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Income Tax > Transfer Pricing Provisions

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  • Roopalakshmi Balasubramaniam
  • Joined:16-03-2011
  • Posts:20
  • Location:Coimbatore
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Posted: 21-03-2011

Basically Transfer pricing provisions are set of regulations that stepped into India in the year in Finance Act 2001. The rule ensures that India collects the needed amount of tax or most popularly the fair share of its tax when products are shipped to another country for sales. The arm’s length price primarily determines the cost of the product that has to be shipped. Most importantly trading that is made between two countries has to best possibly have a nominal and equal share of gains.

 To manipulate the Arm’s length price the 92C of the Income tax act needs to be read where it has perfect strategies for the one who pays tax to easily compute the right arm’s length. The act does provide a special option that allows up to a 5 % border rate for the manipulation of arm’s length price. When there is a variation that shows in and around 5 % then it no way affects sales that operates between the countries.

 This 5% margin break doesn’t apply to many of the countries whatsoever it helps a lot of people paying taxes and who predominantly ship products to countries. The government hasn’t approved this but has tagged an option that specifically allows the 5 % margin in cases where there are two or more arm’s length prices required. There isn’t any margin given to people who pay tax for just one operation.  

 The transfer pricing needs to be made clear so that there aren’t confusions among people who pay taxes for shipping their goods. Over again, the idea has to be that price that comes from selling the product overseas and the arms length price increments to the profit of the taxpayer.

 The Income tax rules took a turn announcing the introduction of safe harbor rules where this still remains unimplemented. People are completely devastated by situations where they keep paying a lot where they really don’t have to. So to eventually chunk this down the Government decided to bring rules that favor the tax payer where the transfer price that the tax payer declares is considered ultimate.  

 The 5% margin thing is what people really want. In almost all transactions, the budget permitted the margin rate in 2010-11 furthermore making a negative statement that these kinds of extra margins would be out of the rule from April 2011. Importers are still waiting for better yet reasonable margin rate...

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