Which of the following methods have been prescribed by the Central Board of Direct Taxes (CBDT) for computation of Arm's Length Price required to compute income arising from an International transaction under Chapter X of the Income-tax Act, 1961?

(A) Transactional Net Margin Method

(B) Uncomparable Controlled Price Method

(C) Profit Split Method

(D) Resale Price Method

(E) Cost Minus Method

Choose the correct answer from the options given below:

Correct option is D

The Central Board of Direct Taxes (CBDT) under Chapter X of the Income-tax Act, 1961, prescribes the following methods for computing the Arm's Length Price (ALP):
1. (A) Transactional Net Margin Method (TNMM):
· Compares net profit margins of comparable entities in similar transactions.
2. (C) Profit Split Method (PSM):
· Divides profits from a transaction in proportion to the relative contributions of the parties.
3. (D) Resale Price Method (RPM):
· Establishes ALP based on the resale price of goods or services to an unrelated party, less a gross margin.
Information Booster:
Six Prescribed Methods for ALP Computation:
1. Comparable Uncontrolled Price (CUP) Method
2. Resale Price Method (RPM)
3. Cost Plus Method (CPLM)
4. Profit Split Method (PSM)
5. Transactional Net Margin Method (TNMM)
6. Other Method as prescribed by the board
Additional Knowledge:
· Arm's Length Price (ALP):
· Ensures that international transactions between related entities are priced as if they were conducted between unrelated parties.
· Purpose:
· Prevents profit shifting and ensures fair taxation.