Transfer of Capital Asset AY 2026-27

By | May 6, 2026
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Transfer of Capital Asset

Introduction
“Transfer” refers to the passage of rights in a property from one person to another. It is defined inclusively under Section 2(47) of the Income-tax Act.

Meaning of Transfer
Transfer of a capital assets includes:

  • Sale, exchange or relinquishment of the assets
  • Extinguishment of any rights
  • Compulsory acquisition under any law
  • Conversion into stock-in-trade
  • Maturity or redemption of zero-coupon bonds
  • Transaction involving the allowance of the possession of any immovable property
  • any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property.

Transactions Not Regarded as ‘Transfer’ for Capital Gains

Certain transactions are specifically excluded from the scope of “transfer” under Section 47 of the Income-tax Act, 1961, thereby exempting them from capital gains tax.

Exempted Transactions under Section 47

  • Partition of HUF [Section 47(i)]:Distribution of capital assets during the partition of a Hindu Undivided Family (HUF).
  • Gift, Will, or Trust [Section 47(iii)]:Transfer of a capital asset by an individual or HUF under a gift, Will, or irrevocable trust.
  • Transfer of Capital Assets between Holding and Subsidiary Companies [Section 47(iv)/(v)]: Transfer of capital assets from a holding company to its Indian subsidiary company, or from a subsidiary company to its Indian holding company, subject to certain conditions.
  • Transfer in Business Restructuring (Amalgamation/Demerger/business reorganisation) [Section 47(vi) to 47(vii)]:Transfers of capital assets under schemes of amalgamation, demerger, or business reorganisation are not treated as “transfer” under the Income Tax Act if specified conditions are fulfilled. This includes:
  • Amalgamation:
  • Transfer of assets from amalgamating company to Indian amalgamated company;
  • Shareholders transferring shares in amalgamating company in exchange for shares in Indian amalgamated company;
  • Transfer of shares of Indian Co. under a scheme of amalgamation of two foreign companies; and
  • Transfer of shares of foreign co. which derives, directly or indirectly, its value substantially from the shares of an Indian company under a scheme of amalgamation of two foreign companies.
    • Demerger:
      • Transfer of assets from demerged company to Indian resulting company;
      • Shareholders receiving shares in resulting company;
      • Transfer of shares of Indian Co. under a scheme of demerger of two foreign companies; and
      • Transfer of shares of foreign co. which derives, directly or indirectly, its value substantially from the share or shares of an Indian company under a scheme of demerger of two foreign companies.
    • Business Reorganisation of Co-operative Banks:
      • Transfer of assets or shares under reorganisation is not regarded as transfer.
        • GDRs/Bonds [Section 47(viia)/(viiaa)] : Transfer of Global Depository Receipts (GDRs), Rupee-Denominated Bonds by a non-resident to another non-resident outside India.
        • Specified securities [Section 47(viiab)]:Any transfer of specified capital assets by a non-resident on a recognised stock exchange located in any IFSC is not treated as a transfer, provided the consideration is paid or payable in foreign currency.
        • Relocation of Offshore Fund to IFSC [Section 47(viiac)/(viiad)]:Transfer of capital assets by the original fund to the resultant fund, or transfer of shares, units or interests by investors in the resultant fund.
        • Transfer by India Infrastructure Finance Co. Ltd. (IIFCL) [Section 47(viiae)]: Transfer of capital asset by IIFCL to a notified statutory infrastructure financing institution is not treated as a transfer.
        • Transfer under Government-approved Plan [Section 47(viiaf)]:Transfer of capital asset by a PSU to another notified PSU or to the Central/State Government under a Central Government-approved plan.
        • Government Securities [Section 47(viib)]:Transfers of Government securities with interest by one non-resident to another non-resident outside India through an intermediary dealing in settlement of securities.
        • Sovereign Gold Bonds [Section 47(viic)]:Redemption of Sovereign Gold Bonds issued by RBI.
        • Conversion of Gold into Electronic Gold Receipt or vice versa [Section 47(viid)]: Conversion of gold into Electronic Gold Receipt (EGR) issued by a vault manager, or conversion of EGR into Gold.
        • Transfer of Art, Painting, etc., to Govt. [Section 47(ix)]:Transfer of art, books, manuscripts, or similar collectables to the Government, a University, or a notified museum/institution.
        • Conversion of Securities [Section 47(x)/(xa)/(xb)]: Conversion of bonds, debentures, debenture-stock, FCEBs deposit certificates into shares or debentures and preference shares into equity shares of the same company.
        • Transfer of Land by a Sick Co. [Section 47(xii)]: Transfer of land by a sick industrial company is not treated as a transfer if it is made under a sanctioned scheme and specified conditions are fulfilled.
        • Transfer of membership rightsunder a SEBI-approved demutualisation or corporatisation scheme. [Section 47(xiiia)]
        • Conversion of Entities [Section 47(xiii)/(xiib)/(xiv)]:Conversion from one form of entity to another is not regarded as a transfer provided the specified conditions are satisfied.
        • Lending of Securities [Section 47(xv)]:Transfer of securities under a lending arrangement entered into by the assessee with the borrower, in accordance with SEBI or RBI guidelines.
        • Transfer under Reverse Mortgage Scheme [Section 47(xvi)]:Transfer of a capital asset under a reverse mortgage scheme notified by the Central Government.
        • Transfer of Shares to Business Trust [Section 47(xvii)]: Transfer of SPV shares by an Indian company to a business trust in exchange for units.
        • Mutual Fund Consolidation [Section 47(xviii)/(xix)]:Consolidation of mutual fund schemes.
        • Transfer of interest in a joint venture by a public sector company for shares of a foreign government company is not treated as a transfer. [Section 47(xx)]

Key Conditions
Many of these exclusions are subject to the fulfilment of specific conditions, such as holding periods, compliance with regulations, and prior approvals.

Withdrawal of Exemption- Section 47A

Exemption from capital gains under Section 47 can be withdrawn if certain conditions are not met after the transfer. In such cases, the transfer will be taxable in the year of non-compliance.

  • Conversion into stock-in-trade or change in shareholding

If a capital asset transferred by a holding company to its subsidiary (or vice versa) is converted into stock-in-trade or the holding company ceases to hold 100% shareholding within 8 years, the earlier exemption is withdrawn, and the capital gain becomes taxable in the year of transfer.

  • Withdrawal of Exemption on Conversion or Succession:

If the conversion or succession (e.g., firm to company, or company to LLP) is exempt under Section 47 but later conditions are not fulfilled, the earlier exempted capital gains shall become taxable in the hands of the successor entity or the shareholder of the predecessor company, as applicable, in the year of default.