generally understood to refer to a person who sells goods to customers, who in turn intend to resell the goods, rather than use or consume the goods.
An issue could arise when goods are supplied for the use of industrial or business users who do not intend to resell them—would that supply strictly be considered as having been made in the course of a “wholesale trade”?
Absent a definition, taxpayers may be able to claim that the 1% variation is intended only to apply with respect to taxpayers who sell goods to buyers for the purposes of resale, and not to industrial or commercial users.
Read an April 2013 report [PDF 184 KB] prepared by the KPMG member firm in the India: Tolerance band for Financial Year 2012-13 notified – 3 percent for all cases other than wholesale traders
Contact a tax professional with KPMG's Global Transfer Pricing Services.