Section 458 Income Tax Act 2025: What Is the Penalty for Failure to Report Indirect Transfers?

Section 458 prescribes a penalty where an Indian concern does not furnish information or documents required under Section 506 about certain transactions involving its shares or interests. The amount depends on whether the transaction transfers management or control.

Updated: 12 November 2026 | Income-tax Act, 2025 (Act 30 of 2025)

At a glance: Penalty is 2% of the transaction value where the transaction directly or indirectly transfers the right of management or control in relation to the Indian concern; Rs. 5,00,000 in any other case. The obligation to report arises under Section 506, not automatically for every foreign share transfer.
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Who is covered by Section 458?

Section 458 applies to an Indian concern that is legally required to furnish information or documents under Section 506 and fails to do so. Section 506 concerns reporting by an Indian concern in certain cases involving an interest in an entity registered or incorporated outside India where the specified transaction has a relevant connection with assets in India.

Accordingly, the reporting obligation, the nature of the foreign entity and the applicable statutory conditions must be examined before treating any non-filing as a default.

What penalty does Section 458 prescribe?

Two statutory alternatives
  • 2% of transaction value: where the transaction in respect of which information was not furnished had the effect of directly or indirectly transferring the right of management or control in relation to the Indian concern.
  • Rs. 5,00,000: in any other case of failure to furnish information or documents required under Section 506.

The prescribed income-tax authority under Section 506 may direct the Indian concern to pay the applicable penalty. Section 458 does not prescribe a daily penalty; the relevant transaction and statutory category determine the amount.

Important statutory terms and concepts

Indian concern: The Indian entity or concern to which the reporting obligation under Section 506 applies. Whether a particular entity is covered must be determined from Section 506 and the applicable rules.
Indirect transfer: A transaction involving an interest in an entity outside India that may derive value from assets located in India. The applicable indirect-transfer provisions and exceptions must be considered separately.
Right of management or control: Rights enabling management or control of the Indian concern, whether transferred directly or indirectly. The contractual and factual effect of the transaction matters for the 2% penalty limb.
Transaction value: The value of the transaction in respect of which the reporting failure occurred, used as the basis for computing the percentage penalty where Section 458(a) applies.

How is the penalty calculated? Practical examples

Example 1: Transaction transfers control

An Indian concern is required to report a qualifying overseas transaction valued at Rs. 20 crore. The transaction indirectly transfers the right of management or control in relation to the Indian concern, but the required information is not furnished. The potential penalty under Section 458(a) is 2% of Rs. 20 crore = Rs. 40 lakh, subject to the statutory facts and available defences.

Example 2: Reportable transaction without transfer of control

Assume a transaction is reportable under Section 506 but does not directly or indirectly transfer management or control in relation to the Indian concern. Failure to furnish the required information may attract the fixed Rs. 5 lakh penalty under Section 458(b).

Example 3: No reporting obligation

If Section 506 does not require the Indian concern to furnish information about the transaction, Section 458 does not impose a penalty merely because a foreign transaction occurred.

Reporting compliance, reasonable cause and procedure

  1. Determine applicability: Examine the foreign ownership structure, Indian assets, the transaction and Section 506.
  2. Identify the prescribed reporting requirement: Check the applicable rules, form, documents and time limit in force for the relevant period.
  3. Preserve evidence: Keep transaction agreements, ownership charts, valuation records, communications and evidence of filing.
  4. Respond to a notice: Explain whether Section 506 applies, whether information was furnished and whether management or control was transferred.
  5. Examine statutory relief: Section 470 addresses reasonable cause for specified penalty defaults, including Section 458; Section 471 governs penalty procedure, including an opportunity of being heard.

The provision is comparable in subject matter to Section 271GA of the Income-tax Act, 1961, which dealt with failure to furnish information under former Section 285A. The applicable law depends on the period and transitional provisions.

Frequently asked questions

Is the penalty always 2%?

No. The 2% limb applies where the relevant transaction transfers management or control, directly or indirectly. Other reportable failures fall under the Rs. 5 lakh limb.

Does Section 458 apply to every overseas acquisition?

No. The Indian concern must first be subject to an information or document furnishing obligation under Section 506.

Is the Rs. 5 lakh penalty imposed for every day of delay?

No. Section 458(b) specifies a fixed amount rather than a per-day rate.

Can reasonable cause be raised?

Yes. Section 470 should be examined for reasonable-cause relief, subject to its precise conditions and proof.

Which older provision corresponds to Section 458?

Section 271GA of the Income-tax Act, 1961 is the broadly corresponding penalty provision, with former Section 285A governing the underlying information obligation.

Official law and further reading

Income-tax Act 2025 - official consolidated textIncome Tax DepartmentIndia Code

Legal information only. Check the applicable statutory text, rules, notifications and facts of the transaction before acting.