Capital Asset, Transfer & Chargeability — Sections 67–71
Capital Asset, Transfer & Chargeability
What triggers capital gains tax — the full scope of Section 67 chargeability, special cases (insurance, buyback, JDA, reconstitution), all 38 transactions not regarded as transfer under Section 70, and when exemption is withdrawn under Section 71.
🔄 Replaces: Sections 45, 46, 46A, 47, 47A of the Income Tax Act 1961
📅 Effective: 1st April 2026 (Tax Year 2026-27 onwards)
Section 67(1) — Core Chargeability Provision
The default rule is straightforward: gain on transfer = taxable in the year of transfer. The savings clause means all exemptions (Sections 82–89) override this default.
Section 67 — Special Chargeability Provisions
Section 67 contains 18 sub-sections covering special situations where the basic rule is modified. Each is a standalone provision:
Where a person receives money or other assets from an insurer on account of damage or destruction of a capital asset due to:
- Flood, typhoon, hurricane, cyclone, earthquake, or other convulsion of nature
- Riot or civil disturbance
- Accidental fire or explosion
- Enemy action or action combating an enemy
The insurance receipt is treated as consideration received on transfer of the capital asset. Full value of consideration = money received + FMV of other assets received on the date of receipt. Taxable in the year of receipt — not the year of damage. [Section 67(2)(b)]
Where a person receives any amount (including bonus) under a ULIP to which the exemption under Schedule II (Table: Sl. No. 2) does not apply (i.e., premium > 10% of sum assured or total premium > ₹2.5 lakh), the profits and gains are chargeable as capital gains in the year of receipt. The taxable amount is computed in the prescribed manner.
When a capital asset is converted into stock-in-trade of a business (e.g., a property developer starts using a self-owned property as inventory):
- Capital gains are NOT taxed at the time of conversion
- They are taxed in the year the stock-in-trade is eventually sold
- Full value of consideration = FMV of the asset on the date of conversion
For securities held in demat form, any transfer by a depository or participant of a beneficial interest in securities is taxable as capital gains of the beneficial owner — not of the depository (who is the registered owner). Key rules:
- Taxable in the year of transfer in the demat account
- Cost of acquisition and holding period determined on First-In-First-Out (FIFO) basis
- The depository's role as nominal registered owner is ignored for tax purposes
Where a person transfers a capital asset to a firm, AOP, or BOI (not a company or co-op) as capital contribution or otherwise:
- Capital gains arise in the year of transfer
- Full value of consideration = amount recorded in the books of the firm/AOP/BOI as value of the capital asset
Where a specified person (partner/member) receives money or capital assets from a specified entity (firm/LLP/AOP) in connection with reconstitution, capital gains arise in the hands of the entity (not the partner). Computed as:
A = Capital gains of the entity
B = Money received by the specified person
C = FMV of capital asset received by the specified person
D = Capital account balance of the specified person (excluding revaluation/self-generated goodwill)
If A is negative, it is deemed to be zero. These provisions operate in addition to Section 8 (partnership income).
For compulsory acquisition (e.g., land acquisition by government), capital gains are dealt with in stages:
| Event | Tax Year of Chargeability |
|---|---|
| Original compensation first received | Year of first receipt |
| Enhanced compensation from court/tribunal | Year of receipt of enhancement |
| Interim order enhanced compensation | Year of final order |
| Compensation reduced by court | Recompute gains with reduced value |
Cost and improvement: For enhanced compensation, cost of acquisition and cost of improvement are taken as nil. If received by legal heir, taxable in heir's hands.
Where an individual or HUF transfers land/building under a registered Joint Development Agreement (JDA) (i.e., they allow a developer to build on their land in exchange for a share of the project):
- Capital gains are deferred — taxable only when the Completion Certificate is issued by the competent authority
- Full value of consideration = stamp duty value of the person's share in the completed project + any cash received
- Exception: If the person sells their share in the project before the Completion Certificate — gains are taxed in the year of such earlier transfer
TDS @ 10% is deducted at the time of credit or payment under Section 393(1), Sl. 3(ii).
Section 68 — Capital Gains on Liquidation of Company
Distribution of assets by a company to its shareholders on liquidation is NOT a transfer by the company — so the company has no capital gains liability on such distribution.
The shareholder is chargeable to capital gains on the amount received. Full value of consideration = money received + market value of other assets received — minus any amount already assessed as dividend [Section 2(40)(c)].
Section 69 — Buy-Back of Shares / Specified Securities
When a company buys back its own shares or other specified securities:
This is taxable as capital gains in the hands of the shareholder in the year in which the company purchases the shares.
Important — Section 69(2): Where the shareholder receives consideration of the nature referred to in Section 2(40)(f) (i.e., consideration from buy-back which was liable to buy-back tax under the old regime), the value of such consideration is deemed to be nil for the purposes of Section 69. This avoids double taxation in transition scenarios.
Section 70 — Transactions NOT Regarded as Transfer (38 Clauses)
Section 70(1) lists 38 specific transactions which are not regarded as a transfer for the purposes of Section 67 — meaning no capital gains arise. These cover corporate restructurings, family arrangements, cross-border transfers, and policy-driven exemptions.
| Clause | Transaction | Old Sec |
|---|---|---|
| (a) | Distribution of capital assets on total or partial partition of HUF | 47(i) |
| (b) | Transfer by individual or HUF under a will, gift, or irrevocable trust | 47(iii) |
| Clause | Transaction | Old Sec |
|---|---|---|
| (c) | Transfer of capital asset (not stock-in-trade) by holding company to 100% subsidiary — if subsidiary is an Indian company | 47(iv) |
| (d) | Transfer by 100% subsidiary to holding company — if holding company is an Indian company | 47(v) |
| (e) | Transfer of capital asset by amalgamating company to amalgamated company — if amalgamated company is an Indian company | 47(vi) |
| (f) | Transfer of shares in amalgamating company by shareholders — in exchange for shares in amalgamated company (Indian company) | 47(vii) |
| (i) | Transfer under banking company amalgamation sanctioned by Central Govt under Section 45(7) of Banking Regulation Act | 47(via) |
| (j) | Transfer of capital asset in demerger — demerged company to resulting company (Indian company) | 47(vib) |
| (k) | Transfer / issue of shares by resulting company to shareholders of demerged company in a demerger scheme | 47(vid) |
| Clause | Transaction | Old Sec |
|---|---|---|
| (g) | Foreign-to-foreign amalgamation of shares — if 25%+ shareholders continue, and no CG tax in country of incorporation | 47(viab) |
| (h) | Foreign-to-foreign amalgamation of shares in foreign company deriving value substantially from Indian shares — if 25%+ shareholders continue | 47(viab) |
| (l) | Foreign demerger — shares of Indian company transferred from demerged foreign company to resulting foreign company (75%+ shareholders continue) | 47(vic) |
| (m) | Foreign demerger of shares in foreign company deriving value substantially from Indian shares (75%+ shareholders continue) | 47(vic) |
| (p) | GDR bonds / rupee bonds — transfer made outside India by non-resident to another non-resident | 47(viia) |
| (q) | Rupee denominated bonds of Indian company — transfer outside India between non-residents | 47(viib) |
| (r) | Non-resident transfer of bonds/GDRs/rupee bonds/derivatives on a recognised stock exchange in IFSC — consideration in foreign currency | 47(viiaa) |
| (s) | Government security (periodic interest) — transfer outside India through intermediary by non-resident to non-resident | 47(viic) |
| (t) & (u) | Relocation of original fund to resultant fund (IFSC-based AIF) — transfer of assets by original fund or shares/units by holders, on or before 31 March 2030 | 47(viiad) |
| Clause | Transaction | Old Sec |
|---|---|---|
| (n) & (o) | Co-operative bank business reorganisation — transfer to successor bank or converted banking company, and shares held by shareholders | 47(vica)/(vicb) |
| (zd) | Firm succeeding to company — all assets/liabilities transfer, all partners become shareholders in same proportion, partners get no other benefit, 50%+ shareholding for 5 years | 47(xiii) |
| (ze) | Private/unlisted company converting to LLP — conditions: same assets/liabilities, shareholders become partners in same proportion, no other benefit, 50%+ sharing for 5 years, turnover ≤ ₹60 lakh, assets ≤ ₹5 crore, no profit distribution for 3 years | 47(xiiib) |
| (zf) | Sole proprietorship converting to company — all assets/liabilities transfer, 50%+ shareholding of proprietor for 5 years, no other benefit | 47(xiv) |
| Clause | Transaction | Old Sec |
|---|---|---|
| (v) | Transfer by India Infrastructure Finance Company Limited to notified infrastructure financing institution | 47(viia) |
| (w) | Transfer of capital asset by public sector company to another notified PSC or Central/State Govt under an approved plan | 47(viii) |
| (x) | Sovereign Gold Bond (SGB) — redemption by an individual | 47(viic) |
| (y) | Electronic Gold Receipt (EGR) — conversion of physical gold to EGR or EGR back to gold (Vault Manager) | 47(viid) |
| (z) | Conversion of bonds / debentures into shares or debentures of the same company | 47(x) |
| (za) | Conversion of GDR bonds into shares or debentures of any company | 47(xa) |
| (zb) | Conversion of preference shares into equity shares of the same company | 47(xb) |
| (zc) | Transfer of works of art / archaeological collections / manuscripts / paintings to Government, University, National Museum, National Art Gallery, National Archives, or notified public museum | 47(ix) |
| (zg) | Securities lending — under SEBI/RBI approved agreement | 47(xv) |
| (zh) | Reverse mortgage — under Central Government notified scheme | 47(xvi) |
| (zi) | Transfer of SPV shares to business trust in exchange for units of the trust | 47(xvii) |
| (zj) | Mutual fund scheme consolidation — unit holder exchanges units in consolidating scheme for units in consolidated scheme | 47(xviii) |
| (zk) | Mutual fund plan consolidation — within the same scheme, consolidating plan merges into consolidated plan | 47(xix) |
| (zl) | Transfer of interest in joint venture by public sector company for shares of a company incorporated outside India by a foreign government | 47(xx) |
Section 71 — Withdrawal of Section 70 Exemption
The exemptions in Section 70 are not permanent — they can be withdrawn if certain conditions are violated. Section 71 covers three scenarios:
| Triggered by | Condition Violated | Consequence |
|---|---|---|
| Section 71(1) Section 70(1)(c) & (d) transfers |
Within 8 years of the holding/subsidiary company transfer — the transferee company converts the asset to stock-in-trade, OR the parent/holding company ceases to hold 100% of the subsidiary | Capital gains that were originally exempt become taxable in the year of violation — deemed income of that year |
| Section 71(2) Section 70(1)(zd) and (zf) |
Any condition of firm-to-company or sole proprietorship-to-company succession violated (50% shareholding, no other benefit, etc.) | Profits/gains not charged earlier deemed capital gains of the successor company in the year of violation |
| Section 71(3) Section 70(1)(ze) |
Any condition of company-to-LLP conversion violated (50% sharing, asset/turnover limits, no profit distribution for 3 years) | Gains deemed as capital gains of the successor LLP or the shareholder (as applicable) in the year of violation |