Rule 12 of the Draft Income-tax Rules, 2026 prescribes the method for determining income attributable to assets located in India in cases of transfer outside India of shares or interests in a company or entity referred to in section 9(2). The income attributable to Indian assets is computed using a formula: (A × B) ÷ C. Here, A represents the total income from transfer computed as if the share or interest were located in India; B represents the fair market value (FMV) of assets located in India as on the specified date, derived substantially from such assets and computed under Rule 11; and C represents the FMV of all assets of the company or entity as on the specified date, also computed under Rule 11. If the transferor fails to provide required information for applying this formula, the Assessing Officer may determine the income in a manner deemed suitable. Further, the transferor must obtain and furnish, along with the return of income, a report in Form No. 4 certified by an accountant, confirming the correctness of the apportionment and computation of income attributable to Indian assets.
Extract of Rule No. 12 of Draft Income-tax Rules, 2026
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(2) attributable to assets located in India, shall be determined with reference to specified date, by the following formula: —
A X 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;
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.
