Section 174 - Avoidance of income-tax by transactions resulting in transfer of income to non-residents
This is a transfer-abroad anti-avoidance rule. Legal ownership overseas is not conclusive where the Indian person retains economic enjoyment, control or access to benefits.
Reviewed by CA Nikhil Gupta · Updated 9 October 2026
Current law and effective date
Section 174 is controlled against the consolidated Income-tax Act, 2025 as amended by the Finance Act, 2026. The Act and Income-tax Rules, 2026 operate from 1 April 2026; earlier years and saved proceedings require the repeal-and-savings framework rather than automatic migration.
Primary statute: Income Tax Department consolidated Act | Rules: Notified Income-tax Rules, 2026
2-minute decode
This is a transfer-abroad anti-avoidance rule. Legal ownership overseas is not conclusive where the Indian person retains economic enjoyment, control or access to benefits.
Who should use this section
Persons involved in asset transfers or associated operations that cause income to become payable to a non-resident and can trigger the statutory anti-avoidance attribution.
Old-law bridge
section 93
The old-law bridge is navigational, not automatic precedent transfer. Match the 1961 Act wording, saved proceedings, current 2025 Act text and effective date before importing an older interpretation.
Finance Act 2026 / current-law note
No section-specific Finance Act, 2026 textual substitution is separately flagged for section 174; the consolidated post-Finance-Act-2026 text remains the controlling version and must be used instead of pre-1 April 2026 extracts.
Professional alert
Application caution The defence is evidence-heavy. Commercial purpose, governance, control, funding and benefit flows should be documented contemporaneously.
Connected Income-tax Rules, 2026 and Forms
| Rule | Current control | Form |
|---|---|---|
| Rule 77-85 | Transfer-pricing / anti-avoidance context where relevant; no standalone procedural Form mapped | - |
Worked application
An Indian resident transfers an income-producing portfolio to an offshore company but can revoke the arrangement or direct distributions for personal benefit. Section 174 requires a substance-based attribution test.
Evidence / compliance checklist
- transfer deed (section 174 evidence control 1).
- commercial-purpose paper (section 174 evidence control 2).
- governance and control records (section 174 evidence control 3).
- benefit and distribution trail (section 174 evidence control 4).
Common mistake
A common section 174 error is to apply the old-law label or headline rate without rebuilding the current statutory conditions. For “Transfer of income to non-residents”, the safer control is to test the exact taxpayer/transaction facts, the operative tax year, every linked Rule/Form and the Finance Act 2026 consolidated wording. Application caution The defence is evidence-heavy. Commercial purpose, governance, control, funding and benefit flows should be documented contemporaneously.
Recommended approach
For section 174, start with the legal trigger in “Transfer of income to non-residents”, document the evidence for that trigger, then run the computation or procedural step against the current text. As a cross-check, verify this provision-specific checkpoint: This is a transfer-abroad anti-avoidance rule. Legal ownership overseas is not conclusive where the Indian person retains economic enjoyment, control or access to benefits.
Thresholds, periods and timing checkpoints
- Section 174 contains no standalone numeric checkpoint extracted for the register; apply its operative conditions from the current statutory text.
Related provisions and interaction map
Section 174 is one of the sections 174-177 specific anti-avoidance measures; Chapter XI GAAR applies only if independently attracted, with treaty and withholding provisions checked for this fact pattern.
Provision summary - verify verbatim text in the official Act
Text-status note: This guide does not reproduce the complete verbatim provision for section 174. Use the linked official consolidated Act before quoting sub-section language or preparing a filing, opinion or litigation document.
Primary-source trail
Statute: Income-tax Act, 2025 as amended by Finance Act, 2026
Rules: Income-tax Rules, 2026
Law navigation: Income Tax Department 2025 Act / Rules hub
Quoting note: Use the official consolidated Act for verbatim legislative language.
FAQs
Does an old Income-tax Act, 1961 case automatically decide section 174?
No. The old-law bridge helps research, but transferability depends on materially matching language, transition rules and any Finance Act 2026 change.
Which text should be quoted in advice or litigation?
Quote the consolidated official statute for the relevant tax year. If this page presents a provision summary rather than complete statutory text, use the official consolidated Act for verbatim legislative language.