The CBDT has issued a significant Notification No. 157/2025 dated November 06, 2025, retaining the tolerance range for transfer pricing at 1% for wholesale trading and 3% for all other transactions for the assessment year 2025-26. This move is set to provide much-needed certainty to taxpayers and mitigate the risk associated with pricing transactions between related parties.
The Notification, issued on November 6th, 2025, also specifies crucial conditions for classifying “wholesale trading” for transfer pricing purposes. It states that wholesale trading means an international transaction or specified domestic transaction in trading goods that fulfills the following criteria:
- The purchase cost of finished goods is eighty per cent. or more of the total cost pertaining to such trading activities.
- The average monthly closing inventory of such goods is ten per cent. or less of sales pertaining to such trading activities.
Transfer pricing is an essential accounting mechanism used to determine the price of goods and services exchanged between associated enterprises, such as a parent company and its subsidiaries. This mechanism, aligned with the guidelines of the Organisation for Economic Co-operation and Development (OECD), ensures that transactions between related parties reflect market forces, thereby preventing profit manipulation and ensuring companies pay the correct amount of tax.
The retained tolerance range signifies the acceptable variation between the arm’s length price (market price) and the actual price at which an international or specified domestic transaction was undertaken. By maintaining these levels, the CBDT aims to provide continuity and stability, particularly for multinational companies, allowing them to conduct transactions with reduced risk of disputes over pricing.
The Notification can be accessed at: https://incometaxindia.gov.in/news/notification-157-2025.pdf
