We present the first principles study of cubic In₂O₃ with a diatomic defect composed of a Sn atom substituting the In atom at the b-site and a Ga atom embedded in the nearest c-site (structural vacancy) with lattice positions according to the Wyckoff notations. Structural, electronic, phononic and thermal properties were investigated within density functional theory formalism. The lattice anharmonicity effects were taken into account for all possible three-phonon scattering processes. The phonon transport was considered within the Peierls-Boltzmann transport equation with relaxation time approximation. In the relaxed lattice, a strong rearrangement of the initial positions of the atoms in the defect vicinity was revealed, which primarily manifests itself in the displacement of the Sn atom toward another interstitial site. Thus, a cage is formed around the defect by 12 O and 12 In atoms. The calculations of elastic constants and mean square displacements of cage region atoms showed the rattling-like behavior of the Sn atom. Bader charge analysis and electron localization function allowed a deeper understanding and explanation of such behavior. Phonon energy spectra as compared to In₂O₃ and In₂O₃:(Sn) demonstrated flattening of phonon branches with spatial localization of phonon modes. They also revealed a decrease in average group velocities of phonons, including those of acoustic type, the presence of avoided-crossing features in the low energy range, and an increase of available phase space for three-phonon scattering. Accounting for all these vibrational features due to defect atoms resulted in a thermal conductivity drop at room temperature by more than seven times compared to In₂O_3.