Section 174 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 174 is an anti-avoidance provision. Where assets are transferred, alone or with associated operations, so that income becomes payable to a non-resident, and the person who made the transfer can enjoy that income, the income is deemed to be his. This article, as per the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026, goes through the section sub-section by sub-section.
If a person, by a transfer of assets (alone or with associated operations), acquires rights giving him power to enjoy income of a non-resident, and that income would have been chargeable to income-tax had it been his, it is deemed to be his income for all purposes of the Act. A capital sum received in connection with the transfer has a similar effect. The section does not apply if he shows to the Assessing Officer's satisfaction that tax avoidance was not a purpose, or that the transactions were bona fide commercial transactions.
Scope
Section 174 is in Chapter X. It applies where there is a transfer of assets "before and after the commencement of this Act". The Act came into force on the 1st April, 2026 (section 1(3)), save as otherwise provided. Later amendments, rules and notifications should be checked.
For the Chapter, see Chapter X of the Income-tax Act, 2025. The provisions that follow deal with securities (see section 175) and with notified jurisdictional areas (see section 176). If you hold assets in a structure with a non-resident entity and need to assess this section, our NRI tax filing team can help.
Section 174(1): when the section applies
Where there is a transfer of assets before and after the commencement of the Act, and by virtue or in consequence of it, (a) either alone, or (b) in conjunction with associated operations, any income becomes payable to a non-resident, the provisions of the section apply.
Section 174(2): income deemed to be the transferor's
If any person (the "first mentioned person"), by means of any transfer referred to in sub-section (1), either alone or in conjunction with associated operations, acquires any rights:
- by virtue of which he has, within the meaning of the section, power to enjoy, whether forthwith or in the future, any income of a non-resident; and
- such income would have been chargeable to income-tax if it were that person's income,
then that income is deemed to be the income of that person for all the purposes of the Act, whether or not it would have been chargeable to income-tax under any other provision.
Section 174(3): capital sums
If the first mentioned person receives or is entitled to receive any capital sum, (a) the payment of which is in any way connected with the transfer or any associated operations, and (b) whether before or after any such transfer, then any income which has become the income of a non-resident by virtue or in consequence of the transfer, alone or with associated operations, is deemed to be the income of the first mentioned person for all purposes of the Act, whether or not it would have been chargeable under any other provision.
Section 174(4): no double counting
Where a person has been charged to income-tax on income deemed his under the section and that income is later received by him, whether as income or in any other form, it is not again deemed to form part of his income.
Section 174(5): the exceptions
The section does not apply if the first mentioned person shows to the satisfaction of the Assessing Officer that:
- (a) neither the transfer nor any associated operation had, for its purpose or for one of its purposes, the avoidance of liability to taxation; or
- (b) the transfer and all associated operations were bona fide commercial transactions and were not designed for the purpose of avoiding liability to taxation.
The burden is on the person: the words are "shows to the satisfaction of the Assessing Officer".
Section 174(6): interpretation
| Clause | Rule |
|---|---|
| (a) | references to assets representing any assets, income or accumulations of income include references to shares in or obligation of any company to which, or obligation of any other person to whom, those assets, that income or those accumulations are or have been transferred |
| (b) | any body corporate incorporated outside India is treated as if it were a non-resident |
| (c) | a person is deemed to have power to enjoy the income of a non-resident if (i) the income is in fact so dealt with by any person as to be calculated at some point of time and, whether in the form of income or not, to enure for the benefit of the first mentioned person; or (ii) the receipt or accrual of the income operates to increase the value to him of any assets held by him or for his benefit; or (iii) he receives or is entitled to receive at any time any benefit provided or to be provided out of that income or out of moneys which are or shall be available for the purpose by reason of the effect or successive effects of the associated operations on that income and assets representing it; or (iv) he has power by means of the exercise of any power of appointment or power of revocation or otherwise to obtain for himself, with or without the consent of any other person, the beneficial enjoyment of the income; or (v) he is able, in any manner whatsoever and directly or indirectly, to control the application of the income |
| (d) | in determining whether a person has power to enjoy income, regard is had to the substantial result and effect of the transfer and any associated operations, and all benefits which may at any time accrue to the person as a result are taken into account irrespective of their nature or form |
Section 174(7): definitions
- "assets" includes property or rights of any kind, and "transfer" in relation to rights includes the creation of those rights;
- "associated operation" in relation to any transfer means an operation of any kind effected by any person in relation to (i) any of the assets transferred, (ii) any assets representing, directly or indirectly, any of the assets transferred, (iii) the income arising from any such assets, or (iv) any assets representing, directly or indirectly, the accumulations of income arising from any such assets;
- "benefit" includes a payment of any kind;
- "capital sum" means (i) any sum paid or payable by way of a loan or repayment of a loan, and (ii) any other sum paid or payable otherwise than as income, being a sum not paid or payable for full consideration in money or money's worth.
How the pieces fit
Section 174 asks four questions in order:
- Was there a transfer of assets, and does income become payable to a non-resident because of it (alone or with associated operations)?
- Does the first mentioned person have power to enjoy that income, under any of the five routes in sub-section (6)(c), judged by substantial result and effect under (6)(d)?
- Would the income have been chargeable to income-tax had it been his? If yes, it is deemed his (sub-section (2)).
- Does an exception in sub-section (5) apply, because the avoidance of tax was not a purpose or the transactions were bona fide commercial?
Separately, sub-section (3) reaches a capital sum connected with the transfer, even where power to enjoy is not shown.
A worked example
Names and amounts are invented.
Rajan Pillai transfers shares in his Indian family business to Lakeview Holdings, a company incorporated outside India, which is treated as a non-resident under sub-section (6)(b). Dividends then become payable to Lakeview. Under the arrangements, a benefit out of the dividends is provided to Rajan from time to time and he can direct the use of the funds, so he has power to enjoy under sub-section (6)(c)(iii) and (v).
- If the dividends of Rs. 6,00,000 would have been chargeable to income-tax had they been Rajan's income, sub-section (2) deems Rs. 6,00,000 to be his income.
- If Rajan later receives that Rs. 6,00,000 from Lakeview, it is not again deemed part of his income (sub-section (4)).
- If he shows the Assessing Officer that the transfer and all associated operations were bona fide commercial transactions not designed to avoid tax, the section does not apply (sub-section (5)(b)).
Need help with an anti-avoidance review?
The tests turn on facts: what was transferred, what operations followed and what benefits flow back. Our NRI tax filing service can review a structure against section 174 and help you prepare the evidence for sub-section (5).
Key takeaways
- The section applies where income becomes payable to a non-resident by virtue or in consequence of a transfer of assets, alone or with associated operations.
- A person with power to enjoy that income is taxed on it as his own, if it would have been chargeable in his hands.
- A capital sum connected with the transfer can also bring non-resident income into the person's income.
- Income already charged is not counted again when it is later received.
- The person must satisfy the Assessing Officer of no tax-avoidance purpose or of bona fide commercial transactions.
Read next
- Sections 171 to 173: documents, accountant's report and definitions
- Section 175: avoidance of tax by certain transactions in securities
- Section 176: notified jurisdictional area
- Chapter X of the Income-tax Act, 2025
Disclaimer: Based on the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026, as consulted on 2 October 2026. It explains the words of the Act only; the Income-tax Rules, 2026, notifications, circulars, later amendments and the way the tax authorities and courts apply these provisions should be checked. This article is general information, not legal advice; check the official text before acting.