Chapter XXI - Penalties
Section 458
Section 458: penalty for failure to furnish information or document under Section 506
Section 458 applies to an Indian concern that is required to furnish information or documents under section 506 (relevant to indirect-transfer type transactions involving the Indian concern) but fails to do so - the penalty rate depends on whether the underlying transaction transferred management or control of the Indian concern.
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This article is for general information. Refer to the Income-tax Act, 2025 as amended by the Finance Act, 2026 and the Taxation and Other Laws (Amendment) Act, 2026 for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
If any Indian concern, which is required to furnish any information or document under section 506, fails to do so, the prescribed income-tax authority under the said section, may direct that such Indian concern shall pay by way of penalty, a sum of— (a) 2% of the value of the transaction in respect of which such failure has taken place, if such transaction had the effect of directly or indirectly transferring the right of management or control in relation to the Indian concern; (b) ₹500000, in any other case.
Introduction
Section 458 is the penalty counterpart to an Indian concern’s information duty under section 506. The amount depends on whether the relevant transaction directly or indirectly transferred management or control rights in that concern.
Key takeaways
Underlying duty
The Indian concern must first be required to furnish information or documents under section 506.
Control-transfer case
If the transaction had the stated management-or-control transfer effect, the penalty is 2% of its value.
Other case
The penalty is ₹5,00,000 in any other case.
What Section 458 says
"If any Indian concern, which is required to furnish any information or document under section 506, fails to do so, the prescribed income-tax authority under the said section, may direct that such Indian concern shall pay by way of penalty, a sum of-- (a) 2% of the value of the transaction in respect of which such failure has taken place, if such transaction had the effect of directly or indirectly transferring the right of management or control in relation to the Indian concern; (b) ₹5,00,000, in any other case."
How the penalty rate is decided
| Nature of the transaction | Penalty |
|---|---|
| Transaction had the effect of directly or indirectly transferring the right of management or control in the Indian concern | 2% of the value of that transaction |
| Any other case | ₹5,00,000 |
Applying Section 458 in practice
Two measures. If an Indian concern fails to furnish section 506 information about an indirect transfer, the potential penalty is 2% of transaction value where the transaction transferred management or control of that concern; otherwise it is ₹5 lakh. Establish the foreign-entity asset link and reporting duty before choosing a limb.
Step-by-step flow for applying Section 458
- 1
Is the Indian concern required to furnish information or documents under section 506?
Section 506 applies where a share or interest in a company or entity outside India derives its value substantially from assets in India, as referred to in section 9(10)(a), held through or in the Indian concern.
- No: Section 458 does not apply.
- Yes: Go to the next step.
- 2
Did the Indian concern fail to furnish them?
- No: No penalty under Section 458.
- Yes: Go to the next step.
- 3
Did the transaction directly or indirectly transfer the right of management or control in relation to the Indian concern?
- Yes: Section 458(a) applies; go to the next step.
- No: The prescribed income-tax authority may direct a penalty of ₹5,00,000 (Section 458(b)).
- 4
Fix the value of the transaction
Identify the value of the transaction in respect of which the failure took place.
- 5
Compute the penalty
The prescribed income-tax authority may direct a penalty of 2% of that value.
Practical checklist
Do
- Identify the exact section 506 information or document that was due.
- Document whether the transaction transferred a right of management or control in the Indian concern.
- ownership chain, India asset values, management/control effect, requested documents and filing proof.
Avoid
- Do not apply the 2% limb without checking its control-transfer condition.
Illustrative example
Worked example: an offshore share sale
Hypothetical facts (illustration only, not a real taxpayer): A foreign company sells its shares in an overseas holding company for ₹40 crore. The shares derive their value substantially from assets in India held through an Indian concern, and the Indian concern fails to furnish the information required under section 506. The value is assumed for illustration.
Coverage
The Indian concern was required to furnish information under section 506 and did not.
Control transferred
If the sale transferred management or control of the Indian concern, Section 458(a) applies: 2% of ₹40 crore = ₹80 lakh.
Control not transferred
If it did not, Section 458(b) applies and the penalty is ₹5,00,000, whatever the value.
Discretion
The prescribed income-tax authority "may direct" the penalty.
Outcome
- Possible penalty: ₹80 lakh if management or control passed; ₹5,00,000 otherwise.
- The penalty falls on the Indian concern, not on the foreign seller.
Frequently asked questions
Who does Section 458 apply to?
An Indian concern that is required to furnish information or documents under section 506 and fails to do so.
What decides whether the penalty is 2% of transaction value or a flat ₹5,00,000?
Whether the transaction in question had the effect of directly or indirectly transferring the right of management or control in relation to the Indian concern - if so, the penalty is 2% of the transaction's value; otherwise, it is a flat ₹5,00,000.
Does every offshore share sale trigger the 2% limb?
No; the stated management/control effect matters. Review section 470 reasonable cause.
Need help applying this provision to your situation?
Get help with cross-border reporting and assessmentLast updated 10 October 2026