Rule 12: Income attribution for offshore share transfers
Rule 12 determines the income attributable to Indian assets from the specified offshore transfer of a share or interest. It uses a proportion based on Rule 11 fair market values and requires an accountant’s report in Form 4 with the return.
Official notified Income-tax Rules, 2026Need advice on Rule 12?
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Rule 12 - Determination of income attributable to assets in India
(1) The income from transfer outside India of a share of, or interest in, a company or an entity referred to in section 9(10)(a) attributable to assets located in India, shall be determined with reference to the specified date, by the following formula: — A × B / C Where, — A = Income from the transfer of the share of, or interest in, the company or the entity computed as per the provisions of the Act, as if, such share or interest is located in India; B = fair market value of assets located in India as on the specified date from which the share or interest referred to in A derives its value substantially, computed as per rule 11; and C = fair market value of all the assets of the company or the entity as on the specified date, computed as per rule 11.
(2) If the transferor of the share of, or interest in, the company or the entity referred to in sub-rule (1) fails to provide the information required for the application of the formula in the said sub-rule, then the income from the transfer of such share or interest shall be determined in such manner as the Assessing Officer may deem suitable.
(3) The transferor of the share of, or interest in, a company or an entity referred to in sub-rule (1), shall obtain and furnish along with the return of income a report in Form No. 4 duly signed and verified by an accountant providing the basis of the apportionment as per the formula and certifying that the income attributable to assets located in India has been correctly computed.
Rule breakdown
Identify the transaction and the income base
The rule concerns transfer outside India of the share or interest referred to in section 9(10)(a). A is the transfer income computed under the Act as if that share or interest were located in India. Establish this income amount; do not substitute gross sale proceeds without the statutory computation.
Build the Indian-to-total value ratio
B is the specified-date fair market value of the Indian assets from which the share or interest derives its value substantially. C is the specified-date fair market value of all assets of the company or entity. Both values must be computed under Rule 11; align their date, methodology and currency basis before applying the ratio.
Illustrative attribution calculation
Hypothetical: A is ₹80 lakh, B is ₹40 crore and C is ₹100 crore, each correctly computed under the applicable provisions. A × B / C is ₹32 lakh. That is the attributed income in this example, not the amount of income tax payable. The section 9 conditions and any applicable exclusions must be checked separately.
Supply information and obtain Form 4
If the transferor fails to provide information required for the formula, the Assessing Officer may determine the income in a manner considered suitable. Sub-rule (3) requires a duly signed and verified accountant’s Form 4 report with the return, explaining the apportionment basis and certifying correct computation of Indian-attributable income.
Maintain a reconciled transaction file
As a practical working file, retain the transfer agreement, income computation, specified-date valuation reports, Rule 10 professional-qualification evidence, B/C reconciliation and signed Form 4. If interim valuations are later modified under Rule 11(7), revisit their effect under the provisions it references.
Key takeaways
Income, not tax rate
A × B / C calculates attributable income; it is not itself a tax-rate formula.
Common specified date
B and C use the specified-date fair market values computed under Rule 11.
Information and report
The transferor must provide the information needed for the formula and furnish the accountant’s Form 4 report with the return.
Practical checklist
- Compute A as income under the Act, with supporting workings.
- Use the same specified date for B and C.
- Reconcile both fair market values to Rule 11 reports.
- Obtain and furnish the signed accountant’s Form 4 with the return.
Avoid
- Do not describe the B/C percentage as the applicable income-tax rate.
- Do not assume the formula can be supported without the underlying valuation information.
FAQs
What does the formula A × B / C calculate?
The income attributable to assets located in India for the specified transfer, using the three statutory variables.
Which report accompanies the return?
Form 4, duly signed and verified by an accountant, giving the apportionment basis and certifying the correct computation.
What if the transferor does not provide the information needed?
Under sub-rule (2), the Assessing Officer may determine the transfer income in such manner as the officer considers suitable.