Quick Summary
The Draft Income Tax Rules, 2026 have introduced a comprehensive framework for taxation of indirect transfers involving foreign entities deriving value from Indian assets. Rules 11 and 12 provide detailed mechanisms for determining Fair Market Value (FMV) and computing income attributable to assets located in India. These provisions operationalise Section 9(2) of the Income-tax Act, 2025 and are expected to significantly impact cross-border mergers, offshore share transfers, private equity exit
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FAQ :
The new rules provide a detailed framework for taxing indirect transfers involving foreign entities that derive substantial value from Indian assets, clarifying how to determine Fair Market Value (FMV) and attribute income to India.
For listed Indian company shares, the FMV is generally the observable market price. If the shares confer management or control rights, a specific formula is used: FMV = (Market Capitalisation + Book Value of Liabilities) / Total Outstanding Shares.
The attribution formula is: Taxable Income = A × (B / C), where A is the total income from the transfer, B is the FMV of Indian assets, and C is the FMV of all global assets of the foreign entity.
These rules are particularly relevant for private equity exits, MNC restructurings, foreign share transfers involving Indian subsidiaries, and global acquisition deals where indirect transfers of Indian assets are involved.
Transferors must obtain accountant certification in the prescribed Form No. 4, furnish a report with their income tax return, and certify the correctness of income attribution.
The rules aim to reduce valuation disputes and strengthen indirect transfer taxation enforcement by providing a clear formula for attribution and structured FMV computation, though they also increase the compliance burden.
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