diff --git a/src/compiler/checker.ts b/src/compiler/checker.ts
index 2675f06824744..978970927313f 100644
--- a/src/compiler/checker.ts
+++ b/src/compiler/checker.ts
@@ -10349,8 +10349,16 @@ namespace ts {
             return links.resolvedType;
         }
 
-        function getActualTypeVariable(type: Type) {
-            return type.flags & TypeFlags.Substitution ? (<SubstitutionType>type).typeVariable : type;
+        function getActualTypeVariable(type: Type): Type {
+            if (type.flags & TypeFlags.Substitution) {
+                return (<SubstitutionType>type).typeVariable;
+            }
+            if (type.flags & TypeFlags.IndexedAccess && (
+                (<IndexedAccessType>type).objectType.flags & TypeFlags.Substitution ||
+                (<IndexedAccessType>type).indexType.flags & TypeFlags.Substitution)) {
+                return getIndexedAccessType(getActualTypeVariable((<IndexedAccessType>type).objectType), getActualTypeVariable((<IndexedAccessType>type).indexType));
+            }
+            return type;
         }
 
         /**
@@ -15030,6 +15038,9 @@ namespace ts {
                         target = removeTypesFromUnionOrIntersection(<UnionOrIntersectionType>target, matchingTypes);
                     }
                 }
+                else if (target.flags & (TypeFlags.IndexedAccess | TypeFlags.Substitution)) {
+                    target = getActualTypeVariable(target);
+                }
                 if (target.flags & TypeFlags.TypeVariable) {
                     // If target is a type parameter, make an inference, unless the source type contains
                     // the anyFunctionType (the wildcard type that's used to avoid contextually typing functions).
@@ -15091,9 +15102,6 @@ namespace ts {
                         }
                     }
                 }
-                else if (target.flags & TypeFlags.Substitution) {
-                    inferFromTypes(source, (target as SubstitutionType).typeVariable);
-                }
                 if (getObjectFlags(source) & ObjectFlags.Reference && getObjectFlags(target) & ObjectFlags.Reference && (<TypeReference>source).target === (<TypeReference>target).target) {
                     // If source and target are references to the same generic type, infer from type arguments
                     const sourceTypes = (<TypeReference>source).typeArguments || emptyArray;
diff --git a/tests/baselines/reference/substitutionTypesInIndexedAccessTypes.js b/tests/baselines/reference/substitutionTypesInIndexedAccessTypes.js
new file mode 100644
index 0000000000000..c8a8ad5f227e7
--- /dev/null
+++ b/tests/baselines/reference/substitutionTypesInIndexedAccessTypes.js
@@ -0,0 +1,30 @@
+//// [substitutionTypesInIndexedAccessTypes.ts]
+// Repro from #31086
+
+type UserArgs = {
+  select?: boolean
+};
+
+type Subset<T, U> = { [key in keyof T]: key extends keyof U ? T[key] : never };
+
+declare function withBoundary<T extends UserArgs>(args?: Subset<T, UserArgs>): T;
+declare function withoutBoundary<T extends UserArgs>(args?: T): T;
+
+const boundaryResult = withBoundary({
+  select: true,
+});
+
+const withoutBoundaryResult = withoutBoundary({
+  select: true,
+});
+
+
+//// [substitutionTypesInIndexedAccessTypes.js]
+"use strict";
+// Repro from #31086
+var boundaryResult = withBoundary({
+    select: true
+});
+var withoutBoundaryResult = withoutBoundary({
+    select: true
+});
diff --git a/tests/baselines/reference/substitutionTypesInIndexedAccessTypes.symbols b/tests/baselines/reference/substitutionTypesInIndexedAccessTypes.symbols
new file mode 100644
index 0000000000000..a0633c2320ec1
--- /dev/null
+++ b/tests/baselines/reference/substitutionTypesInIndexedAccessTypes.symbols
@@ -0,0 +1,58 @@
+=== tests/cases/compiler/substitutionTypesInIndexedAccessTypes.ts ===
+// Repro from #31086
+
+type UserArgs = {
+>UserArgs : Symbol(UserArgs, Decl(substitutionTypesInIndexedAccessTypes.ts, 0, 0))
+
+  select?: boolean
+>select : Symbol(select, Decl(substitutionTypesInIndexedAccessTypes.ts, 2, 17))
+
+};
+
+type Subset<T, U> = { [key in keyof T]: key extends keyof U ? T[key] : never };
+>Subset : Symbol(Subset, Decl(substitutionTypesInIndexedAccessTypes.ts, 4, 2))
+>T : Symbol(T, Decl(substitutionTypesInIndexedAccessTypes.ts, 6, 12))
+>U : Symbol(U, Decl(substitutionTypesInIndexedAccessTypes.ts, 6, 14))
+>key : Symbol(key, Decl(substitutionTypesInIndexedAccessTypes.ts, 6, 23))
+>T : Symbol(T, Decl(substitutionTypesInIndexedAccessTypes.ts, 6, 12))
+>key : Symbol(key, Decl(substitutionTypesInIndexedAccessTypes.ts, 6, 23))
+>U : Symbol(U, Decl(substitutionTypesInIndexedAccessTypes.ts, 6, 14))
+>T : Symbol(T, Decl(substitutionTypesInIndexedAccessTypes.ts, 6, 12))
+>key : Symbol(key, Decl(substitutionTypesInIndexedAccessTypes.ts, 6, 23))
+
+declare function withBoundary<T extends UserArgs>(args?: Subset<T, UserArgs>): T;
+>withBoundary : Symbol(withBoundary, Decl(substitutionTypesInIndexedAccessTypes.ts, 6, 79))
+>T : Symbol(T, Decl(substitutionTypesInIndexedAccessTypes.ts, 8, 30))
+>UserArgs : Symbol(UserArgs, Decl(substitutionTypesInIndexedAccessTypes.ts, 0, 0))
+>args : Symbol(args, Decl(substitutionTypesInIndexedAccessTypes.ts, 8, 50))
+>Subset : Symbol(Subset, Decl(substitutionTypesInIndexedAccessTypes.ts, 4, 2))
+>T : Symbol(T, Decl(substitutionTypesInIndexedAccessTypes.ts, 8, 30))
+>UserArgs : Symbol(UserArgs, Decl(substitutionTypesInIndexedAccessTypes.ts, 0, 0))
+>T : Symbol(T, Decl(substitutionTypesInIndexedAccessTypes.ts, 8, 30))
+
+declare function withoutBoundary<T extends UserArgs>(args?: T): T;
+>withoutBoundary : Symbol(withoutBoundary, Decl(substitutionTypesInIndexedAccessTypes.ts, 8, 81))
+>T : Symbol(T, Decl(substitutionTypesInIndexedAccessTypes.ts, 9, 33))
+>UserArgs : Symbol(UserArgs, Decl(substitutionTypesInIndexedAccessTypes.ts, 0, 0))
+>args : Symbol(args, Decl(substitutionTypesInIndexedAccessTypes.ts, 9, 53))
+>T : Symbol(T, Decl(substitutionTypesInIndexedAccessTypes.ts, 9, 33))
+>T : Symbol(T, Decl(substitutionTypesInIndexedAccessTypes.ts, 9, 33))
+
+const boundaryResult = withBoundary({
+>boundaryResult : Symbol(boundaryResult, Decl(substitutionTypesInIndexedAccessTypes.ts, 11, 5))
+>withBoundary : Symbol(withBoundary, Decl(substitutionTypesInIndexedAccessTypes.ts, 6, 79))
+
+  select: true,
+>select : Symbol(select, Decl(substitutionTypesInIndexedAccessTypes.ts, 11, 37))
+
+});
+
+const withoutBoundaryResult = withoutBoundary({
+>withoutBoundaryResult : Symbol(withoutBoundaryResult, Decl(substitutionTypesInIndexedAccessTypes.ts, 15, 5))
+>withoutBoundary : Symbol(withoutBoundary, Decl(substitutionTypesInIndexedAccessTypes.ts, 8, 81))
+
+  select: true,
+>select : Symbol(select, Decl(substitutionTypesInIndexedAccessTypes.ts, 15, 47))
+
+});
+
diff --git a/tests/baselines/reference/substitutionTypesInIndexedAccessTypes.types b/tests/baselines/reference/substitutionTypesInIndexedAccessTypes.types
new file mode 100644
index 0000000000000..df7e4af01e618
--- /dev/null
+++ b/tests/baselines/reference/substitutionTypesInIndexedAccessTypes.types
@@ -0,0 +1,46 @@
+=== tests/cases/compiler/substitutionTypesInIndexedAccessTypes.ts ===
+// Repro from #31086
+
+type UserArgs = {
+>UserArgs : UserArgs
+
+  select?: boolean
+>select : boolean | undefined
+
+};
+
+type Subset<T, U> = { [key in keyof T]: key extends keyof U ? T[key] : never };
+>Subset : Subset<T, U>
+
+declare function withBoundary<T extends UserArgs>(args?: Subset<T, UserArgs>): T;
+>withBoundary : <T extends UserArgs>(args?: Subset<T, UserArgs> | undefined) => T
+>args : Subset<T, UserArgs> | undefined
+
+declare function withoutBoundary<T extends UserArgs>(args?: T): T;
+>withoutBoundary : <T extends UserArgs>(args?: T | undefined) => T
+>args : T | undefined
+
+const boundaryResult = withBoundary({
+>boundaryResult : { select: true; }
+>withBoundary({  select: true,}) : { select: true; }
+>withBoundary : <T extends UserArgs>(args?: Subset<T, UserArgs> | undefined) => T
+>{  select: true,} : { select: true; }
+
+  select: true,
+>select : true
+>true : true
+
+});
+
+const withoutBoundaryResult = withoutBoundary({
+>withoutBoundaryResult : { select: true; }
+>withoutBoundary({  select: true,}) : { select: true; }
+>withoutBoundary : <T extends UserArgs>(args?: T | undefined) => T
+>{  select: true,} : { select: true; }
+
+  select: true,
+>select : true
+>true : true
+
+});
+
diff --git a/tests/cases/compiler/substitutionTypesInIndexedAccessTypes.ts b/tests/cases/compiler/substitutionTypesInIndexedAccessTypes.ts
new file mode 100644
index 0000000000000..4a89ea3759533
--- /dev/null
+++ b/tests/cases/compiler/substitutionTypesInIndexedAccessTypes.ts
@@ -0,0 +1,20 @@
+// @strict: true
+
+// Repro from #31086
+
+type UserArgs = {
+  select?: boolean
+};
+
+type Subset<T, U> = { [key in keyof T]: key extends keyof U ? T[key] : never };
+
+declare function withBoundary<T extends UserArgs>(args?: Subset<T, UserArgs>): T;
+declare function withoutBoundary<T extends UserArgs>(args?: T): T;
+
+const boundaryResult = withBoundary({
+  select: true,
+});
+
+const withoutBoundaryResult = withoutBoundary({
+  select: true,
+});