Rule 235: Form No. 163 by an Indian concern on an indirect transfer under section 506
Section 506 of the Income-tax Act, 2025 applies where a share of, or interest in, a foreign company or entity derives its value substantially from assets in India, as referred to in section 9(10)(a), and that company or entity holds those assets through or in an Indian concern. The Indian concern must furnish information or documents. Rule 235 prescribes Form No. 163, the time limits, the documents to be maintained, a group-filing option and an eight-year retention period.
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Rule 235 - Information or documents to be furnished under section 506
(1) Every Indian concern referred to in section 506 shall, for the purposes of the said section, maintain and furnish the information and documents in accordance with this rule.
(2) The information shall be furnished in Form No. 163, electronically under digital signature to the Assessing Officer having jurisdiction over the Indian concern, within a period of ninety days from the end of the financial year in which any transfer of the share of, or interest in, foreign company or entity referred to in section 9(10)(a) has taken place and where such transaction in respect of the share or the interest has the effect of directly or indirectly transferring the rights of management or control in relation to the Indian concern, the information shall be furnished in the said form within ninety days of that transaction.
(3) The Indian concern shall maintain the following along with its english translation, as required, and produce the same when called upon to do so by any income-tax authority in the course of any proceeding to substantiate the information furnished under sub-rule (2): — (a) details of the immediate holding company or entity, intermediate holding company or companies or entity or entities and ultimate holding company or entity of the Indian concern; (b) details of other entities in India of the group of which the Indian concern is a constituent; (c) the holding structure of the shares of, or the interest in, the foreign company or entity before and after the transfer; (d) any transfer contract or agreement entered into in respect of the share of, or interest in, any foreign company or entity that holds any asset in India through, or in, the Indian concern; (e) financial and accounting statements of the foreign company or entity which directly or indirectly holds the assets in India through, or in, the Indian concern for two years prior to the date of transfer of the share or interest; (f) information relating to the decision or implementation process of the overall arrangement of the transfer; (g) information in respect of the foreign company or entity and its subsidiaries, relating to — (i) the business operation; (ii) personnel; (iii) finance and properties; (iv) internal and external audit or the valuation report, if any, forming basis of the consideration in respect of share, or the interest; (h) the asset valuation report and other supporting evidence to determine the place of location of the share or interest being transferred; (i) the details of payment of tax outside India, which relates to the transfer of the share or interest; (j) the valuation report in respect of Indian asset and total assets duly certified by a merchant banker or accountant, as defined in section 515(3)(b), with supporting evidence; and (k) documents which are issued in connection with the transactions under the accounting practices followed.
(4) Where there is more than one Indian concern that are constituent entities of a group, the information may be furnished by any one Indian concern, if, — (a) the group has designated such Indian concern to furnish information on behalf of all other Indian concerns that are constituent of the group; and (b) the information regarding the designated Indian concern has been conveyed in writing on behalf of the group to the Assessing Officer.
(5) Nothing contained in this rule shall have effect, if the designated Indian concern fails to furnish the information in accordance with the provisions of this rule.
(6) The Director General Income-tax (Systems) shall send one copy of the Form No. 163 to the Assessing Officer having jurisdiction over the transferor mentioned therein, whose income is chargeable to tax as per section 9(10).
(7) The information and documents specified in sub-rule (3) shall be kept and maintained for a period of eight years from the end of relevant tax year.
(8) For the purposes of this rule, — (a) “constituent entity” shall have the meaning assigned to it in section 511(10)(d); (b) “group” shall have the meaning assigned to it in section 511(10)(e); (c) “immediate holding company or entity” means the company or the entity that directly maintains the controlling interest in the Indian concern; (d) “intermediate holding company or entity” means a company or an entity that has controlling interest in another company or entity and is itself controlled by, or is subsidiary of, another company or entity; and (e) “ultimate holding company or entity” means a company or an entity that has ultimate control of the Indian concern, directly or indirectly, and such company or entity is not itself controlled by, or is subsidiary of, any other company or entity.
Rule breakdown
Duty and form: Rule 235(1) and (2)
Every Indian concern referred to in section 506 must maintain and furnish information and documents in accordance with Rule 235.
The information goes in Form No. 163, electronically under digital signature, to the Assessing Officer having jurisdiction over the Indian concern.
The time limit is ninety days from the end of the financial year in which the transfer of the share or interest took place. Where the transaction has the effect of directly or indirectly transferring the rights of management or control in relation to the Indian concern, the form is due within ninety days of that transaction.
Documents to maintain: Rule 235(3)
The Indian concern must maintain the documents listed in clauses (a) to (k), with an English translation as required, and produce them when called upon by an income-tax authority in any proceeding.
The list includes the holding company chain, other group entities in India, the holding structure before and after the transfer, the transfer agreement, two years of financial statements of the foreign company or entity, the decision and implementation process, business and finance information, valuation reports, details of tax paid outside India, and a valuation report certified by a merchant banker or accountant as defined in section 515(3)(b).
Group filing: Rule 235(4) and (5)
Where a group has more than one Indian concern, one Indian concern may furnish the information if the group has designated it and this has been conveyed in writing on behalf of the group to the Assessing Officer.
Under sub-rule (5) this relief does not apply if the designated Indian concern fails to furnish the information in accordance with the rule.
Forwarding, retention and definitions: Rule 235(6) to (8)
The Director General of Income-tax (Systems) sends a copy of Form No. 163 to the Assessing Officer having jurisdiction over the transferor whose income is chargeable to tax as per section 9(10).
The documents in sub-rule (3) must be kept for eight years from the end of the relevant tax year.
Sub-rule (8) borrows "constituent entity" and "group" from section 511(10)(d) and (e), and defines immediate, intermediate and ultimate holding company or entity.
Key takeaways
Form No. 163 in ninety days
File within ninety days from the end of the financial year of transfer, or within ninety days of a transaction that transfers management or control.
Eleven document heads
Maintain the documents in Rule 235(3)(a) to (k), with English translation as required.
Eight years
Keep the sub-rule (3) records for eight years from the end of the relevant tax year.
Practical checklist
- Track offshore transfers in the group that may fall within section 9(10)(a).
- Check whether the transfer moves management or control of the Indian concern, since that changes the due date.
- Keep the sub-rule (3) documents with English translations ready for production.
Avoid
- Do not rely on another group entity filing unless the designation has been conveyed in writing to the Assessing Officer.
- Do not discard the records before eight years from the end of the relevant tax year.
FAQs
Which Indian concerns must file Form No. 163?
An Indian concern through or in which a foreign company or entity holds Indian assets, where a share of or interest in that foreign company or entity derives its value substantially from assets in India as referred to in section 9(10)(a) (section 506).
Can one group company file for all?
Yes, if the group has designated that Indian concern and conveyed this in writing to the Assessing Officer (Rule 235(4)). Under Rule 235(5) this does not apply if the designated concern fails to furnish the information as required.
How long must the documents be kept?
Eight years from the end of the relevant tax year (Rule 235(7)).
Who certifies the valuation report?
A merchant banker or an accountant as defined in section 515(3)(b), with supporting evidence (Rule 235(3)(j)).
Glossary
- Indian concern
- The concern in India through or in which the foreign company or entity holds Indian assets (section 506(b)).
- Immediate holding company or entity
- The company or entity that directly maintains the controlling interest in the Indian concern (Rule 235(8)(c)).
- Ultimate holding company or entity
- The company or entity with ultimate control of the Indian concern that is not itself controlled by, or a subsidiary of, any other company or entity (Rule 235(8)(e)).