Section 9 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 9(2)(d) deems income from the transfer of a capital asset situated in India to arise in India. Sub-section (10) extends this to shares or interests in a company or entity registered or incorporated outside India which derive their value substantially from assets in India. Sub-sections (11) to (13) add a rule for non-residents, protection for eligible investment funds and their fund managers, and the meaning of "through". This article explains these sub-sections as per the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026.
A share or interest in a foreign company or entity is deemed to be situated in India if it derives its value substantially from Indian assets: on the specified date, the Indian assets must be worth more than ten crore rupees and be at least 50 per cent of all the assets. Only the part of the income attributable to Indian assets is taxed, and some holders (certain foreign portfolio investors, and small holders with no control and not more than 5 per cent) are excluded. An eligible investment fund does not get a business connection in India merely because its eligible fund manager is here.
Where this article sits
This is the third article on section 9. Sub-sections (1) to (8) are in the first article and sub-section (9) in the second. A sale of foreign shares by a non-resident can still attract Indian tax; our NRI tax filing team looks at the Indian-asset tests first.
Section 9(10): shares that derive value from India
(a) The rule
For the purposes of sub-section (2), an asset or capital asset, being any share of, or interest in, a company or entity registered or incorporated outside India, is deemed to be situated in India if the share or interest derives, directly or indirectly, its value substantially from assets (tangible or intangible) located in India.
(b) When value is "substantial"
The share or interest is deemed to derive its value substantially from Indian assets if, on the specified date, the value of such assets:
| Test | Requirement |
|---|---|
| (i) Amount | Exceeds ten crore rupees |
| (ii) Proportion | Represents at least 50 per cent of the value of all the assets owned by the company or entity |
Both tests must be met.
(c) How the value is found
The value of an asset is its fair market value on the specified date, without reduction of liabilities, if any, in respect of the asset, determined in the manner as may be prescribed. The detail is left to the Income-tax Rules, 2026.
(d) and (e): the specified date and the accounting period
The "specified date" is:
- (i) the date on which the accounting period of the company or entity ends preceding the date of transfer of the share or interest; or
- (ii) the date of transfer, if the book value of the assets on the date of transfer exceeds the book value as on the date in (i) by 15 per cent.
"Accounting period" means: (i) each period of twelve months ending with the 31st March; (ii) each period of twelve months ending with another date, where the company or entity regularly adopts that period for complying with the tax laws of the territory of which it is a resident, or for reporting to persons holding the share or interest; (iii) for a new company or entity, the period from the date of registration or incorporation to the 31st March or that other date, with later periods being successive twelve-month periods; or (iv) where it ceases to exist before the end of the accounting period, the period from the 1st April (or that other date) to the day before it ceases to exist.
The text of clause (d)(ii) says "exceeds ... by 15%". It does not say what happens if the excess is exactly 15 per cent, so a case at the borderline should be read against the official text.
(f) Only the Indian part is taxed
If (i) a non-resident transferor transfers outside India any share of, or interest in, a company or entity registered or incorporated outside India, and (ii) all the assets owned, directly or indirectly, by that company or entity are not located in India, then the income referred to in sub-section (2) is only the part reasonably attributable to assets located in India, determined in the manner as may be prescribed.
(g) Exclusions
The income referred to in sub-section (2) does not include income from transfer, outside India, of any share of, or interest in, a foreign company or entity:
- (i) if the share or interest is held by a non-resident by way of investment, directly or indirectly, in (A) a Category I or Category II foreign portfolio investor under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014, prior to their repeal, or (B) a Category I foreign portfolio investor under the Regulations of 2019;
- (ii) if the company or entity directly owns the Indian assets and the transferor (alone or with its associated enterprises), at any time in the twelve months preceding the transfer, (A) does not hold the right of management or control, and (B) does not hold voting power, share capital or interest exceeding 5 per cent of the total; or
- (iii) if the company or entity indirectly owns the Indian assets and the transferor (alone or with associated enterprises), at any time in the twelve months preceding the transfer, (A) does not hold the right of management or control in that company or entity, (B) does not hold any right which would entitle it to the right of management or control in the company or entity which directly owns the Indian assets, and (C) does not hold voting power, share capital or interest in the company or entity that results in holding (alone or with associated enterprises) more than 5 per cent of the total in the company or entity directly owning the Indian assets.
"Associated enterprises" has the meaning in section 162. The Regulations named are other laws; check them.
Example: a foreign holding company
Pacific Holdings Ltd (an invented company registered outside India) owns, directly or indirectly, assets with a fair market value on the specified date of Rs. 30 crore located in India out of total assets of Rs. 50 crore. The Indian assets exceed ten crore rupees, and 30 divided by 50 is 60 per cent, which is at least 50 per cent. Both tests in clause (b) are met, so its shares are deemed to be situated in India. A non-resident, Mr Lee, sells his shares outside India. As the company's assets are not all in India, only the part of Mr Lee's income reasonably attributable to the Indian assets is within section 9(2), determined in the manner as may be prescribed, under clause (f). If, however, Mr Lee held 4 per cent of the voting power, held no right of management or control, and the company directly owned the Indian assets, clause (g)(ii) would exclude his income altogether.
Example: the 15 per cent rule
The book value of the assets of an overseas entity at the end of its last accounting period is Rs. 100 crore. On the date of transfer it is Rs. 116 crore, which is 16 per cent higher. Under clause (d)(ii), the specified date is then the date of transfer, and the tests in clause (b) are applied on that date.
Section 9(11): non-residents and royalty, technical fees and interest
In sub-sections (5), (6) and (7), income of a non-resident is deemed to accrue or arise in India and is included in his total income whether or not (a) he has a residence, place of business or business connection in India, or (b) he has rendered services in India.
Section 9(12): eligible investment funds and eligible fund managers
- (a) Fund management activity carried out by an eligible investment fund through an eligible fund manager acting on its behalf does not constitute a business connection in India of that fund.
- (b) The fund is not resident in India under section 6 merely because the eligible fund manager is situated in India.
- (c) Nothing in section 9 excludes any income from the fund's total income which would have been included irrespective of whether the manager's activity was a business connection.
- (d) Nothing in section 9 affects the scope or determination of total income of the eligible fund manager.
- (e) The conditions for being an eligible investment fund or eligible fund manager, and the furnishing of statements, are as per Schedule I (see our post on Schedule I and exempt income).
- (f) The Central Government may, by notification, specify that any of the conditions in (e) shall not apply, or shall apply with modifications, for an eligible investment fund and its eligible fund manager if the manager is located in an International Financial Services Centre and has commenced operations on or before the 31st March, 2030. What has been notified is not in the text consulted.
Section 9(13): meaning of "through"
For section 9, "through" means and includes "by means of", "in consequence of" or "by reason of". This wide meaning applies, for example, to the words "through or from" in sub-section (2).
Need help with a cross-border share transfer?
Whether shares of a foreign company derive their value from India, and which part of the gain is attributable here, depend on valuation and holding facts. For help with the Indian tax side of an overseas share deal, see our NRI tax filing service.
Key takeaways
- A share or interest in a foreign company or entity is deemed situated in India if it derives value substantially from Indian assets.
- "Substantially" needs Indian assets above ten crore rupees and at least 50 per cent of all assets on the specified date.
- Value is fair market value without reduction of liabilities; the method is left to the rules.
- Only the part attributable to Indian assets is taxed where not all assets are in India.
- Certain foreign portfolio investors and small, non-controlling holders (not exceeding 5 per cent) are excluded.
- An eligible investment fund does not create a business connection or residence by using an eligible fund manager in India; the conditions are in Schedule I.
Read next
- Section 9: salary, dividend, interest, royalty and technical fees (sub-sections 1 to 8)
- Section 9: business connection and significant economic presence (sub-section 9)
- Schedule I: exempt income
- Section 6: residential status
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.