Chapter XXIII - Miscellaneous
Section 506
Section 506: Indian concern must furnish information on indirect asset transfers
Section 506 targets the classic "indirect transfer" situation, where a foreign company or entity's value comes substantially from assets located in India, held through an Indian concern. That Indian concern is required to furnish information or documents to help the tax authority determine the income accruing or arising in India under section 9(10)(a).
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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
Where,— (a) any share of, or interest in, a company or an entity registered or incorporated outside India derives, directly or indirectly, its value substantially from the assets located in India, as referred to in section 9(10)(a); and (b) such company or entity, as the case may be, holds, directly or indirectly, such assets in India through, or in, an Indian concern, then, such Indian concern shall, for the purposes of determination of any income accruing or arising in India under the said section, furnish within prescribed period to the prescribed income-tax authority the information or documents in such manner, as may be prescribed.
Introduction
Section 506 requires an Indian concern to furnish information or documents when a foreign company or entity’s share or interest substantially derives value from Indian assets and those assets are held through or in that concern.
The reporting serves determination of income accruing or arising in India under section 9(10)(a). The period, receiving authority and method are prescribed.
Key takeaways
Two conditions together
The foreign interest must derive substantial value from Indian assets and those assets must be held through or in an Indian concern.
Indian concern reports
That Indian concern furnishes the information or documents.
Prescribed details
The filing period, recipient and manner come from the prescribed rules.
When the obligation applies
The section applies where:
- a share of, or interest in, a company or entity registered or incorporated outside India derives, directly or indirectly, its value substantially from assets located in India, as referred to in section 9(10)(a); and
- such company or entity holds, directly or indirectly, such assets in India through, or in, an Indian concern.
What the Indian concern must do
In that situation, the Indian concern must, for the purposes of determining any income accruing or arising in India under section 9(10)(a), furnish within the prescribed period, to the prescribed income-tax authority, the information or documents in such manner as may be prescribed.
Applying Section 506 in practice
Two factual links. The foreign company's or entity's share or interest must derive substantial value from India-located assets under section 9(10)(a), and that entity must hold those assets through or in an Indian concern. The Indian concern then furnishes prescribed information or documents to the prescribed authority for determining India-source income.
Step-by-step flow for applying Section 506
- 1
Does a share of, or interest in, a company or entity registered or incorporated outside India derive its value substantially from assets located in India?
Section 506(a) links this test to section 9(10)(a). Whether the value test is met is decided under section 9, not under Section 506.
- No: Section 506 is not triggered.
- Yes: Go to the next step.
- 2
Does that foreign company or entity hold those Indian assets, directly or indirectly, through or in an Indian concern?
Section 506(b) asks whether the Indian assets are held through, or in, an Indian concern.
- No: Section 506 does not place a duty on any Indian concern.
- Yes: Go to the next step.
- 3
Identify the Indian concern that must report
The duty falls on the Indian concern through or in which the assets are held, not on the foreign company or on the buyer or seller of the shares.
- 4
Find out what has to be furnished, by when and to whom
The information or documents, the period, the income-tax authority and the manner are all left to rules ("as may be prescribed"). Section 506 itself does not list them.
- 5
Keep the purpose in view
The information is furnished for determining any income accruing or arising in India under section 9. Section 506 does not itself compute or charge any income.
Practical checklist
Do
- Identify the Indian assets and the foreign entity’s interest for the section 9(10)(a) test.
- Check the prescribed information, period and authority before submitting documents.
- ownership chart, India asset valuation, transaction documents, concern's reporting role, prescribed deadline and filing proof.
Avoid
- Do not apply the reporting duty solely because a foreign company has some Indian connection.
Illustrative example
Worked example: an Indian subsidiary of a foreign holding company
Hypothetical facts (illustration only, not a real taxpayer): Holdco is incorporated outside India. Its only significant asset is its full shareholding in Alpha India Pvt Ltd, which owns a factory in India. During a tax year, some shares of Holdco are sold by one foreign shareholder to another. For this example, assume it has been concluded under section 9(10)(a) that Holdco's shares derive their value substantially from assets located in India.
Value test
The value condition in Section 506(a) is taken as met because of the assumed conclusion under section 9(10)(a).
Holding test
Holdco holds the Indian factory through Alpha India Pvt Ltd, so the condition in Section 506(b) is met.
Who reports
Alpha India Pvt Ltd, as the Indian concern, must furnish the information or documents. It is not a party to the share sale, but the duty is still on it.
What and when
Alpha India checks the rules for the prescribed information, period, authority and manner, and gathers the details it holds or can obtain from the group.
Outcome
- Alpha India Pvt Ltd has a reporting duty under Section 506 for the transfer of Holdco's shares.
- Whether any income from the sale is taxable in India is decided under section 9; Section 506 only supports that determination.
Frequently asked questions
Who has the reporting obligation under Section 506?
The Indian concern through which a foreign company or entity, deriving substantial value from India-located assets, holds those assets - not the foreign entity itself.
What is this information used for?
Determining income accruing or arising in India under section 9(10)(a), which deals with indirect transfers of Indian assets.
Does every foreign share sale require every Indian subsidiary to report?
The section's substantial-value and holding-through/in conditions must be met. Section 458 governs a possible failure penalty.
Need help applying this provision to your situation?
Talk to our tax team about this sectionLast updated 10 October 2026