Trying to Shift Income Offshore? Section 93 Can Pull It Back to India

Section 93 isn’t a routine compliance clause. It was built as a safety valve in the Indian tax structure — a tool to stop individuals & entities from diverting income overseas simply to avoid Indian taxes. When globalisation picked up pace, several residents began setting up entities abroad or shifting ownership of assets to non-resident associates. Though on paper it looked like legitimate cross-border planning, in many cases, the intention was to shift income outside India’s tax net while maintaining control over the same funds or assets.

To curb this, the legislature introduced Section 93 of the Income Tax Act, empowering the tax department to treat such diverted income as taxable in India if the transaction was primarily meant to avoid taxation.

Statutory Text Simplified

Section 93 states that if a person, by means of transfer of assets, rights, or income, directly or indirectly reduces their income chargeable to tax in India — particularly through arrangements with non-residents — then any income arising from such assets may be deemed to be the income of that person.

In simpler words, if a resident tries to shift taxable income to a foreign entity or relative abroad to escape Indian tax, the law steps in & says:

“Even though the income legally appears outside India, for tax purposes, it will be treated as if it still belongs to you.”

That’s why Section 93 is a deeming provision — it creates a legal fiction where income that seems non-taxable becomes taxable by law."

Key Ingredients of Section 93

For the provision to apply, three key conditions generally coexist:

1. There is a transfer of assets or rights – This may include shares, securities, immovable property, or even intangible rights.
2. The transfer results in avoidance or reduction of Indian tax liability – If the transaction is structured primarily to minimise taxes in India.
3. The transferee is a non-resident or foreign entity – Typically an offshore company, trust, or relative living abroad.

When these elements are found, the Assessing Officer can invoke Section 93 & include the related income in the hands of the Indian resident.

Also Read: Income Deemed to Accrue or Arise in India

Scope and Application

The reach of Section 93 is intentionally broad. It captures not only direct transfers but also indirect or round-tripped structures, where the asset may pass through multiple entities before landing overseas.

For example:

• A resident transfers shares of an Indian company to a foreign subsidiary at a nominal value.
• The subsidiary later sells those shares at a profit.
  Even though the sale technically happens abroad, the profit may be taxable in India under Section 93, as the initial transfer was structured to avoid tax.

This prevents residents from creating artificial layers of non-residency to bypass domestic tax liability.

Relation to General Anti-Avoidance Rules (GAAR)

India introduced GAAR much later (effective from FY 2017-18), but Section 93 was one of its earliest anti-avoidance forerunners. While GAAR applies to arrangements lacking commercial substance, Section 93 specifically targets cross-border transfers that shift income to non-residents.

You can think of it as an old-school version of GAAR focused on offshore transactions. Together, they strengthen India’s capacity to look beyond form & examine the substance of a deal.

How Section 93 Works in Practice

Here’s a real-world style illustration.

Suppose Mr. Arjun, an Indian resident, owns a profitable consultancy firm in Mumbai. He creates a subsidiary in Dubai & transfers certain intellectual-property rights to that entity at minimal value. The Dubai firm then earns high fees from the same clients and pays little tax there. From an accounting perspective, the income now arises in Dubai. But from a tax perspective, the Indian department can invoke Section 93, arguing that Arjun deliberately transferred the asset to a non-resident entity to avoid Indian tax.

In such a case, the income generated in Dubai can be taxed in Arjun’s hands in India, as if the transfer never took place.

Why It’s Called a Deeming Provision

A deeming provision creates a legal assumption that something is true even if, in fact, it may not be. Section 93 “deems” the transferred income as belonging to the transferor (the Indian resident). This principle prevents technical loopholes from defeating the broader intention of the law — taxing income where the economic benefit truly arises.

So, even if the asset or income technically belongs to a foreign person, the law can still treat it as belonging to the Indian transferor for tax purposes.

Also Read: The Hidden Tax That Can Surprise LLPs & Partnerships

Taxability of Income in the Hands of Residents

A crucial aspect of Section 93 is the taxability of income in the hands of residents where transfer of assets to non-residents has occurred.

If such a transfer effectively results in:

• Income being received or accrued to a non-resident, and
• The transfer leading to reduced taxation in India,

then that income is taxed as if it had accrued directly to the resident transferor."

This ensures that tax revenue does not leak due to artificial offshore arrangements. The section thereby upholds the residency-based taxation principle — global income of residents remains taxable in India, regardless of where it’s parked.

Connection with Deductions and Expenses

Although the section primarily prevents evasion, it also interacts indirectly with deductions.
The reason is simple — once income is deemed to belong to the resident, eligible deductions for expenses related to that income may also follow the same person.

So, Section 93 provides for deductions for eligible expenses, ensuring fairness. It doesn’t merely punish avoidance but also recognises legitimate business expenditure where genuine transactions exist.

Global Parallels and Influence

Many countries have similar anti-avoidance frameworks.
For instance:

• The UK has “Transfer of Assets Abroad” rules,
• The US uses “Controlled Foreign Corporation” (CFC) regulations,
• Australia &  Canada have comparable deeming rules.

Section 93 of the Income Tax Act aligns with these international principles, signalling India’s commitment to preventing tax base erosion through offshore transfers.

Judicial Interpretation and Case References

Indian courts have consistently supported the intent behind Section 93. They emphasise that substance prevails over form when determining whether a transaction is aimed at tax avoidance.

Key takeaways from jurisprudence:

• The section applies even if the transfer took place before the income arises, as long as it was structured to avoid tax.
• Motive matters — genuine commercial transactions are outside its scope.
• The burden of proof lies initially with the department to show intent to avoid tax.

The courts, while strict on abuse, have maintained balance by protecting legitimate business structuring.

Also Read: A Detailed Guide on Bilateral Relief from Double Taxation

Compliance and Reporting

In practical terms, residents engaged in cross-border transfers must maintain:

• Proper valuation documentation for assets transferred abroad.
• Disclosures in income-tax returns for foreign investments & entities (Schedule FA).
• Evidence that the transfer had a commercial rationale other than tax reduction.

Ignoring these may invite scrutiny under Section 93 along with penalties & prosecution in severe cases.

Illustration of Application

Let’s consider another example for clarity:

An Indian entrepreneur transfers ownership of a digital trademark to her Singapore-based company at a nominal cost. The Singapore entity then licenses the trademark back to Indian firms for substantial royalties.

Even though the royalty income technically accrues to the Singapore entity, the arrangement results in avoidance of income-tax by transfer of income to non-residents.
The Assessing Officer can therefore apply Section 93, treating the royalty as income of the Indian entrepreneur for taxation purposes.

How Section 93 Strengthens India’s Tax Integrity

This provision is vital in a world where digital assets and offshore accounts are easy to set up. Without it, residents could easily reduce their Indian taxable income by routing funds through low-tax jurisdictions."

By allowing tax authorities to “look through” such transfers, Section 93 creates accountability & ensures that tax follows control — whoever ultimately benefits from the income bears the tax burden.

Also Read: The New Tax Exemption Rule for Specified Authorities

Key Highlights at a Glance

Conclusion

Section 93 of the Income Tax Act, 1961 is one of India’s most crucial anti-avoidance tools. It prevents residents from escaping tax by shifting income abroad under the guise of asset transfers or offshore entities. By deeming such diverted income taxable in India, it protects the country’s tax base & reinforces the principle of economic substance. For businesses and individuals involved in cross-border dealings, transparency & documentation are key. If your structure involves offshore transfers, it’s wise to review compliance under Section 93 before a tax officer does.

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