India Keeps Transfer Pricing Tolerance Bands Unchanged for 2025-26, Ensuring Policy Stability

Heading Impact This decision brings significant policy stability and simplifies compliance for numerous companies involved in cross-border business activities and domestic transactions between related entities. By keeping the thresholds constant, businesses can continue with their existing pricing policies and documentation procedures without the need for frequent adjustments, thereby reducing compliance costs and uncertainty. This stability is vital in a globalized economy where supply chains are complex and span multiple jurisdictions, helping to ensure fair taxation. Experts note that this consistent framework streamlines annual transfer pricing documentation. Rating: 7/10 Difficult Terms * **Transfer Pricing**: The pricing of transactions (e.g., sale of goods, services, or intellectual property) between related entities operating in different tax jurisdictions. It aims to ensure that these prices are set as if the entities were unrelated, preventing artificial shifting of profits and ensuring appropriate tax is paid in each country. * **Assessment Year**: The year in which income earned during the previous year is assessed for taxation. For example, income earned in the financial year 2023-24 is assessed in the assessment year 2024-25. * **Arm's Length Price (ALP)**: The price that would have been agreed upon between unrelated parties for similar goods or services under comparable circumstances. It's the standard used to determine if transfer prices are fair and prevent tax avoidance. * **Associated Enterprises (AEs)**: Two or more enterprises that are related through ownership, control, or contractual agreements. Transactions between AEs are subject to transfer pricing rules. * **Tolerance Band**: An acceptable range around the Arm's Length Price. If the actual transaction price falls within this band (plus or minus a specified percentage), it is considered to be at arm's length, and no adjustment is required. * **Arithmetic Mean**: The average of a set of numbers. In transfer pricing, it's often used to calculate the ALP by averaging the margins of comparable independent companies.