Capital Gains Taxability under Income-tax Act, 1961

The document provides a comprehensive overview of capital gains taxation under the Income-tax Act, 1961, covering its scope, computation, classification, exemptions, and special provisions.

Capital gains constitute one of the five heads of income and arise from the transfer of a capital asset. Under Section 45(1), such gains are generally taxable in the year in which the transfer occurs, subject to specified exemptions, exclusions, and reinvestment benefits. Capital gains are computed by deducting transfer-related expenses, cost of acquisition, and cost of improvement from the full value of consideration, along with applicable exemptions.

A “capital asset” includes most forms of property, whether movable or immovable, tangible or intangible. However, certain items are excluded, such as stock-in-trade, personal effects (except specified valuables), and rural agricultural land. Agricultural land is treated as a capital asset only if it falls within specified urban limits or outside India.

Capital gains are classified as short-term or long-term based on the holding period, which varies depending on the type of asset. This classification is important as it determines the applicable tax rates. Short-term capital gains are generally taxed at normal rates, while long-term capital gains are taxed at concessional rates, typically 12.5% without indexation for transfers on or after July 23, 2024. A grandfathering provision allows certain taxpayers to opt for 20% taxation with indexation for land or buildings acquired before this date.

The term “transfer” is defined broadly and includes sale, exchange, relinquishment, extinguishment of rights, compulsory acquisition, and certain transactions enabling enjoyment of immovable property. However, several transactions are not regarded as transfers under Section 47, including gifts, inheritance, certain corporate restructurings (such as amalgamation and demerger), transfers between holding and subsidiary companies, and specific government-approved transactions.

Exemptions from capital gains tax are available in cases of reinvestment under Sections 54 to 54GB, subject to conditions such as timelines and asset type. Additional exemptions exist under Section 10 for specific categories of gains. If conditions for exemption are not met, the benefit may be withdrawn and taxed in the year of non-compliance.

Special provisions govern specific scenarios such as conversion of capital assets into stock-in-trade, compulsory acquisition, joint development agreements, buy-back of shares, slump sales, and reconstitution or dissolution of firms. In such cases, the timing and method of taxation may differ, and in some instances, multiple provisions apply simultaneously.

The computation of capital gains also involves determining the full value of consideration, which may be replaced by deemed values such as stamp duty value or fair market value in certain situations. Cost of acquisition and improvement rules include special provisions for assets acquired through inheritance, gift, or restructuring, where the cost and holding period of the previous owner are considered.

Indexation adjusts the cost of acquisition for inflation using the Cost Inflation Index, though its applicability has been limited for transfers after July 23, 2024. Certain assets such as depreciable assets, market-linked debentures, and specified mutual funds are always treated as short-term capital assets regardless of holding period.

Overall, the framework establishes detailed rules for determining taxability, classification, valuation, and exemptions of capital gains, with numerous specific provisions addressing varied transaction types and conditions.

Income Tax Department
Ministry of Finance, Government of India

Capital Gains

Introduction

Capital gain head is one of the five heads of income under the Income-tax Act, 1961, with its computation governed by the provisions in Part E of Chapter IV.

Chargeability

As per Section 45(1), profits or gains from the transfer of a capital asset are taxable in the year of transfer. However, not all transfers are taxable due to exemptions under Section 47, exclusions under Section 2(14), or reinvestment benefits.

Computation

Capital gain is calculated by deducting the following from the full value of consideration:

• Expenses wholly and exclusively related to the transfer
• Cost of acquisition
• Cost of improvementCapital gains taxable under Section 45(4), which is attributable to the capital asset remaining with the firm, AOP or BOI after reconstitution.
• Exemptions for reinvestment of capital gains or sale proceeds.

Classification of Capital Gain

The Gain is classified as short-term or long-term capital gains.

Tax Rates

• Long-term Capital Gains (LTCG):Taxable at 12.5% without indexation. However, resident individuals and HUFs can opt for a 20% rate with indexation for land, a building, or both acquired before July 23, 2024, and transferred on or after July 23, 2024.
• Short-term Capital Gains (STCG):Taxed at the applicable rates as per the assessee’s status. In certain cases, concessional tax rates apply.

Chargeability of Capital Gains

Introduction

Section 45 of the Income Tax Act, 1961, governs the taxation of profits or gains arising from the transfer of a capital asset. Such income is generally taxable in the year of transfer unless specified otherwise.

Key Provisions

• General Rule (Section 45(1)):Profits or gains from the transfer of a capital asset are taxable in the year of transfer. Deductions include expenses incurred in connection with the transfer, cost of acquisition, and cost of improvement. It’s further reduced by the exemptions provided for reinvestment of capital gains or sale consideration.
• Insurance Compensation (Section 45(1A)):Gains from compensation for damage or destruction of a capital asset are taxable in the year the compensation is received.
• Unit Linked Insurance Policy (ULIP) (Section 45(1B)):If the amount received from a ULIP (including bonus) is not exempt under Section 10(10D), it shall be taxed as capital gains in the year of receipt. CBDT has prescribed Rule 8AD for computing such capital gains.
• Conversion into Stock-in-Trade (Section 45(2)):Any gains from converting a capital asset into stock-in-trade are taxable in the year the stock-in-trade is sold.
• Demat Securities (Section 45(2A)):Any gains from the transfer of securities held in Demat form are taxable in the year of transfer.
• Capital Contribution (Section 45(3)):Gains from the transfer of a capital asset by a partner or member to a firm, AOP, or BOI are taxable in the year of transfer. the value recorded in the firm’s books is deemed to be the full consideration for such transfer.
• Firm Reconstitution (Section 45(4)):When a partner (or member of an AOP/BOI) receives money or a capital asset on reconstitution, the resulting profits are taxable as capital gains in the hands of the firm, AOP or BOI under Section 45(4). Similarly, under Section 9B, if a partner/member receives capital assets or stock-in-trade upon dissolution or reconstitution, the firm, AOP, or BOI is deemed to have transferred such assets and is taxed accordingly. In case of reconstitution, both Sections 9B and 45(4) apply independently.
• Compulsory Acquisition (Section 45(5)):Gains from compulsory acquisition or government/RBI-approved asset transfers are taxable in the year the initial or enhanced compensation is received.
• Joint Development Agreements (Section 45(5A)):Capital gains arising to an individual or HUF from the transfer of land or building under a Joint Development Agreement are taxed in the year the completion certificate is issued.
• Repurchase of ELSS Units (Section 45(6)):Capital gains from Equity Linked Savings Scheme (ELSS) units (UTI/Mutual Funds) held by an individual or HUF are taxable in the year of repurchase or plan termination. The gain is the difference between the repurchase price and the investment amount.

Capital Asset

Introduction

A capital asset includes movable and immovable property held by an assessee, excluding certain personal assets and rural agricultural land.

Definition [Section 2(14)]

A capital asset includes:

• Any kind of property held by an assessee (movable, immovable, tangible, or intangible), whether used for business purposes or not.
• Securities held by FIIs or Category I/II AIFs as per SEBI/IFSC regulations.
• ULIPs not exempt under Section 10(10D) on account of the applicability of the fourth and fifth provisos thereof.

Exclusions

• Stock-in-trade: Treated as business income when sold.
• Personal Effects: Excludes movable property held for personal or family use except jewellery, archaeological collections, drawings, paintings, sculptures, or works of art.
• Rural Agricultural Land: An agricultural land situated in any rural area in India is not treated as capital asset.
• Specified Bonds: Includes 6.5% Gold Bonds 1977, 7% Gold Bonds, 1980, National Defence Gold Bonds, 1980, Special Bearer Bonds (1991), Gold Deposit Bonds issued under Gold Deposit Scheme, 1999; and Deposit certificates issued under the Gold Monetisation Scheme, 2015.

Agriculture Land:

The Income-tax Act does not specifically define “agricultural land”, but Section 2(14)(iii) lays down conditions to determine when such land is treated as a capital asset and when it is excluded. Exemption from capital gains tax applies only to rural agricultural land.

• When Treated as a Capital Asset

Agricultural land is considered a capital asset in the following cases:

• It is situated outside India.
• It is located within the limitsof a municipality or cantonment board with a population* of 10,000 or more.
• It is situated within certain distancesfrom such municipalities or cantonment boards (based on population):
  • Within 2 km: If population is more than 10,000 but not more than 1,00,000
  • Within 6 km: If population is more than 1,00,000 but not more than 10,00,000
  • Within 8 km: If population is more than 10,00,000

*The population of the entire municipality or cantonment board is considered based on the most recent Census (e.g., 2011 Census).

Classification of Capital Assets

For capital gain computation, assets are classified as short-term or long-term based on the holding period. This distinction is important since short-term gains are taxed at higher rates than long-term gains.

The holding period for classification of an asset into short-term and long-term has been enumerated in the below table.

Holding Period for Determining Long-Term Capital Asset
Nature of Security	Transfer before 23 July, 2024 (Listed)	Transfer before 23 July, 2024 (Unlisted)	Transfer on or after 23 July, 2024 (Listed)	Transfer on or after 23 July, 2024 (Unlisted)
Equity Shares	12 months	24 months	No change has been made
Units of Equity-oriented Funds	12 months	12 months
Units of UTI	12 months	12 months
Units of Business Trust	36 months	36 months	12 months	24 months
Other Units	36 months	36 months	12 months	24 months
Preference Shares	12 months	24 months	No change has been made
Debentures	12 months	36 months	12 months	24 months
Government Securities	12 months	36 months	12 months	24 months
Zero Coupon Bonds	12 months	12 months	No change has been made
Other Bonds	12 months	36 months	12 months	24 months
Other Securities	12 months	36 months	12 months	24 months
Immovable Property (Land and Building both)	24 months	No change has been made
Any Other Capital Asset	36 months	24 months
Note: Capital gains arising from depreciable assets, market-linked debentures (MLD), specified mutual funds (SMF), unlisted bonds and unlisted debentures shall be treated as capital gains arising from the transfer of short-term capital assets, irrespective of the period of holding.

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.

Transfer of Capital Asset Between Holding and Subsidiary Companies

Introduction

Transfers of capital assets between a holding company and its subsidiary (or vice-versa) are not regarded as “transfer” under Section 47 of the Income-tax Act, subject to specified conditions. Such transactions are exempt from capital gains tax unless certain conditions are breached.

Conditions for Exemption

• Transfer by Holding Company to Subsidiary Company:

• The holding company or its nominees must hold 100% of the subsidiary’s share capital.
• The subsidiary must be an Indian company.
• The capital asset must not be transferred as stock-in-trade.
  • Transfer by Subsidiary Company to Holding Company:
• The holding company must hold 100% of the subsidiary’s share capital.
• The holding company must be an Indian company.
• The capital asset must not be transferred as stock-in-trade.

Cost of Acquisition and Holding Period

• The cost of acquisition in the hands of the transferee is deemed to be the cost incurred by the transferor, including any improvements.
• The holding period of the transferred asset is calculated from the date of acquisition by the transferor.

Withdrawal of Exemption

• The exemption is revoked if:
  • The transferee company treats the asset as stock-in-trade within 8 years from the date of transfer of the capital asset, or
  • The holding company ceases to hold 100% of the subsidiary’s share capital within 8 years.

When exemption is withdrawn, the amount of capital gain exempted earlier is deemed to be the income of the transferor company chargeable under the head ‘capital gain’ in the year in which such transfer took place.

Conversion or Succession of Entities Not Regarded as Transfer

Introduction

Transfers of capital assets during the conversion or succession of entities are not considered “transfer” under Section 47 of the Income-tax Act, subject to specific conditions. If conditions are not complied with, the exemption shall be withdrawn.

Key Transactions Exempt from Capital Gains

• Succession of Firm by Company [Section 47(xiii)]

• All business assets and liabilities of the firm must be transferred to the company.
• All partners shall become shareholders in the successor company and shall be allotted shares in proportion to their respective capital balances in the firm.
• Partners must hold at least 50% of the company’s voting power for 5 years.
• The Partners of the firm should not receive any consideration or benefit, directly or indirectly, other than by the way of allotment of shares (equity or preference shares) in the company.
  • Conversion of Unlisted Company into LLP [Section 47(xiiib)]
• Turnover should not exceed 60 lakhs, and assets should not exceed Rs. 5 crores in any of the 3 previous years.
• All company assets and liabilities must become those of the LLP.
• All shareholders of the company become partners of the LLP in the same proportion as their shareholding on the conversion date.
• The shareholders’ aggregate profit-sharing ratio in the LLP remains at least 50% for 5 years from the conversion date.
• The shareholders of the company do not receive any consideration or benefit, directly or indirectly, in any form or manner, other than by way of share in profit and capital contribution in the LLP.
• For three years post-conversion, no partner receives any amount from the company’s accumulated profits as on the conversion date, directly or indirectly.
  • Succession of Proprietary Concern by Company [Section 47(xiv)]
• The entire business must devolve upon the company.
• The company should take over all the assets and liabilities of the proprietary concern.
• Sole proprietor must hold at least 50% voting power in the company for 5 years.
• Sole proprietor must not receive any consideration other than shares in the company.
  • Corporatisation of Recognised Stock Exchanges [Section 47(xiii)]

Transfer of capital assets by an AOP/BOI to a company during demutualisation or corporatisation of a recognised stock exchange is not treated as a transfer, subject to conditions:

• All assets and liabilities of the AOP/BOI must transfer to the company;
• All members of the AOP or BOI before the succession become shareholders of the company;
• Members of the AOP/BOI receive no consideration or benefit, directly or indirectly, other than shares allotted by the company;
• AOP/BOI members must hold at least 50% voting power in the company, maintained for 5 years from succession; and
• Demutualisation/corporatisation must be SEBI-approved.

Withdrawal of Exemption

If any of the prescribed conditions are violated, the capital gains earlier treated as exempt shall be deemed as income and become taxable in the year of such non-compliance, in the hands of the successor company or LLP, or the shareholder of the predecessor company, as applicable.

Transfer of Capital Asset as a Result of Business Restructuring

Introduction

Transfers of capital assets under schemes like amalgamation, demerger, or business reorganisation are not considered “transfer” under Section 47 of the Income-tax Act, 1961, if specific conditions are met.

Key Transactions Exempt from Capital Gains

• Amalgamation

• Meaning of Amalgamation [Section 2(1B)]:

Amalgamation means the merger of one or more companies into another company, or the merger of two or more companies to form a new one, subject to:

• All properties and liabilities of the amalgamating company become those of the amalgamated company.
• At least 75% in value of shareholders of the amalgamating company become shareholders of the amalgamated company.
• The merger is not due to asset acquisition or distribution post-winding-up.
  • Amalgamation with an Indian Company
• Transfer of Capital Assets [Section 47(vi)/(viaa)]

Transfer of capital assets by the amalgamating company to an Indian amalgamated company is not treated as transfer, including in the case of banking company mergers.

• Transfer of Shares by Shareholders [Section 47(vii)]

Transfer of shares by shareholders of the amalgamating company is exempt if:

• Consideration is in the form of shares in the Indian amalgamated company; and
• The amalgamated company is an Indian company.
  • Amalgamation of Foreign Companies
• Transfer of Shares of Indian Company [Section 47(via)]

Transfer of shares in an Indian company by a foreign amalgamating company to another foreign company is not regarded as transfer if:

• The transfer occurs under a foreign amalgamation scheme,
• At least 25% of shareholders of the transferor remain shareholders in the transferee, and
• Capital gains are not taxable in the transferor’s country.
• Transfer of Shares of Foreign Company [Section 47(viab)]

Transfer of shares of a foreign company deriving value from an Indian company is not treated as transfer if:

• It occurs under an amalgamation between two foreign companies,
• At least 25% of shareholders of the transferor remain in the transferee, and
• Capital gains are not taxable in the transferor’s country.
  • Demerger
• Definition: As per Section 2(19AA), a Demergerrefers to the transfer of an undertaking to a resulting company.
• Deemed Demergers:

• Splitting-up or reconstruction of any authority or a body.
• Splitting-up or reconstruction of a public sector company.
• Splitting-up or reconstruction of a company.
  • Exempt Transfers:
  • Capital assets transferred by a demerged company to an Indian resulting company (Section 47(vib)).
  • Shares exchanged by shareholders of a demerged company for shares in the resulting company (Section 47(vid)).
  • Transfers in the demerger of foreign companies, subject to conditions like shareholder continuity and tax exemptions (Sections 47(vic), 47(vicc)).
    • Business Reorganization of Co-operative Banks
  • Exempt Transfers:
  • Capital assets transferred by a predecessor co-operative bank to a successor or converted banking company (Section 47(vica)).
  • Shares transferred by shareholders in a co-operative bank for shares in a successor or converted banking company (Section 47(vicb)).

Conditions and Additional Provisions

• Conditions for Exemption:

• All properties and liabilities of the transferor must be transferred.
• Shareholders must receive shares in the transferee company.
• Shareholding or voting power continuity is required in many cases (e.g., 75% for foreign demergers).
  • Other Provisions:
• Cost of Acquisition: The cost for the transferee is deemed to be the cost incurred by the transferor, including improvements.
• Holding Period: The transferee’s holding period includes the transferor’s holding period.

Capital Gains on Transfer of Asset Acquired from Previous Owner

Introduction

When a capital asset is acquired through specified circumstances (e.g., inheritance, gift, or reorganization), the period of holding and cost of acquisition are determined with reference to the previous owner.

Computation of Capital Gains

• Scenarios of Acquisition from Previous Owner

• Partition of HUF
• Gift or Will from an Individual or HUF
• By succession, inheritance or devolution
• Distribution on dissolution or liquidation
• Under a transfer to a revocable or an irrevocable trust
• Transfers under amalgamation, demerger, or business reorganization
• Transfers between holding and subsidiary companies (under Section 47(iv) and (v))
• Transfer of capital assets during the succession of a firm, sole proprietorship, or private/unlisted company into a company or LLP (47(xiii)/(xiiib) and (xiv))
• Relocation to IFSC funds
• Transfer of property by a member to his HUF
  • Key Factors
• Period of Holding: Includes the period for which the previous owner held the asset.
• Cost of Acquisition:
  • Deemed to be the cost incurred by the previous owner.
  • If acquired before April 1, 2001, the higher of the actual cost or the fair market value (FMV) as on April 1, 2001, can be used.
• Cost of Improvement: Includes expenditure incurred on or after April 1, 2001, by either the assessee or the previous owner.

Computation of Capital Gains

Introduction

Capital gains are computed based on the holding period, sale value, cost of acquisition and improvement, transfer expenses, reconstitution adjustments, and exemptions under Sections 54 to 54GB.

Steps to Compute Capital Gains

• Formula for Computation

Particulars	Rs.
Full value of consideration	xxx
Less:
(a) Expenditure incurred wholly and exclusively in connection with transfer	(xxx)
(b) Cost of acquisition	(xxx)
(c) Cost of improvement	(xxx)
(d) Capital gains taxable under section 45(4), which is attributable to the capital asset remaining with the firm, AOP or BOI after reconstitution	(xxx)
Less: Exemption under Sections 54 to 54GB	(xxx)
Short-term/Long-term capital gain or Loss	xxx

Key Components

• Period of holding: For capital gain computation, assets are classified as short-term or long-term based on the holding period, which generally starts from the date of purchase.
• Full Value of Consideration: Includes cash or fair market value for non-cash consideration, adjusted as per specific provisions.
• Transfer Expenses: Includes brokerage, commission, stamp duty, legal fees, etc. However, no deduction is allowed for STT when computing capital gains on sale of securities.
• Cost of Acquisition: Purchase price or cost incurred during acquisition or cost of previous owner.
• Cost of Improvement: Includes capital expenditure incurred on or after April 1, 2001, by the assessee or the previous owner.
• Exemptions: Available under Sections 54 to 54GB for reinvestment in specified assets.
• Adjustments under Section 45(4):Deduction of attributed revaluation gains from capital assets retained by a firm (including AOP or BOI) after reconstitution.

Tax Treatment and Indexation

• General Rule:

• Indexation is not available for short-term capital gains.
• For long-term capital gains on assets transferred on or after July 23, 2024, indexation has been removed.
  • Grandfathering for Land/Buildings Acquired Before 23-07-2024:
• Resident individuals and HUFs can opt for indexation and 20% tax if it results in lower tax liability compared to the new 12.5% rate without indexation.
  • Indexed Cost of Acquisition/Improvement:
• Formula for Indexation: Indexed Cost=Original Cost×CII (Year of Transfer)/CII (Year of Acquisition/Improvement or 2001-02, whichever is later)

Other Points (Provisos under Section 48)

• For non-residents, gains on shares/debentures of Indian companies are computed in the same foreign currency as used for purchase, then reconverted into INR (applies to every reinvestment and sale).
• Indexation benefit applies to long-term capital assets transferred before 23-07-2024, except for non-resident transfers of Indian shares/debentures.
• No indexation for LTCG under Section 112A (equity shares, equity-oriented funds, business trusts).
• No indexation for LTCG on bonds/debentures, except Capital Indexed Bonds and Sovereign Gold Bonds.
• In case of a non-resident holding rupee-denominated bonds, gains arising from rupee appreciation at redemption shall be ignored.
• For transfers of shares/debentures/warrants by gift or irrevocable trust (under section 47(iii)), FMV on the transfer date is deemed as consideration.

Period of Holding of a Capital Asset

Introduction

The period of holding is the duration for which a capital asset is held by the owner before its transfer. It determines whether the asset is classified as a short-term or long-term capital asset, which impacts the applicable tax rate.

General Rule

The period of holding is calculated from the date of acquisition to the date of transfer. Special provisions apply in specific cases, as outlined below.

Special Cases for Period of Holding

• Securities and Shares

• Listed Shares: Shares are sold through brokers with delivery, the broker’s note date is treated as the date of transfer, and the holding period is counted up to that date.
• Demat Securities: Determined using the FIFO method (First-In-First-Out).
• Bonus Shares: Period begins on the allotment date.
• Sweat Equity Shares: Starts from the allotment or transfer date.
• Conversion of Shares/Debentures: Includes the period for which the original asset (e.g., preference shares, bonds) was held.
• Rights Shares: Period begins on the allotment date.
• Renouncement of Right: A shareholder’s right to subscribe is a capital asset, and if renounced, its holding period is from the offer date to the date of renouncement.
• Shares of Company in Liquidation: For shares in a company under liquidation, the holding period excludes the time after the liquidation date.
• Amalgamation and Demerger: Period of original shares held in the amalgamating or demerged company is included.
• Shares of Resulting Company: the holding period of resulting co. shares is counted from the date of holding of the shares in the demerged company.
  • Acquisition by Operation of Law (Section 49(1))
• Includes the holding period of the previous owner who acquired the asset through purchase.
  • Conversion of Stock into Capital Asset
• Holding period is counted from the date of conversion.
  • In Case of Unit of Business Trust
• For business trust units allotted against SPV shares, the holding period includes the time the shares were held.
  • Conversion of Branch into Subsidiary
• In case of conversion under Section 115JG, the holding period includes the time the asset was held by the branch or the previous owner under Section 49(1).
  • Redemption of GDRs
• For non-residents, the holding period of shares received on GDR redemption is counted from the date of redemption request.
  • Mutual Fund Consolidation and Segregated Portfolios
• The holding period includes the time the original units were held in the respective original scheme or main portfolio.
  • Trading/Clearing Rights
• Includes the period of membership in the stock exchange before demutualisation.
  • Declared Assets Under IDS 2016
• For immovable property: From the date of acquisition or June 1, 2016, if registered deed is missing.
• For other assets: From June 1, 2016.
  • Electronic Gold Receipts (EGRs)
• Combines the holding period of gold and the EGR.

Cost of Acquisition and Cost of Improvement for Computation of Capital Gains

Introduction

The cost of acquisition includes the purchase price and expenses incurred to acquire a capital asset. Special provisions apply to determine the cost in certain scenarios.

How to Calculate the Cost of Acquisition

• In General

• The cost of acquisition of an asset is the value for which it was acquired by the assessee. It is reasonable to include in the actual cost of a capital asset all the expenses which are incurred by the assessee to acquire it.
  • Assets Acquired Before 01-04-2001
• The cost of acquisition can be either the actual purchase price or the fair market value (FMV) as on 01-04-2001, at the assessee’s option.
• For land/building, FMV cannot exceed stamp duty value as on 01-04-2001.
• FMV option is not available for intangible assets or rights
  • House Property
• Includes the cost of land and construction but excludes interest deductions claimed under Sections 24, 80EE , or 80EEA .
  • Goodwill and Intangible Assets
• Purchased goodwill and other intangible assets: Cost is the purchase price. However, if depreciation on goodwill was claimed before AY 2021-22, such depreciation must be reduced from the purchase price of goodwill to determine the actual cost.
• Self-generated goodwill and other intangible assets: Cost is deemed to be nil.
  • Securities
• Original Shares: If original shares were acquired before 01-04-2001, the cost can be the actual price or FMV as on 01-04-2001, at the option of the assessee. For shares acquired on or after 01-04-2001, cost is the actual purchase price.
• Listed Securities (equity shares or units of equity oriented mutual fund or unit of business trust) Acquired on or Before 31-01-2018: Cost is the higher of the cost of acquisition or the lower of FMV on 31-01-2018 and sale value.
• Sweat Equity Shares: the cost of acquisition of sweat equity shares is taken at the FMV on the date on which the option is exercised by the assessee.
• Demat Accounts: FIFO method applies for cost determination.
• Right Shares: Cost shall be the price paid by the shareholder for share acquisition. If there is a right renunciation, then the cost shall be nil. It is to be noted that if the right shares were acquired prior to 01-04-2001, the cost of acquisition may be taken as fair market value of such shares as on April 1, 2001.
• Bonus Shares:If bonus shares are issued to the assessee prior to 01-04-2001, the cost of acquisition of such shares is the fair market value as on 01-04-2001. Where bonus shares are issued on or after 01-04-2001, the cost of acquisition is taken as nil. However, if the bonus shares were allotted on or before 31-01-2018 and sold on or after 01-04-2018, the cost of acquisition of such shares shall be lower of the following:

• Cost of acquisition (‘Nil’ if shares are issued on or after 01-04-2001); or
• Lower of the fair market value of such shares as on 31-01-2018 or full value of consideration as a result of transfer.
  • Restructuring Events
    • Amalgamation: If shares are received in an Indian amalgamated company, their cost is taken as the price paid for original shares in the amalgamating company.
    • Shares Acquired in Resulting Co.: The cost of acquisition of shares in the resulting company is determined by proportionately allocating the cost of shares held in the demerged company. This is done based on the ratio of the net book value of assets transferred to the resulting company to the net worth of the demerged company immediately before the demerger.
    • Shares in Demerged Co. : Cost of acquisition of the shares held by the shareholders in the demerged company is reduced by the cost of acquisition of shares, acquired from resulting company.
• Conversion of Securitise
  • Conversion of Debentures into Shares: No capital gain arises on conversion. When converted shares are sold, their cost is taken as the price paid for the original debentures.
  • Conversion of Preference Shares into Equity Shares: Cost of preference shares is deemed to be the cost of equity shares.
  • Consolidation or Conversion of Shares: In cases of sub-division, consolidation, or conversion of shares (e.g., one kind to another), cost of the new shares is the same as the original shares.
• Acquisition by Operation of Law (Section 49)

• If the assessee has acquired the property not by way of purchase but by way of operation of law (e.g., gift, will, inheritance or any other mode), the cost to the previous owner is deemed to be the cost to the assesse.

Note: If the cost at which the previous owner acquired the asset is not ascertainable, the cost of acquisition is deemed to be the fair market value on the date the asset became the property of the previous owner.

• Conversion of Stock into Capital Asset:

• FMV on the conversion date is taxed as business income and is treated as the cost of acquisition of the capital asset.
  • Cost of Capital Assets received on Liquidation:
• If a capital asset is received upon the liquidation of a company, its cost of acquisition is deemed to be the fair market value on the date of distribution.
  • Demutualisation of Stock Exchange:
• Shares received on demutualisation are valued at the cost of original stock exchange membership. Cost of trading or clearing rights received is taken as nil.
  • Cost of Improvement
• General Rule: Cost of improvement includes capital expenditure incurred on or after 01-04-2001 by the assessee or previous owner for additions/alterations to the asset.
• Exclusions: Expenses deductible under “Income from House Property,” “Profits and Gains of Business,” or “Other Sources,” and interest claimed under Section 24(b), 80EE , or 80EEA , are not considered.
• Assets Acquired Before 01-04-2001: Only improvements made on or after 01-04-2001are allowed; earlier costs are ignored.
• Assets from Previous Owner (Section 49(1)): Includes capital improvements made by the previous owner or assessee on or after 01-04-2001.
• Intangible Assets: Cost of improvement for goodwill, business rights, or any other intangible assets or rights is not allowed and is treated as nil.

Indexed Cost of Acquisition and Cost of Improvement for Computation of Capital Gains

Introduction

Indexation adjusts the cost of acquisition and cost of improvement of a capital asset to neutralise inflation’s impact, ensuring tax on actual gains. The Cost Inflation Index (CII) is used for this purpose. Indexation is no longer available for assets transferred on or after 23-07-2024, except for land or buildings acquired before this date by resident individuals or HUFs.

Indexed Cost of Acquisition and Cost of Improvement

Long-term capital gains arising from the transfer of capital assets on or after 23rd July 2024 will be taxed at a uniform rate of 12.5%, and the benefit of indexation will no longer be available

• Grandfathering Provision for Land and Building

To ease the transition, a grandfathering relief has been provided for resident individuals and HUFs. If they transfer land or building acquired before 23-07-2024, they can choose to pay tax at the old rate of 20% with indexation, instead of the new 12.5% without indexation, if it results in a lower tax liability.

• Calculation of Indexation of Cost of Acquisition and Cost of Improvement

• Calculation of Indexed Cost of Acquisition
  Indexed Cost of Acquisition=Cost of Acquisition×CII of Transfer Year/CII of Acquisition Year (or 2001-02, whichever is later)
• Calculation of Indexed Cost of Improvement Indexed Cost of Improvement=Cost of Improvement×CII of Transfer Year/CII of Improvement Year

Notified Cost Inflation Index (CII)

The indexation of cost of improvement shall be done on the basis of following notified Cost Inflation Index:

Cost Inflation Index (CII) – Financial Year-wise
Financial Year	CII	Financial Year	CII
2001-02	100	2014-15	240
2002-03	105	2015-16	254
2003-04	109	2016-17	264
2004-05	113	2017-18	272
2005-06	117	2018-19	280
2006-07	122	2019-20	289
2007-08	129	2020-21	301
2008-09	137	2021-22	317
2009-10	148	2022-23	331
2010-11	167	2023-24	348
2011-12	184	2024-25	363
2012-13	200	2025-26	376
2013-14	220

Reference to Valuation Officer

Introduction

An Assessing Officer (AO) may refer a capital asset’s valuation to a Valuation Officer to ascertain its fair market value (FMV). This referral is warranted when the declared value appears lower than the actual FMV or the asset’s nature necessitates expert evaluation.

Key Provisions

Purpose of Reference:

To determine the FMV of a capital asset for computing capital gains. The AO must base the decision on material evidence, the asset’s nature, or relevant circumstances.

Situations for Reference:

• Value Estimated by a Registered Valuer: The Assessing Officer may refer the asset’s valuation to a Valuation Officer if there is a variance between the registered valuer’s estimate and the fair market value.
• Value Claimed by the Assessee: Referral occurs when the AO believes the FMV exceeds the claimed value by:
  • 15%of the claimed value by assessee; or
  • 25,000, whichever is less.
• Special Nature of Asset: When the asset’s unique nature or circumstances necessitate expert valuation.

Computation of Capital Gains in Case of Depreciable Assets

Introduction

Section 50 deals with how capital gains are computed when a depreciable asset is transferred. Regardless of the period of holding, any gain on the transfer of depreciable assets is always treated as short-term capital gain.

When Part of a Block is Sold

If one or more depreciable assets forming part of a block are sold during a financial year, and the total sale consideration exceeds:

• the opening written down value (WDV) of the block,
• plus the cost of any new assets added to the block during the year,
• minus any expenses incurred on the transfer,

Then, such excess shall be deemed to be the capital gains arising from the transfer of short-term capital assets.

When Entire Block is Sold

If all the assets in a block are sold during the year, and no asset remains in that block:

• The WDV at the beginning of the year, plus the cost of any new asset acquired during the year, is treated as the cost of acquisition.
• The difference between the sale proceeds and this cost is treated as short-term capital gain or loss.

Special Treatment of Goodwill

From Assessment Year 2021–22, goodwill is no longer considered a depreciable asset, and depreciation cannot be claimed on it. Therefore, any transfer of goodwill is now governed by general capital gain provisions and not by Section 50.

However, if depreciation was claimed on goodwill up to AY 2020–21 (when it formed part of the intangible block of assets), the WDV of the block and any short-term capital gains arising from the reduction of goodwill from the block must be calculated as per Rule 8AC .

As per Rule 8AC , if the depreciated value of goodwill exceeds the sum of:

• the opening WDV of the block, and
• the cost of new intangible assets acquired during the year,
  then the excess is deemed short-term capital gain.

Further, if goodwill was the only asset in the block as of 01-04-2020, and no other intangible asset was acquired during the previous year 2020–21, no capital gain or loss will arise due to the cessation of the block.

Capital Gains on Distribution of Assets by a Company in Liquidation

• No Capital Gains For Company: When a company distributes its assets to its shareholders upon liquidation, such distribution shall not be regarded as a “transfer” by the company for the purposes of Section 45. [Section 46(1)]
• Capital Gains For Shareholders: When a shareholder receives money or other assetsfrom a company on its liquidation, he shall be chargeable to income-tax under the head “Capital Gains”.
• The Full value of consideration: The net amount below shall be deemed to be the full value of consideration for the purposes of Section 48.

[Money received + Market value of assets received on the date of distribution] − [Amount assessed as dividend under Section 2(22)(c)]

Capital Gains on Buy-Back of Shares

Introduction:

Buy-back of shares is treated as a transfer, and income from it is taxable under “Capital Gains.”

• From 01-10-2024, consideration received by shareholders from a domestic company’s buy-back is deemed a dividendunder Section 2(22)(f).
• The consideration for capital gains computation is treated as nil, resulting in a capital loss for the shareholder.

Taxation Scope:

• For domestic companies:
  • Before 01-10-2024: Exempt for shareholders; company paid tax under Section 115QA.
  • From 01-10-2024: Taxed as deemed dividend under Section 2(22)(f).
• For foreign companies: Taxed under Section 46A as capital gains.
• For securities other than shares: Taxed as capital gains under Section 46A.

Computation of Capital Gains: The computation depends on whether the buy-back is subject to Section 2(22)(f):

• If Section 2(22)(f) applies: Full value of consideration is treated as nil, leading to a capital loss.
• If Section 2(22)(f) does not apply: Capital gain = Full value of consideration – (Cost of acquisition + Cost of improvement + Transfer expenses).

Key Factors for Capital Gains Computation:

• Period of Holding: Determined from purchase date to buy-back date (FIFO method for Demat holdings).
• Full Value of Consideration: Amount received; deemed to be nilif consideration is taxable under Section 2(22)(f).
• Cost of Acquisition: General provisions apply.
• Cost of Improvement: As per general provisions.
• Exemptions (Sections 54 to 54GB): Available subject to conditions.

Year of Taxability: Tax liability arises in the year the company executes the buy-back.

Full Value of Consideration for Computation of Capital Gains

Introduction

Full value of consideration refers to the amount received or receivable by the owner upon the transfer of a capital asset. It may be received in cash or kind, with fair market value (FMV) considered for non-monetary consideration. It is to be noted that the Act has not defined the term ‘full value of consideration’; henceforth, it has to be interpreted in the common commercial sense according to the prevalent usage. However, specific rules apply under the Income-tax Act to determine the full value of consideration in various scenarios.

Key Provision

Immovable Property (Section 50C): If the sale consideration for land, building, or both is less than the Stamp Duty Value (SDV):

• Deeming provision– SDV is deemed the full value of consideration, unless it does not exceed 110% of the actual consideration.
• Date of agreement vs. registration– SDV on the agreement date can be taken if consideration (wholly/partly) was received by account payee cheque/draft, ECS, or other prescribed electronic mode on or before the agreement date.
• Dispute on SDV – If the assessee claims SDV exceeds fair market value (FMV) and has not disputed it elsewhere, the Assessing Officer may refer valuation to a Valuation Officer; the lower of the SDV or Valuation Officer’svalue will apply.
  • Joint Development Agreements: For immovable property transferred under a joint development agreement, the consideration equals the money received and the SDV of the owner’s share in the developed project, as of the certificate of completion date.
  • Insurance Compensation: Full value of consideration includes the aggregate of money received and the FMV of assets in kind.
  • Conversion into Stock-in-Trade (Section 45): FMV on the date of conversion is deemed the full value of consideration.
  • Transaction with Firms or AOPs/BOIs:
• Capital Contribution by Partners: The value recorded in the firm’s books for the capital asset is deemed the full value.
• Reconstitution or Dissolution: Distribution of capital assets is taxed as capital gains (Section 9B and 45(4)).
  • Unlisted Shares (Section 50CA):
    If the sale consideration for shares of a company (other than quoted shares) is less than the FMV determined as prescribed (Rule 11UAA), such FMV shall be deemed the full value of consideration for capital gains purposes.
• Exemption– The provision does not apply to transfers by specified classes of persons and subject to prescribed conditions (e.g., certain court/tribunal-approved transactions).
  • Redemption of Rupee-Denominated Bonds: In case of redemption of Rupee Denominated Bonds of an Indian company held by a non-residentassessee, any gains arising on account of appreciation of rupee against a foreign currency at the time of redemption of such bond shall be ignored for the purposes of computation of full value of consideration.
  • Liquidation of Companies (Section 46): Full value equals money and FMV of assets received, less accumulated profits taxed as deemed dividends under Section 2(22)(c).
  • Unascertainable Consideration (Section 50D): If consideration cannot be determined, the FMV on the transfer date is deemed the full value.

Capital Gains on Slump Sale

Introduction:

A slump sale involves transferring one or more undertakings for a lump sum consideration without assigning individual values to assets and liabilities. Capital gains are computed as the excess of the fair market value (FMV) of the undertaking over its net worth. [Section 50B]

Definition:

‘Slump sale’ means transfer of one or more undertaking by any means for a lump-sum consideration without being values assigned to the individual assets and liabilities in such transfer.

Computation of Capital Gains:

Particulars	Amount (₹)
Full value of consideration (FMV)	xxx
Less: Expenditure on transfer	(xxx)
Less: Net worth of the undertaking	(xxx)
Less: Exemptions (Sections 54-54GB)	(xxx)
Capital Gains	xxx

Key Factors for Capital Gains Computation:

Period of Holding:

• Short-term if held ≤36 months.
• Long-term if held for >36 months.
  • Full Value of Consideration:
    In slump-sale, FMV of transferred assets (as per Rule 11UAE ) is deemed full consideration.
  • Net Worth (Deemed to be Cost of Acquisition and Cost of Improvement):
• Computed as: Written-down value of depreciable assets + Book value of non-depreciable assets – Liabilities.
• Adjustments:
• Assets fully deductible under Section 35AD: Value = Nil.
• Self-generated goodwill: Value = Nil.

Note: Any change in the value of assets due to revaluation shall be ignored while computing the net worth.

• Exemptions: Exemptions under Sections 54 to 54GB are available, subject to fulfilment of certain conditions.

Year of Taxability:

Tax liability arises in the year the undertaking is transferred, through a slump sale.

Net Worth Certification

• A Chartered Accountant’s report in Form 3CEA certifying the net worth computation must be submitted one month before the due date for filing the return under Section 139(1).

Capital Gains on Transfer of Market-Linked Debentures, Specified Mutual Funds, or Unlisted Bonds/Debentures

Introduction:

Gains from the transfer, redemption, or maturity of specified mutual funds (SMFs), market-linked debentures (MLDs), and unlisted bonds or debentures are treated as short-term capital gains and taxed at the assessee’s applicable rates. [Section 50AA]

Scope of Section 50AA:

Applicable to gains from:

• Market-linked debentures (MLDs).
• Specified mutual funds (SMFs).
• Unlisted bonds or debentures, if transferred, redeemed, or matured on or after 23 July 2024

Key Definitions:

Market-Linked Debentures (MLDs): Security which has an underlying principle component in the form of debt security and where the returns are linked to the market returns on other underlying securities or indices and includes any security classified or regulated as an MLD by the SEBI.

Specified Mutual Funds (SMFs):

• Up to AY 2025-26: Mutual fund with not more than 35% of its total proceeds invested in equity shares of domestic company.
• From AY 2026-27:

1. Mutual fund investing more than 65% of its total proceeds in debt and money market instruments; or

2. Fund investing 65% or more of its total proceeds in units of a fund covered under (a).

Unlisted Bonds/Debentures: Bonds and debentures are debt instruments issued by entities to raise capital for long-term financing, typically offering a fixed rate of interest to investors.

Computation of Capital Gains:

Gains are computed as:

Full value of consideration – Cost of acquisition – Expenses on transfer.

Note: No deduction shall be allowed in respect of any sum paid on account of Securities Transaction Tax.

• Type of Capital Gain and Tax Rates:

Gains from MLDs, SMFs, or unlisted bonds/debentures on transfer, redemption, or maturity are always taxed as short-term capital gains at the assessee’s applicable rate without any concessional rate benefit.

Exemptions for Capital Gains

Introduction

Capital gains may be exempted if the capital asset meets specific criteria or if the gains are reinvested in prescribed assets.

Exemptions for Reinvestment

The Income-tax Act allows exemption from capital gains tax if the amount of capital gains or consideration, as the case may be, is further invested in specified new assets. These exemptions are as follows:

Capital Gains Exemptions on Reinvestment (Sections 54 Series)
Section	Eligible Assessee	Nature of Capital Asset	Type of Original Asset	Type of New Asset	Time Limit for Investment	Amount of Exemption
Section 54	Individual and HUF	Long-term capital asset	Residential house property	Residential house property situated in India	For purchase: Within 1 year before or 2 years after the date of transfer For construction: Within 3 years from the date of transfer	Lower of the following: – Rs. 10 crore, or – Aggregate of amount invested in new residential house property and amount deposited in the Capital Gains Account Scheme (See Note 1)
Section 54B	Individual and HUF	Short-term or Long-term	Land used for agricultural purposes for at least 2 years immediately preceding transfer	Agricultural land	Within 2 years after the date of transfer	Amount invested in new agricultural land and amount deposited in the Capital Gains Account Scheme
Section 54D	Any assessee	Short-term or Long-term	Land and/or building used by the assessee for industrial purposes for 2 years immediately preceding compulsory acquisition	Land or building for shifting, re-establishing or setting up a new industrial undertaking	Within 3 years after the date of compulsory acquisition	Aggregate of amount invested in new land or building and amount deposited in the Capital Gains Account Scheme
Section 54EC	Any assessee	Long-term capital asset	Land or building or both	Bonds issued by NHAI, REC, HUDCO, IREDA or other notified bonds	Within 6 months after the date of transfer	Lower of the following: – Rs. 50,00,000, or – Amount invested in specified bonds
Section 54EE	Any assessee	Long-term capital asset	Any capital asset	Units of notified fund for financing start-ups	Within 6 months after the date of transfer	Lower of the following: – Rs. 50,00,000, or – Amount invested in notified fund
Section 54F	Individual and HUF	Long-term capital asset	Any capital asset other than residential house property	Residential house property situated in India	For purchase: Within 1 year before or 2 years after the date of transfer For construction: Within 3 years after the date of transfer (See Note 2)	Exemption is computed as per the following formula: Eligible Investment × Long-term Capital Gain / Net Sale Consideration Note: Eligible investment shall not exceed Rs. 10 crore
Section 54G	Any assessee	Short-term or Long-term	Specified assets of an industrial undertaking in an urban area	Assets of an industrial undertaking in a non-urban area	Within 1 year before or 3 years after the date of transfer	Amount invested in new assets or amount deposited in the Capital Gains Account Scheme
Section 54GA	Any assessee	Short-term or Long-term	Specified assets of an industrial undertaking in an urban area	Specified assets of an industrial undertaking in a Special Economic Zone (SEZ)	Within 1 year before or 3 years after the date of transfer	Aggregate of amount invested in new asset or transfer of establishment and deposited in capital gain account scheme

Note 1 – Under Section 54, exemption for investment in two residential houses is allowed only if capital gains do not exceed Rs. 2 crores, and can be claimed only once in a lifetime.

Note 2 – Under Section 54F, the exemption is denied if the assessee owns more than one house on the transfer date.

Deposit in Capital Gains Account Scheme (CGAS) – Common Provision (Sections 54 to 54GA):

Where the assessee has not utilised the capital gains for purchase or construction of the new asset up to the due date of filing the return under section 139(1), they may deposit the unutilized amount in CGAS with an authorised bank before the due date of filing the return.

The amount so deposited must be utilised within the prescribed time limit, as specified under the respective section.

However, no CGAS deposit is required for claiming exemption under Sections 54EC and 54EE.

Withdrawal of Exemption

• Non-utilisation of amount deposited in CGAS: If the deposited amount is not utilised within the specified period, it is treated as a capital gain in the year in which the time limit expired.
• Transfer of new asset within Lock-in Period: If the new asset (house, land, bonds, or specified asset) is transferred, converted into money, or used as security for a loanwithin the prescribed period (generally 3 years; 5 years for 54EC), the exemption is withdrawn. The cost of acquisition is reduced by the amount of exemption claimed, or the exempted gain becomes taxable as capital gain.

Section 54F – Special Conditions:

If the assessee acquires or constructs a second residential house (other than the new one) within 2/3 years of transfer, the exempted LTCG becomes taxable in the year of such acquisition or construction.

Exemptions at Source (Section 10):

Section 10 of the Income-tax Act lists incomes that are fully excluded from total income and not taxed under any of the five heads.
Certain capital gains are also exempt under this section:

Section	Exempt Capital Gains
10(4E)	Gains from non-deliverable forward contracts or offshore derivatives (non-residents).
10(H)	Income from shares transfer in IFSC leasing
10(10D)	Life insurance proceeds (including ULIPs)
10(23FF)	Gains from relocation of offshore funds (Indian company shares).
10(33)	Gains from Unit Scheme, 1964 units
10(37)	Gains from compulsory acquisition of urban agricultural land.
10(37A)	Gains from Andhra Pradesh land pooling scheme

Computation of Capital Gain on Dissolution or Reconstitution of Firm, AOP, or BOI

Introduction

When a firm, AOP, or BOI is dissolved or reconstituted, and a partner/member receives capital assets, stock-in-trade, or money, the entity is deemed to have transferred such assets. The resulting income is taxable in the year of receipt by the partner/member.

Applicability

• Section 9B: Applies where capital assets or stock-in-trade are distributed to partners/members on dissolution or reconstitution; FMV on receipt date is deemed full consideration.
• Stock-in-trade: Taxable as business income.
• Capital assets: Taxable under capital gains.
  • Section 45(4): Applies where money or capital assets are received by a partner/member on reconstitution; tax liability falls on the firm.
  • Both sections apply simultaneously and are computed independently.

Capital Gains Computation (under section 9B)

Particulars	Amount (₹)
Full value of consideration (FMV of capital assets)	xxx
Less: Transfer expenses	(xxx)
Less: Cost of acquisition/improvement	(xxx)
Less: The amount chargeable to tax as income of firm under Section 45(4) which is attributable to capital asset being transferred by the firm	(xxx)
Net Capital Gain	xxx

Capital Gains Computation (under section 45(4))

Particulars	Amount (₹)
Money received by partner	xxx
Add: FMV of asset received	xxx
Less: Balance in partner’s capital account	(xxx)
Net Capital Gain (if positive; otherwise nil)	xxx

• Adjustments ensure revaluation/self-generated assets are not taxed twice.
• Gains are short-term if arising from depreciable/short-term/self-generated assets; otherwise long-term.

Computation of Capital Gains in Case of Immovable Property

Introduction

Capital gains from transferring immovable property (land, building, or both) are subject to special rules regarding computation, exemptions, and tax rates.

Key Provision

• Capital Gains Computation:

Particulars	Amount
Full value of consideration (Higher of actual consideration and stamp duty value)	xxx
Less:
(a) Cost of acquisition	(xxx)
(b) Cost of improvement	(xxx)
(c) Expenditure in connection with transfer	(xxx)
(d) Capital gains taxable under section 45(4), which is attributable to the capital asset remaining with the firm, AOP or BOI after reconstitution	(xxx)
Less:
(a) Exemption under Section 54B to 54GB	(xxx)
Short-term capital gains or Long-term capital gains	xxx

Classification of Capital Gains:

• Short-term: Held for less than 24 monthsbefore transfer.
• Long-term: Held for 24 months or morebefore transfer.

Special Provision

Full Value of Consideration (Section 50C):

• If SDV (Stamp Duty Value) exceeds actual consideration by more than 10%, SDV is deemed the full value.
• Disputes may be referred to a Valuation Officer.

Cost of Acquisition:

• For assets acquired prior to 01-04-2001, the cost of acquisition shall be taken as the higher of the actual purchase price or the FMV as on 01-04-2001, subject to the condition that such FMV does not exceed the SDV as on 01-04-2001.
• Deductions for interest claimed under Sections 24(b), 80EE, or 80EEAare not allowed.

Cost of Improvement:

Includes capital expenditure on or after 01-04-2001; prior improvements are ignored.

Tax Rates and Indexation

• LTCG are taxed at 5%(without indexation).
• Resident individuals and HUFs can apply the grandfathering provision for land/buildings acquired before 23-07-2024, opting for 20% tax with indexation if more beneficial.
• Short-term gains are taxed at the assessee’s applicable rates.

Exemptions (Sections 54 to 54GB)

• Exemptions apply for investments in new assets like residential properties, agricultural land, bonds, or shares, based on specific conditions and timelines.

Special exemptions include:

• Section 10(37): Compulsory acquisition of urban agricultural land.
• Section 10(37A): Andhra Pradesh land pooling schemes.

Tax on Short-Term Capital Gain from Sale of Securities Chargeable to STT

Introduction

Short-term capital gains (STCG) from the sale of specified securities are taxable at a concessional rate of 20% or 15%, provided the Securities Transaction Tax (STT) is paid at the time of sale. Deductions under Chapter VI-A are not permitted against such gains.

Key Provisions

Eligibility for Concessional Tax Rate

• Available to all assessees on STCG arising from specified securities.

Specified Securities

• Equity shares.
• Units of equity-oriented mutual funds.
• Units of business trusts.

Conditions for Concessional Rate

• STT must be paid at the time of transfer.
• Exception: Transactions on recognised stock exchanges in International Financial Services Centres (IFSCs) do not require STT if consideration is in foreign currency.

Tax Rate

• 20% (15% if security is transferred before July 23, 2024), plus surcharge and health & education cess.

Restrictions and Exceptions

No Adjustment Against Basic Exemption Limit

• Entire STCG is taxable at 20% or 15%, without adjustment for the basic exemption limit.
• Exception: Resident individuals and HUFs may adjust the basic exemption limit against such STCG. If total income (excluding STCG) is below the exemption limit, STCG can be reduced by the shortfall.

No Deductions Under Sections 80C to 80U

• Deductions under Chapter VI-A are not allowed from such STCG.

Tax on Long-Term Capital Gain from Sale of Securities Chargeable to STT

Introduction

Long-term capital gains (LTCG) from the sale of specified securities are exempt from tax if the aggregate gain during the year does not exceed Rs. 1,25,000. Gains above this threshold are taxable at a concessional rate of 12.5% or 10%.

Key Provisions

Eligibility

• All assessees can claim the benefit of Section 112A for LTCG arising from specified securities.

Specified Securities

• Equity shares.
• Units of equity-oriented mutual funds.
• Units of business trusts.

Conditions for Concessional Taxation

• STT must be paid at the time of transfer.
• For equity shares, STT must also be paid at acquisition (However, there are some exceptions).

Exceptions:

• Transactions on recognized stock exchanges in IFSCs are exempt from STT requirements if consideration is in foreign currency.
• CBDT permits exemptions for certain acquisitions, including shares purchased before October 1, 2004, or acquired through court orders, SEBI regulations, FDI guidelines, ESOPs, and specified corporate restructuring.

Cost of Acquisition Rules

Shares Acquired on or Before January 31, 2018:

• Higher of:
• Actual cost of acquisition.
• Lower of:
  • Fair market value (FMV) as on January 31, 2018.
  • Full value of consideration at transfer.

Shares Acquired on or After February 1, 2018:

• Actual cost of acquisition.

Taxation Under Section 112A

Threshold Exemption: LTCG up to Rs. 1,25,000 is exempt.

Tax Rate: LTCG exceeding Rs. 1,25,000 is taxed at 12.5%(10% if specified security transferred before 23^rdJuly 2024) plus surcharge and health & education cess.

Restrictions on Benefits

Adjustment of Basic Exemption Limit

• LTCG taxable under Section 112A cannot be adjusted against the basic exemption limit.
• Exception: Resident individuals and HUFs can adjust LTCG if their total income (excluding LTCG) falls below the exemption limit.

No Deductions or Rebates

• Deductions under Chapter VI-A are not allowed.
• No rebate under Section 87A is available for LTCG taxed under Section 112A.

Tax Rates on Capital Gains

Introduction

Tax rates on capital gains depend on the type of capital asset, holding period, and assessee’s status. Short-term capital gains (STCG) are generally taxed at higher rates compared to long-term capital gains (LTCG).

Short-Term Capital Gains

General Rule:

• Taxed at normal slab rates applicable to the assessee.

Specified Listed Securities (Section 111A):

• Tax rate: 20% (15% if securities transferred before 23^rdJuly 2024) if STT is paid at the time of transfer.
• Includes equity shares, equity-oriented mutual funds, and units of business trusts.

Long-Term Capital Gains

General Rule:

• Uniform tax rate of 12.5% (effective July 23, 2024).
• Indexation benefit abolished for assets transferred on or after July 23, 2024.
• Grandfathering provision: Resident individuals and HUFs, in respect of land or buildings acquired before July 23, 2024, may opt for taxation at 20% with indexation, if it is more beneficial.

Specified Listed Securities (Section 112A):

Tax rate: 12.5% (10% if securities transferred before 23^rd July 2024) on LTCG exceeding Rs. 1,25,000 (STT must be paid).

Income-tax Act, 1961

Section – 2

Definitions.

2. In this Act, unless the context otherwise requires,—

(1) “advance tax” means the advance tax payable in accordance with the provisions of Chapter XVII-C;

(1A) “agricultural income” means—

(a) any rent or revenue derived from land which is situated in India and is used for agricultural purposes;

(b) any income derived from such land by—

(i) agriculture; or

(ii) the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by him fit to be taken to market; or

(iii) the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by him, in respect of which no process has been performed other than a process of the nature described in paragraph (ii) of this sub-clause;

(c) any income derived from any building owned and occupied by the receiver of the rent or revenue of any such land, or occupied by the cultivator or the receiver of rent-in-kind, of any land with respect to which, or the produce of which, any process mentioned in paragraphs (ii) and (iii) of sub-clause (b) is carried on :

Provided that—

(i) the building is on or in the immediate vicinity of the land, and is a building which the receiver of the rent or revenue or the cultivator, or the receiver of rent-in-kind, by reason of his connection with the land, requires as a dwelling house, or as a store-house, or other out-building, and

(ii) the land is either assessed to land revenue in India or is subject to a local rate assessed and collected by officers of the Government as such or where the land is not so assessed to land revenue or subject to a local rate, it is not situated—

(A) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee or by any other name) or a cantonment board and which has a population of not less than ten thousand; or

(B) in any area within the distance, measured aerially,—

(I) not being more than two kilometres, from the local limits of any municipality or cantonment board referred to in item (A) and which has a population of more than ten thousand but not exceeding one lakh; or

(II) not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in item (A) and which has a population of more than one lakh but not exceeding ten lakh; or

(III) not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (A) and which has a population of more than ten lakh.

Explanation 1.—For the removal of doubts, it is hereby declared that revenue derived from land shall not include and shall be deemed never to have included any income arising from the transfer of any land referred to in item (a) or item (b) of sub-clause (iii) of clause (14) of this section. Explanation 2.—For the removal of doubts, it is hereby declared that income derived from any building or land referred to in sub-clause (c) arising from the use of such building or land for any purpose (including letting for residential purpose or for the purpose of any business or profession) other than agriculture falling under sub-clause (a) or sub-clause (b) shall not be agricultural income.

Explanation 3.—For the purposes of this clause, any income derived from saplings or seedlings grown in a nursery shall be deemed to be agricultural income.

Explanation 4.—For the purposes of clause (ii) of the proviso to sub-clause (c), “population” means the population according to the last preceding census of which the relevant figures have been published before the first day of the previous year;

(1B) “amalgamation”, in relation to companies, means the merger of one or more companies with another company or the merger of two or more companies to form one company (the company or companies which so merge being referred to as the amalgamating company or companies and the company with which they merge or which is formed as a result of the merger, as the amalgamated company) in such a manner that—

(i) all the property of the amalgamating company or companies immediately before the amalgamation becomes the property of the amalgamated company by virtue of the amalgamation;

(ii) all the liabilities of the amalgamating company or companies immediately before the amalgamation become the liabilities of the amalgamated company by virtue of the amalgamation;

(iii) shareholders holding not less than three-fourths in value of the shares in the amalgamating company or companies (other than shares already held therein immediately before the amalgamation by, or by a nominee for, the amalgamated company or its subsidiary) become shareholders of the amalgamated company by virtue of the amalgamation,

otherwise than as a result of the acquisition of the property of one company by another company pursuant to the purchase of such property by the other company or as a result of the distribution of such property to the other company after the winding up of the first-mentioned company;

(1C) “Additional Commissioner” means a person appointed to be an Additional Commissioner of Income-tax under sub-section (1) of section 117;

(1D) “Additional Director” means a person appointed to be an Additional Director of Income-tax under sub-section (1) of section 117;

(2) “annual value”, in relation to any property, means its annual value as determined under section 23;

(3) [***]

(4) “Appellate Tribunal” means the Appellate Tribunal constituted under section 252 ;

(5) “approved gratuity fund” means a gratuity fund which has been and continues to be approved by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner in accordance with the rules contained in Part C of the Fourth Schedule ;

(6) “approved superannuation fund” means a superannuation fund or any part of a superannuation fund which has been and continues to be approved by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner in accordance with the rules contained in Part B of the Fourth Schedule ;

(7) “assessee” means a person by whom any tax or any other sum of money is payable under this Act, and includes—

(a) every person in respect of whom any proceeding under this Act has been taken for the assessment of his income or assessment of fringe benefits or of the income of any other person in respect of which he is assessable, or of the loss sustained by him or by such other person, or of the amount of refund due to him or to such other person ;

(b) every person who is deemed to be an assessee under any provision of this Act ;

(c) every person who is deemed to be an assessee in default under any provision of this Act ;

(7A) “Assessing Officer” means the Assistant Commissioner or Deputy Commissioner or Assistant Director or Deputy Director or the Income-tax Officer who is vested with the relevant jurisdiction by virtue of directions or orders issued under sub-section (1) or sub-section (2) of section 120 or any other provision of this Act, and the Additional Commissioner or Additional Director or Joint Commissioner or Joint Director who is directed under clause (b) of sub-section (4) of that section to exercise or perform all or any of the powers and functions conferred on, or assigned to, an Assessing Officer under this Act ;

(8) “assessment” includes reassessment ;

(9) “assessment year” means the period of twelve months commencing on the 1st day of April every year ;

(9A) “Assistant Commissioner” means a person appointed to be an Assistant Commissioner of Income-tax or a Deputy Commissioner of Income-tax under sub-section (1) of section 117 ;

(9B) “Assistant Director” means a person appointed to be an Assistant Director of Income-tax under sub-section (1) of section 117 ;

(10) “average rate of income-tax” means the rate arrived at by dividing the amount of income-tax calculated on the total income, by such total income ;

(11) “block of assets” means a group of assets falling within a class of assets comprising—

(a) tangible assets, being buildings, machinery, plant or furniture ;

(b) intangible assets, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, not being goodwill of a business or profession, in respect of which the same percentage of depreciation is prescribed ;

(12) “Board” means the Central Board of Direct Taxes constituted under the Central Boards of Revenue Act, 1963 (54 of 1963) ;

(12A) “books or books of account” includes ledgers, day-books, cash books, account-books and other books, whether kept in the written form or in electronic form or in digital form or as print-outs of data stored in such electronic form or in digital form or in a floppy, disc, tape or any other form of electro­magnetic data storage device;

(13) “business” includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture;

(13A) “business trust” means a trust registered as,—

(i) an Infrastructure Investment Trust under the Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992); or

(ii) a Real Estate Investment Trust under the Securities and Exchange Board of India (Real Estate Investment Trusts) Regulations, 2014 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992),

(14) “capital asset” means—

(a) property of any kind held by an assessee, whether or not connected with his business or profession;

(b) any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992 (15 of 1992);

Following sub-clause (b) shall be substituted for existing sub-clause (b) of clause (14) of section 2 by the Finance Act, 2025, w.e.f. 1-4-2026:

(b) any securities held by—

(i) a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992 (15 of 1992); or

(ii) an investment fund specified in clause (a) of Explanation 1 to section 115UB which has invested such securities in accordance with the provisions of the regulations made under the Securities and Exchange Board of India Act, 1992 (15 of 1992) or under the International Financial Services Centres Authority Act, 2019 (50 of 2019);

(c) any unit linked insurance policy to which exemption under clause (10D) of section 10 does not apply [on account of the applicability of the fourth and fifth provisos thereof], but does not include—

(i) any stock-in-trade [other than the securities referred to in sub-clause (b)], consumable stores or raw materials held for the purposes of his business or profession ;

(ii) personal effects, that is to say, movable property (including wearing apparel and furniture) held for personal use by the assessee or any member of his family dependent on him, but excludes—

(a) jewellery;

(b) archaeological collections;

(c) drawings;

(d) paintings;

(e) sculptures; or

(f) any work of art.

Explanation.—For the purposes of this sub-clause, “jewellery” includes—

(a) ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stone, and whether or not worked or sewn into any wearing apparel;

(b) precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel;

(iii) agricultural land in India, not being land situate—

(a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand; or

(b) in any area within the distance, measured aerially,—

(I) not being more than two kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten thousand but not exceeding one lakh; or

(II) not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than one lakh but not exceeding ten lakh; or

(III) not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten lakh.

Explanation.—For the purposes of this sub-clause, “population” means the population according to the last preceding census of which the relevant figures have been published before the first day of the previous year;

(iv) 6¹/₂ per cent Gold Bonds, 1977, or 7 per cent Gold Bonds, 1980, or National Defence Gold Bonds, 1980, issued by the Central Government;

(v) Special Bearer Bonds, 1991, issued by the Central Government ;

(vi) Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 or deposit certificates issued under the Gold Monetisation Scheme, 2015 notified by the Central Government.

Explanation 1.—For the removal of doubts, it is hereby clarified that “property” includes and shall be deemed to have always included any rights in or in relation to an Indian company, including rights of management or control or any other rights whatsoever.

Explanation 2.—For the purposes of this clause—

(a) the expression “Foreign Institutional Investor” shall have the meaning assigned to it in clause (a) of the Explanation to section 115AD;

(b) the expression “securities” shall have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956);

(15) “charitable purpose” includes relief of the poor, education, yoga, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility:

Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless—

(i) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and

(ii) the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year;

(15A) “Chief Commissioner” means a person appointed to be a Chief Commissioner of Income-tax or a Director General of Income-tax or a Principal Chief Commissioner of Income-tax or a Principal Director General of Income-tax under sub-section (1) of section 117;

(15B) “child”, in relation to an individual, includes a step-child and an adopted child of that individual;

(16) “Commissioner” means a person appointed to be a Commissioner of Income-tax or a Director of Income-tax or a Principal Commissioner of Income-tax or a Principal Director of Income-tax under sub-section (1) of section 117;

(16A) “Commissioner (Appeals)” means a person appointed to be a Commissioner of Income-tax (Appeals) under sub-section (1) of section 117 ;

(17) “company” means—

(i) any Indian company, or

(ii) any body corporate incorporated by or under the laws of a country outside India, or

(iii) any institution, association or body which is or was assessable or was assessed as a company for any assessment year under the Indian Income-tax Act, 1922 (11 of 1922) or which is or was assessable or was assessed under this Act as a company for any assessment year commencing on or before the 1st day of April, 1970, or

(iv) any institution, association or body, whether incorporated or not and whether Indian or non-Indian, which is declared by general or special order of the Board to be a company :

Provided that such institution, association or body shall be deemed to be a company only for such assessment year or assessment years (whether commencing before the 1st day of April, 1971 or on or after that date) as may be specified in the declaration ;

(18) “company in which the public are substantially interested”—a company is said to be a company in which the public are substantially interested—

(a) if it is a company owned by the Government or the Reserve Bank of India or in which not less than forty per cent of the shares are held (whether singly or taken together) by the Government or the Reserve Bank of India or a corporation owned by that bank ; or

(aa) if it is a company which is registered under section 25 of the Companies Act, 1956 (1 of 1956) ; or

(ab) if it is a company having no share capital and if, having regard to its objects, the nature and composition of its membership and other relevant considerations, it is declared by order of the Board to be a company in which the public are substantially interested :

Provided that such company shall be deemed to be a company in which the public are substantially interested only for such assessment year or assessment years (whether commencing before the 1st day of April, 1971, or on or after that date) as may be specified in the declaration ; or

(ac) if it is a mutual benefit finance company, that is to say, a company which carries on, as its principal business, the business of acceptance of deposits from its members and which is declared by the Central Government under section 620A of the Companies Act, 1956 (1 of 1956), to be a Nidhi or Mutual Benefit Society ; or

(ad) if it is a company, wherein shares (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) carrying not less than fifty per cent of the voting power have been allotted unconditionally to, or acquired unconditionally by, and were throughout the relevant previous year beneficially held by, one or more co-operative societies ;

(b) if it is a company which is not a private company as defined in the Companies Act, 1956 (1 of 1956), and the conditions specified either in item (A) or in item (B) are fulfilled, namely :—

(A) shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) were, as on the last day of the relevant previous year, listed in a recognised stock exchange in India in accordance with the Securities Contracts (Regulation) Act, 1956 (42 of 1956), and any rules made thereunder ;

(B) shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) carrying not less than fifty per cent of the voting power have been allotted unconditionally to, or acquired unconditionally by, and were throughout the relevant previous year beneficially held by—

(a) the Government, or

(b) a corporation established by a Central, State or Provincial Act, or

(c) any company to which this clause applies or any subsidiary company of such company if the whole of the share capital of such subsidiary company has been held by the parent company or by its nominees throughout the previous year. —In its application to an Indian company whose business consists mainly in the construction of ships or in the manufacture or processing of goods or in mining or in the generation or distribution of electricity or any other form of power, item (B) shall have effect as if for the words “not less than fifty per cent”, the words “not less than forty per cent” had been substituted ;

(19) “co-operative society” means a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of co-operative societies ;

(19A) “Deputy Commissioner” means a person appointed to be a Deputy Commissioner of Income-tax under sub-section (1) of section 117 ;

(19AA) “demerger”, in relation to companies, means the transfer, pursuant to a scheme of arrangement under sections 391 to 394 of the Companies Act, 1956 (1 of 1956), by a demerged company of its one or more undertakings to any resulting company in such a manner that—

(i) all the property of the undertaking, being transferred by the demerged company, immediately before the demerger, becomes the property of the resulting company by virtue of the demerger;

(ii) all the liabilities relatable to the undertaking, being transferred by the demerged company, immediately before the demerger, become the liabilities of the resulting company by virtue of the demerger;

(iii) the property and the liabilities of the undertaking or undertakings being transferred by the demerged company are transferred at values appearing in its books of account immediately before the demerger:

Provided that the provisions of this sub-clause shall not apply where the resulting company records the value of the property and the liabilities of the undertaking or undertakings at a value different from the value appearing in the books of account of the demerged company, immediately before the demerger, in compliance to the Indian Accounting Standards specified in Annexure to the Companies (Indian Accounting Standards) Rules, 2015;

(iv) the resulting company issues, in consideration of the demerger, its shares to the shareholders of the demerged company on a proportionate basis except where the resulting company itself is a shareholder of the demerged company;

(v) the shareholders holding not less than three-fourths in value of the shares in the demerged company (other than shares already held therein immediately before the demerger, or by a nominee for, the resulting company or, its subsidiary) become share-holders of the resulting company or companies by virtue of the demerger, otherwise than as a result of the acquisition of the property or assets of the demerged company or any undertaking thereof by the resulting company;

(vi) the transfer of the undertaking is on a going concern basis;

(vii) the demerger is in accordance with the conditions, if any, notified under sub-section (5) of section 72A by the Central Government in this behalf.

Explanation 1.—For the purposes of this clause, “undertaking” shall include any part of an undertaking, or a unit or division of an undertaking or a business activity taken as a whole, but does not include individual assets or liabilities or any combination thereof not constituting a business activity. Explanation 2.—For the purposes of this clause, the liabilities referred to in sub-clause (ii), shall include—

(a) the liabilities which arise out of the activities or operations of the undertaking;

(b) the specific loans or borrowings (including debentures) raised, incurred and utilised solely for the activities or operations of the undertaking; and

(c) in cases, other than those referred to in clause (a) or clause (b), so much of the amounts of general or multipurpose borrowings, if any, of the demerged company as stand in the same proportion which the value of the assets transferred in a demerger bears to the total value of the assets of such demerged company immediately before the demerger.

Explanation 3.—For determining the value of the property referred to in sub-clause (iii), any change in the value of assets consequent to their revaluation shall be ignored.

Explanation 4.—For the purposes of this clause, the splitting up or the reconstruction of any authority or a body constituted or established under a Central, State or Provincial Act, or a local authority or a public sector company, into separate authorities or bodies or local authorities or companies, as the case may be, shall be deemed to be a demerger if such split up or reconstruction fulfils such conditions as may be notified in the Official Gazette, by the Central Government.

Explanation 5.—For the purposes of this clause, the reconstruction or splitting up of a company, which ceased to be a public sector company as a result of transfer of its shares by the Central Government, into separate companies, shall be deemed to be a demerger, if such reconstruction or splitting up has been made to give effect to any condition attached to the said transfer of shares and also fulfils such other conditions as may be notified by the Central Government in the Official Gazette.

Explanation 6.—For the purposes of this clause, the reconstruction or splitting up of a public sector company into separate companies shall be deemed to be a demerger, if such reconstruction or splitting up has been made to transfer any asset of the demerged company to the resulting company and the resulting company—

(i) is a public sector company on the appointed day indicated in such scheme, as may be approved by the Central Government or any other body authorised under the provisions of the Companies Act, 2013 (18 of 2013) or any other law for the time being in force governing such public sector companies in this behalf; and

(ii) fulfils such other conditions as may be notified by the Central Government in the Official Gazette in this behalf; (19AAA) “demerged company” means the company whose undertaking is transferred, pursuant to a demerger, to a resulting company;

(19B) “Deputy Commissioner (Appeals)” means a person appointed to be a Deputy Commissioner of Income-tax (Appeals) [***] under sub-section (1) of section 117 ;

(19C) “Deputy Director” means a person appointed to be a Deputy Director of Income-tax under sub-section (1) of section 117 ;

(20) “director”, “manager” and “managing agent”, in relation to a company, have the meanings respectively assigned to them in the Companies Act, 1956 (1 of 1956) ;

(21) “Director General or Director” means a person appointed to be a Director General of Income-tax or a Principal Director General of Income-tax or, as the case may be, a Director of Income-tax or a Principal Director of Income-tax, under sub-section (1) of section 117, and includes a person appointed under that sub-section to be an Additional Director of Income-tax or a Joint Director of Income-tax or an Assistant Director or Deputy Director of Income-tax;

(22) “dividend” includes—

(a) any distribution by a company of accumulated profits, whether capitalised or not, if such distribution entails the release by the company to its shareholders of all or any part of the assets of the company ;

(b) any distribution to its shareholders by a company of debentures, debenture-stock, or deposit certificates in any form, whether with or without interest, and any distribution to its preference shareholders of shares by way of bonus, to the extent to which the company possesses accumulated profits, whether capitalised or not ;

(c) any distribution made to the shareholders of a company on its liquidation, to the extent to which the distribution is attributable to the accumulated profits of the company immediately before its liquidation, whether capitalised or not ;

(d) any distribution to its shareholders by a company on the reduction of its capital, to the extent to which the company possesses accumulated profits which arose after the end of the previous year ending next before the 1st day of April, 1933, whether such accumulated profits have been capitalised or not ;

(e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits;

[(f) any payment by a company on purchase of its own shares from a shareholder in accordance with the provisions of section 68 of the Companies Act, 2013 (18 of 2013);]

but “dividend” does not include—

(i) a distribution made in accordance with sub-clause (c) or sub-clause (d) in respect of any share issued for full cash consideration, where the holder of the share is not entitled in the event of liquidation to participate in the surplus assets ;

(ia) a distribution made in accordance with sub-clause (c) or sub-clause (d) in so far as such distribution is attributable to the capitalised profits of the company representing bonus shares allotted to its equity shareholders after the 31st day of March, 1964, and before the 1st day of April, 1965;

(ii) any advance or loan made to a shareholder or the said concern by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company ;

[(iia) any advance or loan between two group entities, where,—

(A) one of the group entity is a “Finance company” or a “Finance unit”; and

(B) the parent entity or principal entity of such group is listed on stock exchange in a country or territory outside India other than the country or territory outside India as may be specified by the Board in this behalf;]

(iii) any dividend paid by a company which is set off by the company against the whole or any part of any sum previously paid by it and treated as a dividend within the meaning of sub-clause (e), to the extent to which it is so set off;

(iv) [***]

(v) any distribution of shares pursuant to a demerger by the resulting company to the shareholders of the demerged company (whether or not there is a reduction of capital in the demerged company).

Explanation 1.—The expression “accumulated profits”, wherever it occurs in this clause, shall not include capital gains arising before the 1st day of April, 1946, or after the 31st day of March, 1948, and before the 1st day of April, 1956.

Explanation 2.—The expression “accumulated profits” in sub-clauses (a), (b), (d) and (e), shall include all profits of the company up to the date of distribution or payment referred to in those sub-clauses, and in sub-clause (c) shall include all profits of the company up to the date of liquidation, but shall not, where the liquidation is consequent on the compulsory acquisition of its undertaking by the Government or a corporation owned or controlled by the Government under any law for the time being in force, include any profits of the company prior to three successive previous years immediately preceding the previous year in which such acquisition took place.

Explanation 2A.—In the case of an amalgamated company, the accumulated profits, whether capitalised or not, or loss, as the case may be, shall be increased by the accumulated profits, whether capitalised or not, of the amalgamating company on the date of amalgamation.

Explanation 3.—For the purposes of this clause,—

(a) “concern” means a Hindu undivided family, or a firm or an association of persons or a body of individuals or a company ;

(b) a person shall be deemed to have a substantial interest in a concern, other than a company, if he is, at any time during the previous year, beneficially entitled to not less than twenty per cent of the income of such concern ;

[(c) “Finance Company” and “Finance Unit” shall have the same meaning as assigned respectively to them in clauses (e) and (f) of sub-regulation (1) of regulation 2 of the International Financial Services Centres Authority (Finance Company) Regulations, 2021 made under the International Financial Services Centres Authority Act, 2019 (50 of 2019):

Provided that such Finance Company or Finance Unit, is set up as a global or regional corporate treasury centre for undertaking treasury activities or treasury services as per the relevant regulations made by the International Financial Services Centres Authority established under section 4 of the said Act;

(d) “group entity”, “parent entity” and “principal entity” shall be such entities which satisfy such conditions as prescribed in this behalf;]

(22A) “domestic company” means an Indian company, or any other company which, in respect of its income liable to tax under this Act, has made the prescribed arrangements for the declaration and payment, within India, of the dividends (including dividends on preference shares) payable out of such income ;

(22AA) “document” includes an electronic record as defined in clause (t) of sub-section (1) of section 2 of the Information Technology Act, 2000 (21 of 2000);

(22AAA) “electoral trust” means a trust so approved by the Board in accordance with the scheme made in this regard by the Central Government;

(22B) “fair market value”, in relation to a capital asset, means—

(i) the price that the capital asset would ordinarily fetch on sale in the open market on the relevant date ; and

(ii) where the price referred to in sub-clause (i) is not ascertainable, such price as may be determined in accordance with the rules made under this Act ;

(23) (i) “firm” shall have the meaning assigned to it in the Indian Partnership Act, 1932 (9 of 1932), and shall include a limited liability partnership as defined in the Limited Liability Partnership Act, 2008 (6 of 2009);

(ii) “partner” shall have the meaning assigned to it in the Indian Partnership Act, 1932 (9 of 1932), and shall include,—

(a) any person who, being a minor, has been admitted to the benefits of partnership; and

(b) a partner of a limited liability partnership as defined in the Limited Liability Partnership Act, 2008 (6 of 2009);

(iii) “partnership” shall have the meaning assigned to it in the Indian Partnership Act, 1932 (9 of 1932), and shall include a limited liability partnership as defined in the Limited Liability Partnership Act, 2008 (6 of 2009);

(23A) “foreign company” means a company which is not a domestic company;

(23B) “fringe benefits” means any fringe benefits referred to in section 115WB;

(23C) “hearing” includes communication of data and documents through electronic mode;

(24) “income” includes—

(i) profits and gains ;

(ii) dividend ;

(iia) voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes or by an association or institution referred to in clause (21) or clause (23), or by a fund or trust or institution referred to in sub-clause (iv) or sub-clause (v) or by any university or other educational institution referred to in sub-clause (iiiad) or sub-clause (vi) or by any hospital or other institution referred to in sub-clause (iiiae) or sub-clause (via) of clause (23C) of section 10 or by an electoral trust.

Explanation.—For the purposes of this sub-clause, “trust” includes any other legal obligation ;

(iii) the value of any perquisite or profit in lieu of salary taxable under clauses (2) and (3) of section 17 ;

(iiia) any special allowance or benefit, other than perquisite included under sub-clause (iii), specifically granted to the assessee to meet expenses wholly, necessarily and exclusively for the performance of the duties of an office or employment of profit ;

(iiib) any allowance granted to the assessee either to meet his personal expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at a place where he ordinarily resides or to compensate him for the increased cost of living ;

(iv) the value of any benefit or perquisite, whether convertible into money or not, obtained from a company either by a director or by a person who has a substantial interest in the company, or by a relative of the director or such person, and any sum paid by any such company in respect of any obligation which, but for such payment, would have been payable by the director or other person aforesaid ;

(iva) the value of any benefit or perquisite, whether convertible into money or not, obtained by any representative assessee mentioned in clause (iii) or clause (iv) of sub-section (1) of section 160 or by any person on whose behalf or for whose benefit any income is receivable by the representative assessee (such person being hereafter in this sub-clause referred to as the “beneficiary”) and any sum paid by the representative assessee in respect of any obligation which, but for such payment, would have been payable by the beneficiary ;

(v) any sum chargeable to income-tax under clauses (ii) and (iii) of section 28 or section 41 or section 59 ;

(va) any sum chargeable to income-tax under clause (iiia) of section 28;

(vb) any sum chargeable to income-tax under clause (iiib) of section 28;

(vc) any sum chargeable to income-tax under clause (iiic) of section 28;

(vd) the value of any benefit or perquisite taxable under clause (iv) of section 28 ;

(ve) any sum chargeable to income-tax under clause (v) of section 28;

(vi) any capital gains chargeable under section 45 ;

(vii) the profits and gains of any business of insurance carried on by a mutual insurance company or by a co-operative society, computed in accordance with section 44 or any surplus taken to be such profits and gains by virtue of provisions contained in the First Schedule ;

(viia) the profits and gains of any business of banking (including providing credit facilities) carried on by a co-operative society with its members;

(viii) [Omitted by the Finance Act, 1988, w.e.f. 1-4-1988. Original sub-clause (viii) was inserted by the Finance Act, 1964, w.e.f. 1-4-1964;]

(ix) any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever.

Explanation.—For the purposes of this sub-clause,—

(i) “lottery” includes winnings from prizes awarded to any person by draw of lots or by chance or in any other manner whatsoever, under any scheme or arrangement by whatever name called;

(ii) “card game and other game of any sort” includes any game show, an entertainment programme on television or electronic mode, in which people compete to win prizes or any other similar game ;

(x) any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the provisions of the Employees’ State Insurance Act, 1948 (34 of 1948), or any other fund for the welfare of such employees ;

(xi) any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy.

Explanation.—For the purposes of this clause, the expression “Keyman insurance policy” shall have the meaning assigned to it in the Explanation to clause (10D) of section 10 ;

(xii) any sum referred to in clause (va) of section 28;

(xiia) the fair market value of inventory referred to in clause (via) of section 28;

(xiii) any sum referred to in clause (v) of sub-section (2) of section 56;

(xiv) any sum referred to in clause (vi) of sub-section (2) of section 56;

(xv) any sum of money or value of property referred to in clause (vii) or clause (viia) of sub-section (2) of section 56;

(xvi) any consideration received for issue of shares as exceeds the fair market value of the shares referred to in clause (viib) of sub-section (2) of section 56;

(xvii) any sum of money referred to in clause (ix) of sub-section (2) of section 56;

(xviia) any sum of money or value of property referred to in clause (x) of sub-section (2) of section 56;

(xviib) any compensation or other payment referred to in clause (xi) of sub-section (2) of section 56;

6[(xviic) any sum referred to in clause (xii) of sub-section (2) of section 56;

(xviid) any sum referred to in clause (xiii) of sub-section (2) of section 56;]

(xviii) assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by whatever name called) by the Central Government or a State Government or any authority or body or agency in cash or kind to the assessee other than,—

(a) the subsidy or grant or reimbursement which is taken into account for determination of the actual cost of the asset in accordance with the provisions of Explanation 10 to clause (1) of section 43; or

(b) the subsidy or grant by the Central Government for the purpose of the corpus of a trust or institution established by the Central Government or a State Government, as the case may be;

(25)”Income-tax Officer” means a person appointed to be an Income-tax Officer under section 117 ;

(25A) “India” means the territory of India as referred to in article 1 of the Constitution, its territorial waters, seabed and subsoil underlying such waters, continental shelf, exclusive economic zone or any other maritime zone as referred to in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976 (80 of 1976), and the air space above its territory and territorial waters;

(26)”Indian company” means a company formed and registered under the Companies Act, 1956 (1 of 1956), and includes—

(i) a company formed and registered under any law relating to companies formerly in force in any part of India (other than the State of Jammu and Kashmir and the Union territories specified in sub-clause (iii) of this clause) ;

(ia) a corporation established by or under a Central, State or Provincial Act ;

(ib) any institution, association or body which is declared by the Board to be a company under clause (17) ;

(ii) in the case of the State of Jammu and Kashmir, a company formed and registered under any law for the time being in force in that State ;

(iii) in the case of any of the Union territories of Dadra and Nagar Haveli, Goa, Daman and Diu, and Pondicherry, a company formed and registered under any law for the time being in force in that Union territory :

Provided that the registered or, as the case may be, principal office of the company, corporation, institution, association or body in all cases is in India ;

(26A) “infrastructure capital company” means such company which makes investments by way of acquiring shares or providing long-term finance to any enterprise or undertaking wholly engaged in the business referred to in sub-section (4) of section 80-IA or sub-section (1) of section 80-IAB or an undertaking developing and building a housing project referred to in sub-section (10) of section 80-IB or a project for constructing a hotel of not less than three-star category as classified by the Central Government or a project for constructing a hospital with at least one hundred beds for patients;

(26B) “infrastructure capital fund” means such fund operating under a trust deed registered under the provisions of the Registration Act, 1908 (16 of 1908) established to raise monies by the trustees for investment by way of acquiring shares or providing long-term finance to any enterprise or undertaking wholly engaged in the business referred to in sub-section (4) of section 80-IA or sub-section (1) of section 80-IAB or an undertaking developing and building a housing project referred to in sub-section (10) of section 80-IB or a project for constructing a hotel of not less than three-star category as classified by the Central Government or a project for constructing a hospital with at least one hundred beds for patients;

(27) [***]

(28) “Inspector of Income-tax” means a person appointed to be an Inspector of Income-tax under sub-section (1) of section 117 ;

(28A) “interest” means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised ;

(28B) “interest on securities” means,—

(i) interest on any security of the Central Government or a State Government ;

(ii) interest on debentures or other securities for money issued by or on behalf of a local authority or a company or a corporation established by a Central, State or Provincial Act ;

(28BB) “insurer” means an insurer, being an Indian insurance company, as defined under clause (7A) of section 2 of the Insurance Act, 1938 (4 of 1938), which has been granted a certificate of registration under section 3 of that Act;

(28C) “Joint Commissioner” means a person appointed to be a Joint Commissioner of Income-tax or an Additional Commissioner of Income-tax under sub­section (1) of section 117;

7[(28CA) “Joint Commissioner (Appeals)” means a person appointed to be a Joint Commissioner of Income-tax (Appeals) or an Additional Commissioner of Income-tax (Appeals) under sub-section (1) of section 117;]

(28D) “Joint Director” means a person appointed to be a Joint Director of Income-tax or an Additional Director of Income-tax under sub-section (1) of section 117;

(29) “legal representative” has the meaning assigned to it in clause (11) of section 2 of the Code of Civil Procedure, 1908 (5 of 1908) ;

(29A) “liable to tax”, in relation to a person and with reference to a country, means that there is an income-tax liability on such person under the law of that country for the time being in force and shall include a person who has subsequently been exempted from such liability under the law of that country; (29AA) “long-term capital asset” means a capital asset which is not a short-term capital asset ;

(29B) “long-term capital gain” means capital gain arising from the transfer of a long-term capital asset ;

(29BA) “manufacture”, with its grammatical variations, means a change in a non-living physical object or article or thing,—

(a) resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or

(b) bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure;

(29C) “maximum marginal rate” means the rate of income-tax (including surcharge on income-tax, if any) applicable in relation to the highest slab of income in the case of an individual , association of persons or, as the case may be, body of individuals as specified in the Finance Act of the relevant year;

(29D) “National Tax Tribunal” means the National Tax Tribunal established under section 3 of the National Tax Tribunal Act, 2005;

(30) “non-resident” means a person who is not a “resident”, and for the purposes of sections 92, 93 and 168, includes a person who is not ordinarily resident within the meaning of clause (6) of section 6;

(31) “person” includes—

(i) an individual,

(ii) a Hindu undivided family,

(iii) a company,

(iv) a firm,

(v) an association of persons or a body of individuals, whether incorporated or not,

(vi) a local authority, and

(vii) every artificial juridical person, not falling within any of the preceding sub-clauses.

Explanation.—For the purposes of this clause, an association of persons or a body of individuals or a local authority or an artificial juridical person shall be deemed to be a person, whether or not such person or body or authority or juridical person was formed or established or incorporated with the object of deriving income, profits or gains;

(32) “person who has a substantial interest in the company”, in relation to a company, means a person who is the beneficial owner of shares, not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits, carrying not less than twenty per cent of the voting power ;

(33) “prescribed” means prescribed by rules made under this Act ;

(34) “previous year” means the previous year as defined in section 3 ;

(34A) “Principal Chief Commissioner of Income-tax” means a person appointed to be a Principal Chief Commissioner of Income-tax under sub-section (1) of section 117;

(34B) “Principal Commissioner of Income-tax” means a person appointed to be a Principal Commissioner of Income-tax under sub-section (1) of section 117;

(34C) “Principal Director of Income-tax” means a person appointed to be a Principal Director of Income-tax under sub-section (1) of section 117;

(34D) “Principal Director General of Income-tax” means a person appointed to be a Principal Director General of Income-tax under sub-section (1) of section 117;

(35) “principal officer”, used with reference to a local authority or a company or any other public body or any association of persons or any body of individuals, means—

(a) the secretary, treasurer, manager or agent of the authority, company, association or body, or

(b) any person connected with the management or administration of the local authority, company, association or body upon whom the Assessing Officer has served a notice of his intention of treating him as the principal officer thereof ;

(36) “profession” includes vocation ;

(36A) “public sector company” means any corporation established by or under any Central, State or Provincial Act or a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956) ;

(37) “public servant” has the same meaning as in section 21 of the Indian Penal Code (45 of 1860) ;

(37A) “rate or rates in force” or “rates in force”, in relation to an assessment year or financial year, means—

(i) for the purposes of calculating income-tax under the first proviso to sub-section (5) of section 132, or computing the income-tax chargeable under sub-section (4) of section 172 or sub-section (2) of section 174 or section 175 or sub-section (2) of section 176 or deducting income-tax under section 192 from income chargeable under the head “Salaries” or computation of the “advance tax” payable under Chapter XVII-C in a case not falling under section 115A or section 115B or section 115BB or section 115BBB or section 115E or section 164 or section 164A or section 167B, the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year, and for the purposes of computation of the “advance tax” payable under Chapter XVII-C in a case falling under section 115A or section 115B or section 115BB or section 115BBB or section 115E or section 164 or section 164A or section 167B, the rate or rates specified in section 115A or section 115B or section 115BB or section 115BBB or section 115E or section 164 or section 164A or section 167B, as the case may be, or the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year, whichever is applicable ;

(ii) for the purposes of deduction of tax under sections 193, 194, 194A , 194B [, 194BA] , 194BB and 194D, the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year ;

(iii) for the purposes of deduction of tax under section 194LBA or section 194LBB or section 194LBC or section 195, the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year or the rate or rates of income-tax specified in an agreement entered into by the Central Government under section 90, or an agreement notified by the Central Government under section 90A, whichever is applicable by virtue of the provisions of section 90, or section 90A, as the case may be;

(38)”recognised provident fund” means a provident fund which has been and continues to be recognised by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner in accordance with the rules contained in Part A of the Fourth Schedule, and includes a provident fund established under a scheme framed under the Employees’ Provident Funds Act, 1952 (19 of 1952) ;

(39) [Omitted by the Finance Act, 1992, w.e.f. 1-4-1993;]

(40) “regular assessment” means the assessment made under sub-section (3) of section 143 or section 144 ;

(41) “relative”, in relation to an individual, means the husband, wife, brother or sister or any lineal ascendant or descendant of that individual ;

(41A) “resulting company” means one or more companies (including a wholly owned subsidiary thereof) to which the undertaking of the demerged company is transferred in a demerger and, the resulting company in consideration of such transfer of undertaking, issues shares to the shareholders of the demerged company and includes any authority or body or local authority or public sector company or a company established, constituted or formed as a result of demerger;

(42)”resident” means a person who is resident in India within the meaning of section 6 ;

(42A) “short-term capital asset” means a capital asset held by an assessee for not more than [twenty-four] months immediately preceding the date of its transfer :

Provided that in the case of a security [***] listed in a recognized stock exchange in India or a unit of the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963) or a unit of an equity oriented fund or a zero coupon bond, the provisions of this clause shall have effect as if for the words “[twenty-four] months”, the words “twelve months” had been substituted:

Provided further that in case of a share of a company (not being a share listed in a recognised stock exchange) or a unit of a Mutual Fund specified under clause (23D) of section 10, which is transferred during the period beginning on the 1st day of April, 2014 and ending on the 10th day of July, 2014, the provisions of this clause shall have effect as if for the words “thirty-six months”, the words “twelve months” had been substituted [as it stood immediately prior to the commencement of the Finance (No. 2) Act, 2024].

12a[***]

Explanation 1.—(i) In determining the period for which any capital asset is held by the assessee—

(a) in the case of a share held in a company in liquidation, there shall be excluded the period subsequent to the date on which the company goes into liquidation ;

(b) in the case of a capital asset which becomes the property of the assessee in the circumstances mentioned in sub-section (1) of section 49, there shall be included the period for which the asset was held by the previous owner referred to in the said section;

(ba) in the case of a capital asset referred to in clause (via) of section 28, the period shall be reckoned from the date of its conversion or treatment;

(c) in the case of a capital asset being a share or shares in an Indian company, which becomes the property of the assessee in consideration of a transfer referred to in clause (vii) of section 47, there shall be included the period for which the share or shares in the amalgamating company were held by the assessee ;

(d) in the case of a capital asset, being a share or any other security (hereafter in this clause referred to as the financial asset) subscribed to by the assessee on the basis of his right to subscribe to such financial asset or subscribed to by the person in whose favour the assessee has renounced his right to subscribe to such financial asset, the period shall be reckoned from the date of allotment of such financial asset ;

(e) in the case of a capital asset, being the right to subscribe to any financial asset, which is renounced in favour of any other person, the period shall be reckoned from the date of the offer of such right by the company or institution, as the case may be, making such offer ;

(f) in the case of a capital asset, being a financial asset, allotted without any payment and on the basis of holding of any other financial asset, the period shall be reckoned from the date of the allotment of such financial asset ;

(g) in the case of a capital asset, being a share or shares in an Indian company, which becomes the property of the assessee in consideration of a demerger, there shall be included the period for which the share or shares held in the demerged company were held by the assessee ;

(h) in the case of a capital asset, being trading or clearing rights of a recognised stock exchange in India acquired by a person pursuant to demutualisation or corporatisation of the recognised stock exchange in India as referred to in clause (xiii) of section 47, there shall be included the period for which the person was a member of the recognised stock exchange in India immediately prior to such demutualisation or corporatisation;

(ha) in the case of a capital asset, being equity share or shares in a company allotted pursuant to demutualisation or corporatisation of a recognised stock exchange in India as referred to in clause(xiii) of section 47, there shall be included the period for which the person was a member of the recognised stock exchange in India immediately prior to such demutualisation or corporatisation;

(hb) in the case of a capital asset, being any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the employer free of cost or at concessional rate to his employees (including former employee or employees), the period shall be reckoned from the date of allotment or transfer of such specified security or sweat equity shares;

(hc) in the case of a capital asset, being a unit of a business trust, allotted pursuant to transfer of share or shares as referred to in clause (xvii) of section 47, there shall be included the period for which the share or shares were held by the assessee;

(hd) in the case of a capital asset, being a unit or units, which becomes the property of the assessee in consideration of a transfer referred to in clause (xviii)of section 47, there shall be included the period for which the unit or units in the consolidating scheme of the mutual fund were held by the assessee;

(he) in the case of a capital asset, being share or shares of a company, which is acquired by the non-resident assessee on redemption of Global Depository Receipts referred to in clause (b) of sub-section (1) of section 115AC held by such assessee, the period shall be reckoned from the date on which a request for such redemption was made;

(hf) in the case of a capital asset, being equity shares in a company, which becomes the property of the assessee in consideration of a transfer referred to in clause (xb) of section 47, there shall be included the period for which the preference shares were held by the assessee;

(hg) in the case of a capital asset, being a unit or units, which becomes the property of the assessee in consideration of a transfer referred to in clause (xix) of section 47, there shall be included the period for which the unit or units in the consolidating plan of a mutual fund scheme were held by the assessee;

(hh) in the case of a capital asset, being a unit or units in a segregated portfolio referred to in sub-section (2AG) of section 49, there shall be included the period for which the original unit or units in the main portfolio were held by the assessee;

13[(hi) in the case of a capital asset, being—

(a) Electronic Gold Receipt issued in respect of gold deposited as referred to in clause (viid) of section 47, there shall be included the period for which such gold was held by the assessee prior to conversion into the Electronic Gold Receipt;

(b) gold released in respect of an Electronic Gold Receipt as referred to in clause (viid) of section 47, there shall be included the period for which such Electronic Gold Receipt was held by the assessee prior to its conversion into gold;]

(ii) In respect of capital assets other than those mentioned in clause (i), the period for which any capital asset is held by the assessee shall be determined subject to any rules which the Board may make in this behalf.

Explanation 2.—For the purposes of this clause, the expression “security” shall have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956).

Explanation 3.—For the purposes of this clause, the expressions “specified security” and “sweat equity shares” shall have the meanings respectively assigned to them in the Explanation to clause (d) of sub-section (1) of section 115WB.

Explanation 4.—For the purposes of this clause, the expression “equity oriented fund” shall have the meaning assigned to it in clause (a) of the Explanation to section 112A;

(42B) “short-term capital gain” means capital gain arising from the transfer of a short-term capital asset ;

(42C) “slump sale” means the transfer of one or more undertaking, by any means, for a lump sum consideration without values being assigned to the individual assets and liabilities in such transfer.

Explanation 1.—For the purposes of this clause, “undertaking” shall have the meaning assigned to it in Explanation 1 to clause (19AA).

Explanation 2.—For the removal of doubts, it is hereby declared that the determination of the value of an asset or liability for the sole purpose of payment of stamp duty, registration fees or other similar taxes or fees shall not be regarded as assignment of values to individual assets or liabilities. Explanation 3.—For the purposes of this clause, “transfer” shall have the meaning assigned to it in clause (47);

(43) “tax” in relation to the assessment year commencing on the 1st day of April, 1965, and any subsequent assessment year means income-tax chargeable under the provisions of this Act, and in relation to any other assessment year income-tax and super-tax chargeable under the provisions of this Act prior to the aforesaid date and in relation to the assessment year commencing on the 1st day of April, 2006, and any subsequent assessment year includes the fringe benefit tax payable under section 115WA ;

(43A) “tax credit certificate” means a tax credit certificate granted to any person in accordance with the provisions of Chapter XXII-B and any scheme made thereunder ;

(43B) [***]

(44) “Tax Recovery Officer” means any Income-tax Officer who may be authorised by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, by general or special order in writing, to exercise the powers of a Tax Recovery Officer and also to exercise or perform such powers and functions which are conferred on, or assigned to, an Assessing Officer under this Act and which may be prescribed;

(45) “total income” means the total amount of income referred to in section 5, computed in the manner laid down in this Act ;

(46) [***]

(47) “transfer”, in relation to a capital asset, includes,—

(i) the sale, exchange or relinquishment of the asset ; or

(ii) the extinguishment of any rights therein ; or

(iii) the compulsory acquisition thereof under any law ; or

(iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment ; or

(iva) the maturity or redemption of a zero coupon bond; or

(v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882) ; or

(vi) 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.

Explanation 1.—For the purposes of sub-clauses (v) and (vi), “immovable property” shall have the same meaning as in clause (d) of section 269UA.

Explanation 2.—For the removal of doubts, it is hereby clarified that “transfer” includes and shall be deemed to have always included disposing of or parting with an asset or any interest therein, or creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily, by way of an agreement (whether entered into in India or outside India) or otherwise, notwithstanding that such transfer of rights has been characterised as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India;

(47A) “virtual digital asset” means—

(a) any information or code or number or token (not being Indian currency or foreign currency), generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value exchanged with or without consideration, with the promise or representation of having inherent value, or functions as a store of value or a unit of account including its use in any financial transaction or investment, but not limited to investment scheme; and can be transferred, stored or traded electronically;

(b) a non-fungible token or any other token of similar nature, by whatever name called;

(c) any other digital asset, as the Central Government may, by notification in the Official Gazette specify:

Following sub-clause (d) shall be inserted after sub-clause (c) of clause (47A) of section 2 by the Finance Act, 2025, w.e.f. 1-4-2026:

(d) any crypto-asset being a digital representation of value that relies on a cryptographically secured distributed ledger or a similar technology to validate and secure transactions, whether or not such asset is included in sub-clause (a) or sub-clause (b) or sub-clause (c):

Provided that the Central Government may, by notification in the Official Gazette, exclude any digital asset from the definition of virtual digital asset subject to such conditions as may be specified therein.

Explanation.—For the purposes of this clause,—

(a) “non-fungible token” means such digital asset as the Central Government may, by notification in the Official Gazette, specify;

(b) the expressions “currency”, “foreign currency” and “Indian currency” shall have the same meanings as respectively assigned to them in clauses (h), (m) and (q) of section 2 of the Foreign Exchange Management Act, 1999 (42 of 1999);

(48) “zero coupon bond” means a bond—

(a) issued by any infrastructure capital company or infrastructure capital fund or infrastructure debt fund or public sector company or scheduled bank on or after the 1st day of June, 2005;

(b) in respect of which no payment and benefit is received or receivable before maturity or redemption from infrastructure capital company or infrastructure capital fund or infrastructure debt fund or public sector company or scheduled bank; and

(c) which the Central Government may, by notification in the Official Gazette, specify in this behalf.

Explanation 1.—For the purposes of this clause, the expression “scheduled bank” shall have the meaning assigned to it in clause (ii) of the Explanation to sub-clause (c) of clause (viia) of sub-section (1) of section 36.

Explanation 2.—For the purposes of this clause, the expression “infrastructure debt fund” shall mean the infrastructure debt fund notified by the Central Government in the Official Gazette under clause (47) of section 10.

Notes:

¹  Words “on account of the applicability of the fourth and fifth provisos thereof” shall be omtt. by Act No. 7 of 2025, w.e.f. 1-4-2026. 1a. Words “or an Additional Commissioner of Income-tax (Appeals)” omtt. by Act No. 08 of 2023, w.e.f. 1-4-2023.

² Ins. by Act No. 15 of 2024, w.e.f. 1-10-2024.

³ Ins. by Act No. 7 of 2025, w.e.f. 1-4-2025.

⁴ Omtt. by Act No. 15 of 2024, w.e.f. 1-10-2024.

⁵ Clauses (c) and (d) ins. by Act No. 7 of 2025, w.e.f. 1-4-2025.

⁶ Ins. by Act No. 08 of 2023, w.e.f. 1-4-2024.

⁷ Ins. by Act No. 08 of 2023, w.e.f. 1-4-2023.

⁸ Ins. by Act No. 08 of 2023, w.e.f. 1-4-2023.

⁹ Sub. for “thirty-six” by Act No. 15 of 2024, w.r.e.f. 23-7-2024.

¹⁰ Words “(other than a unit)” omtt by Act No. 15 of 2024, w.r.e.f. 23-7-2024.

¹¹ Sub. for “thirty-six”, by Act No. 15 of 2024, w.r.e.f. 23-7-2024.

¹² Ins. by Act No. 15 of 2024, w.r.e.f. 23-7-2024.

^12a Omtt by Act No. 15 of 2024, w.r.e.f. 23-7-2024.

¹³ Ins. by Act No. 08 of 2023, w.e.f. 1-4-2024.

¹⁴ Word “also” shall be sub. for “further” by Act No. 7 of 2025, w.e.f. 1-4-2026.

¹⁵ Sub. by Act No. 08 of 2023, w.e.f. 1-4-2024.

Section – 9

9. Income deemed to accrue or arise in India.

(1) The following incomes shall be deemed to accrue or arise in India :—

(i) all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situate in India.

Explanation 1.—For the purposes of this clause—

(a) in the case of a business , other than the business having business connection in India on account of significant economic presence, of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India ;

(b) in the case of a non-resident, no income shall be deemed to accrue or arise in India to him through or from operations which are confined to the purchase of goods in India for the purpose of export ;

(c) in the case of a non-resident, being a person engaged in the business of running a news agency or of publishing newspapers, magazines or journals, no income shall be deemed to accrue or arise in India to him through or from activities which are confined to the collection of news and views in India for transmission out of India ;

(d) in the case of a non-resident, being—

(1) an individual who is not a citizen of India ; or

(2) a firm which does not have any partner who is a citizen of India or who is resident in India ; or

(3) a company which does not have any shareholder who is a citizen of India or who is resident in India,

no income shall be deemed to accrue or arise in India to such individual, firm or company through or from operations which are confined to the shooting of any cinematograph film in India;

(e) in the case of a foreign company engaged in the business of mining of diamonds, no income shall be deemed to accrue or arise in India to it through or from the activities which are confined to the display of uncut and unassorted diamond in any special zone notified by the Central Government in the Official Gazette in this behalf.

Explanation 2.—For the removal of doubts, it is hereby declared that “business connection” shall include any business activity carried out through a person who, acting on behalf of the non-resident,—

(a) has and habitually exercises in India, an authority to conclude contracts on behalf of the non-resident or habitually concludes contracts or habitually plays the principal role leading to conclusion of contracts by that non-resident and the contracts are—

(i) in the name of the non-resident; or

(ii) for the transfer of the ownership of, or for the granting of the right to use, property owned by that non-resident or that non-resident has the right to use; or

(iii) for the provision of services by the non-resident; or

(b) has no such authority, but habitually maintains in India a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the non-resident; or

(c) habitually secures orders in India, mainly or wholly for the non-resident or for that non-resident and other non-residents controlling, controlled by, or subject to the same common control, as that non-resident:

Provided that such business connection shall not include any business activity carried out through a broker, general commission agent or any other agent having an independent status, if such broker, general commission agent or any other agent having an independent status is acting in the ordinary course of his business :

Provided further that where such broker, general commission agent or any other agent works mainly or wholly on behalf of a non-resident (hereafter in this proviso referred to as the principal non-resident) or on behalf of such non-resident and other non-residents which are controlled by the principal non-resident or have a controlling interest in the principal non-resident or are subject to the same common control as the principal non­resident, he shall not be deemed to be a broker, general commission agent or an agent of an independent status.

Explanation 2A.—For the removal of doubts, it is hereby declared that the significant economic presence of a non-resident in India shall constitute “business connection” in India and “significant economic presence” for this purpose, shall mean—

(a) transaction in respect of any goods, services or property carried out by a non-resident with any person in India including provision of download of data or software in India, if the aggregate of payments arising from such transaction or transactions during the previous year exceeds such amount as may be prescribed; or

(b) systematic and continuous soliciting of business activities or engaging in interaction with such number of users in India, as may be prescribed:

Provided that the transactions or activities shall constitute significant economic presence in India, whether or not—

(i) the agreement for such transactions or activities is entered in India; or

(ii) the non-resident has a residence or place of business in India; or

(iii) the non-resident renders services in India:

Following second proviso shall be inserted after the first proviso to Explanation 2A of clause (i) of sub-section (1) of section 9 by the Finance Act, 2025, w.e.f. 1-4-2026:

Provided further that the transactions or activities which are confined to the purchase of goods in India for the purpose of export shall not constitute significant economic presence in India:

Provided [further] that only so much of income as is attributable to the transactions or activities referred to in clause (a) or clause (b) shall be deemed to accrue or arise in India.

Explanation 3.—Where a business is carried on in India through a person referred to in clause (a) or clause (b) or clause (c) of Explanation 2, only so much of income as is attributable to the operations carried out in India shall be deemed to accrue or arise in India.

Explanation 3A.—For the removal of doubts, it is hereby declared that the income attributable to the operations carried out in India, as referred to in Explanation 1, shall include income from—

(i) such advertisement which targets a customer who resides in India or a customer who accesses the advertisement through internet protocol address located in India;

(ii) sale of data collected from a person who resides in India or from a person who uses internet protocol address located in India; and

(iii) sale of goods or services using data collected from a person who resides in India or from a person who uses internet protocol address located in India:

Provided that the provisions contained in this Explanation shall also apply to the income attributable to the transactions or activities referred to in Explanation 2A.

Explanation 4.—For the removal of doubts, it is hereby clarified that the expression “through” shall mean and include and shall be deemed to have always meant and included “by means of”, “in consequence of” or “by reason of”.

Explanation 5.—For the removal of doubts, it is hereby clarified that an asset or a capital asset being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be and shall always be deemed to have been situated in India, if the share or interest derives, directly or indirectly, its value substantially from the assets located in India:

Provided that nothing contained in this Explanation shall apply to an asset or capital asset, which is held by a non-resident by way of investment, directly or indirectly, in a Foreign Institutional Investor as referred to in clause (a) of the Explanation to section 115AD for an assessment year commencing on or after the 1st day of April, 2012 but before the 1st day of April, 2015:

Provided further that nothing contained in this Explanation shall apply to an asset or capital asset, which is held by a non-resident by way of investment, directly or indirectly, in Category-I or Category-II foreign portfolio investor under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014 prior to their repeal, made under the Securities and Exchange Board of India Act, 1992 (15 of 1992): Provided also that nothing contained in this Explanation shall apply to an asset or a capital asset, which is held by a non-resident by way of investment, directly or indirectly, in Category-I foreign portfolio investor under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019, made under the Securities and Exchange Board of India Act, 1992 (15 of 1992):

Provided also that nothing contained in this Explanation shall apply to—

(i) an assessment or reassessment to be made under section 143, section 144, section 147 or section 153A or section 153C; or

(ii) an order to be passed enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154; or

(iii) an order to be passed deeming a person to be an assessee in default under sub-section (1) of section 201, in respect of income accruing or arising through or from the transfer of an asset or a capital asset situate in India in consequence of the transfer of a share or interest in a company or entity registered or incorporated outside India made before the 28th day of May, 2012:

Provided also that where—

(i) an assessment or reassessment has been made under section 143, section 144, section 147 or section 153A or section 153C; or

(ii) an order has been passed enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154; or

(iii) an order has been passed deeming a person to be an assessee in default under sub-section (1) of section 201; or

(iv) an order has been passed imposing a penalty under Chapter XXI or under section 221,

in respect of income accruing or arising through or from the transfer of an asset or a capital asset situate in India in consequence of the transfer of a share or interest in a company or entity registered or incorporated outside India made before the 28th day of May, 2012 and the person in whose case such assessment or reassessment or order has been passed or made, as the case may be, fulfils the specified conditions, then, such assessment or reassessment or order, to the extent it relates to the said income, shall be deemed never to have been passed or made, as the case may be: Provided also that where any amount becomes refundable to the person referred to in fifth proviso as a consequence of him fulfilling the specified conditions, then, such amount shall be refunded to him, but no interest under section 244A shall be paid on that amount.

Explanation.—For the purposes of fifth and sixth provisos, the specified conditions shall be as provided hereunder:—

(i) where the said person has filed any appeal before an appellate forum or any writ petition before the High Court or the Supreme Court against any order in respect of said income, he shall either withdraw or submit an undertaking to withdraw such appeal or writ petition, in such form and manner as may be prescribed;

(ii) where the said person has initiated any proceeding for arbitration, conciliation or mediation, or has given any notice thereof under any law for the time being in force or under any agreement entered into by India with any other country or territory outside India, whether for protection of investment or otherwise, he shall either withdraw or shall submit an undertaking to withdraw the claim, if any, in such proceedings or notice, in such form and manner as may be prescribed;

(iii) the said person shall furnish an undertaking, in such form and manner as may be prescribed, waiving his right, whether direct or indirect, to seek or pursue any remedy or any claim in relation to the said income which may otherwise be available to him under any law for the time being in force, in equity, under any statute or under any agreement entered into by India with any country or territory outside India, whether for protection of investment or otherwise; and

(iv) such other conditions as may be prescribed.

Explanation 6.—For the purposes of this clause, it is hereby declared that—

(a) the share or interest, referred to in Explanation 5, shall be deemed to derive its value substantially from the assets (whether tangible or intangible) located in India, if, on the specified date, the value of such assets—

(i) exceeds the amount of ten crore rupees; and

(ii) represents at least fifty per cent of the value of all the assets owned by the company or entity, as the case may be;

(b) the value of an asset shall be the fair market value as on the specified date, of such asset without reduction of liabilities, if any, in respect of the asset, determined in such manner as may be prescribed;

(c) “accounting period” means each period of twelve months ending with the 31st day of March:

Provided that where a company or an entity, referred to in Explanation 5, regularly adopts a period of twelve months ending on a day other than the 31st day of March for the purpose of—

(i) complying with the provisions of the tax laws of the territory, of which it is a resident, for tax purposes; or

(ii) reporting to persons holding the share or interest,

then, the period of twelve months ending with the other day shall be the accounting period of the company or, as the case may be, the entity: Provided further that the first accounting period of the company or, as the case may be, the entity shall begin from the date of its registration or incorporation and end with the 31st day of March or such other day, as the case may be, following the date of such registration or incorporation, and the later accounting period shall be the successive periods of twelve months:

Provided also that if the company or the entity ceases to exist before the end of accounting period, as aforesaid, then, the accounting period shall end immediately before the company or, as the case may be, the entity, ceases to exist;

(d) “specified date” means the—

(i) date on which the accounting period of the company or, as the case may be, the entity ends preceding the date of transfer of a share or an interest; or

(ii) date of transfer, if the book value of the assets of the company or, as the case may be, the entity on the date of transfer exceeds the book value of the assets as on the date referred to in sub-clause (i), by fifteen per cent.

Explanation 7.— For the purposes of this clause,—

(a) no income shall be deemed to accrue or arise to a non-resident from transfer, outside India, of any share of, or interest in, a company or an entity, registered or incorporated outside India, referred to in the Explanation 5,—

(i) if such company or entity directly owns the assets situated in India and the transferor (whether individually or along with its associated enterprises), at any time in the twelve months preceding the date of transfer, neither holds the right of management or control in relation to such company or entity, nor holds voting power or share capital or interest exceeding five per cent of the total voting power or total share capital or total interest, as the case may be, of such company or entity; or

(ii) if such company or entity indirectly owns the assets situated in India and the transferor (whether individually or along with its associated enterprises), at any time in the twelve months preceding the date of transfer, neither holds the right of management or control in relation to such company or entity, nor holds any right in, or in relation to, such company or entity which would entitle him to the right of management or control in the company or entity that directly owns the assets situated in India, nor holds such percentage of voting power or share capital or interest in such company or entity which results in holding of (either individually or along with associated enterprises) a voting power or share capital or interest exceeding five per cent of the total voting power or total share capital or total interest, as the case may be, of the company or entity that directly owns the assets situated in India;

(b) in a case where all the assets owned, directly or indirectly, by a company or, as the case may be, an entity referred to in the Explanation 5, are not located in India, the income of the non-resident transferor, from transfer outside India of a share of, or interest in, such company or entity, deemed to accrue or arise in India under this clause, shall be only such part of the income as is reasonably attributable to assets located in India and determined in such manner as may be prescribed;

(c) “associated enterprise” shall have the meaning assigned to it in section 92A;

(ii) income which falls under the head “Salaries”, if it is earned in India.

Explanation.—For the removal of doubts, it is hereby declared that the income of the nature referred to in this clause payable for—

(a) service rendered in India; and

(b) the rest period or leave period which is preceded and succeeded by services rendered in India and forms part of the service contract of employment, shall be regarded as income earned in India ;

(iii) income chargeable under the head “Salaries” payable by the Government to a citizen of India for service outside India ;

(iv) a dividend paid by an Indian company outside India ;

(v) income by way of interest payable by—

(a) the Government ; or

(b) a person who is a resident, except where the interest is payable in respect of any debt incurred, or moneys borrowed and used, for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or

(c) a person who is a non-resident, where the interest is payable in respect of any debt incurred, or moneys borrowed and used, for the purposes of a business or profession carried on by such person in India.

Explanation.—For the purposes of this clause,—

(a) it is hereby declared that in the case of a non-resident, being a person engaged in the business of banking, any interest payable by the permanent establishment in India of such non-resident to the head office or any permanent establishment or any other part of such non­resident outside India shall be deemed to accrue or arise in India and shall be chargeable to tax in addition to any income attributable to the permanent establishment in India and the permanent establishment in India shall be deemed to be a person separate and independent of the non-resident person of which it is a permanent establishment and the provisions of the Act relating to computation of total income, determination of tax and collection and recovery shall apply accordingly;

(b) “permanent establishment” shall have the meaning assigned to it in clause (iiia)of section 92F;

(vi) income by way of royalty payable by—

(a) the Government ; or

(b) a person who is a resident, except where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or

(c) a person who is a non-resident, where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India :

Provided that nothing contained in this clause shall apply in relation to so much of the income by way of royalty as consists of lump sum consideration for the transfer outside India of, or the imparting of information outside India in respect of, any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process or trade mark or similar property, if such income is payable in pursuance of an agreement made before the 1st day of April, 1976, and the agreement is approved by the Central Government :

Provided further that nothing contained in this clause shall apply in relation to so much of the income by way of royalty as consists of lump sum payment made by a person, who is a resident, for the transfer of all or any rights (including the granting of a licence) in respect of computer software supplied by a non-resident manufacturer along with a computer or computer-based equipment under any scheme approved under the Policy on Computer Software Export, Software Development and Training, 1986 of the Government of India.

Explanation 1.—For the purposes of the first proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date; so, however, that, where the recipient of the income by way of royalty is a foreign company, the agreement shall not be deemed to have been made before that date unless, before the expiry of the time allowed under sub-section (1) or sub-section (2) of section 139 (whether fixed originally or on extension) for furnishing the return of income for the assessment year commencing on the 1st day of April, 1977, or the assessment year in respect of which such income first becomes chargeable to tax under this Act, whichever assessment year is later, the company exercises an option by furnishing a declaration in writing to the Assessing Officer (such option being final for that assessment year and for every subsequent assessment year) that the agreement may be regarded as an agreement made before the 1st day of April, 1976.

Explanation 2.—For the purposes of this clause, “royalty” means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head “Capital gains”) for—

(i) the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property ;

(ii) the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property ;

(iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property ;

(iv) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill ; (iva) the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB;

(v) the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting; or

(vi) the rendering of any services in connection with the activities referred to in sub-clauses (i) to (iv), (iva) and(v).

Explanation 3.—For the purposes of this clause, “computer software” means any computer programme recorded on any disc, tape, perforated media or other information storage device and includes any such programme or any customized electronic data.

Explanation 4.—For the removal of doubts, it is hereby clarified that the transfer of all or any rights in respect of any right, property or information includes and has always included transfer of all or any right for use or right to use a computer software (including granting of a licence) irrespective of the medium through which such right is transferred.

Explanation 5.—For the removal of doubts, it is hereby clarified that the royalty includes and has always included consideration in respect of any right, property or information, whether or not—

(a) the possession or control of such right, property or information is with the payer;

(b) such right, property or information is used directly by the payer;

(c) the location of such right, property or information is in India.

Explanation 6.—For the removal of doubts, it is hereby clarified that the expression “process” includes and shall be deemed to have always included transmission by satellite (including up-linking, amplification, conversion for down-linking of any signal), cable, optic fibre or by any other similar technology, whether or not such process is secret;

(vii) income by way of fees for technical services payable by—

(a) the Government ; or

(b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or

(c) a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India :

Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day of April, 1976, and approved by the Central Government.

Explanation 1.—For the purposes of the foregoing proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date.

Explanation 2.—For the purposes of this clause, “fees for technical services” means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head “Salaries”;

[(viii) income arising outside India, being any sum of money referred to in sub-clause (xviia) of clause (24) of section 2, paid by a person resident in India–

(a) on or after the 5th day of July, 2019 to a non-resident, not being a company, or to a foreign company; or

(b) on or after the 1st day of April, 2023 to a person not ordinarily resident in India within the meaning of clause (6) of section 6.] (2) Notwithstanding anything contained in sub-section (1), any pension payable outside India to a person residing permanently outside India shall not be deemed to accrue or arise in India, if the pension is payable to a person referred to in article 314 of the Constitution or to a person who, having been appointed before the 15th day of August, 1947, to be a Judge of the Federal Court or of a High Court within the meaning of the Government of India Act, 1935, continues to serve on or after the commencement of the Constitution as a Judge in India.

Explanation.—For the removal of doubts, it is hereby declared that for the purposes of this section, income of a non-resident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of sub-section (1) and shall be included in the total income of the non-resident, whether or not,—

(i) the non-resident has a residence or place of business or business connection in India; or

(ii) the non-resident has rendered services in India.

Section – 9B

Income on receipt of capital asset or stock in trade by specified person from specified entity.

9B. (1) Where a specified person receives during the previous year any capital asset or stock in trade or both from a specified entity in connection with the dissolution or reconstitution of such specified entity, then the specified entity shall be deemed to have transferred such capital asset or stock in trade or both, as the case may be, to the specified person in the year in which such capital asset or stock in trade or both are received by the specified person.

(2) Any profits and gains arising from such deemed transfer of capital asset or stock in trade or both, as the case may be, by the specified entity shall be—

(i) deemed to be the income of such specified entity of the previous year in which such capital asset or stock in trade or both were received by the specified person; and

(ii) chargeable to income-tax as income of such specified entity under the head “Profits and gains of business or profession” or under the head “Capital gains”, in accordance with the provisions of this Act.

(3) For the purposes of this section, fair market value of the capital asset or stock in trade or both on the date of its receipt by the specified person shall be deemed to be the full value of the consideration received or accruing as a result of such deemed transfer of the capital asset or stock in trade or both by the specified entity.

(4) If any difficulty arises in giving effect to the provisions of this section and sub-section (4) of section 45, the Board may, with the approval of the Central Government, issue guidelines for the purposes of removing the difficulty.

(5) Every guideline issued by the Board under sub-section (4) shall, as soon as may be after it is issued, be laid before each House of Parliament, and shall be binding on the income-tax authorities and on the assessee.

Explanation.—For the purposes of this section,—

(i) “reconstitution of the specified entity” means, where—

(a) one or more of its partners or members, as the case may be, of such specified entity ceases to be partners or members; or

(b) one or more new partners or members, as the case may be, are admitted in such specified entity in such circumstances that one or more of the persons who were partners or members, as the case may be, of the specified entity, before the change, continue as partner or partners or member or members after the change; or

(c) all the partners or members, as the case may be, of such specified entity continue with a change in their respective share or in the shares of some of them;

(ii) “specified entity” means a firm or other association of persons or body of individuals (not being a company or a co-operative society);

(iii) “specified person” means a person, who is a partner of a firm or member of other association of persons or body of individuals (not being a company or a co-operative society) in any previous year.

Section – 10

CHAPTER III
INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME

Incomes not included in total income.

10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included—

(1) agricultural income ;

(2) subject to the provisions of sub-section (2) of section 64, any sum received by an individual as a member of a Hindu undivided family, where such sum has been paid out of the income of the family, or, in the case of any impartible estate, where such sum has been paid out of the income of the estate belonging to the family ;

(2A) in the case of a person being a partner of a firm which is separately assessed as such, his share in the total income of the firm. Explanation.—For the purposes of this clause, the share of a partner in the total income of a firm separately assessed as such shall, notwithstanding anything contained in any other law, be an amount which bears to the total income of the firm the same proportion as the amount of his share in the profits of the firm in accordance with the partnership deed bears to such profits ;

(3) [***]

(4) (i) in the case of a non-resident, any income by way of interest on such securities or bonds as the Central Government may, by notification in the Official Gazette, specify in this behalf, including income by way of premium on the redemption of such bonds :

Provided that the Central Government shall not specify, for the purposes of this sub-clause, such securities or bonds on or after the 1st day of June, 2002;

(ii) in the case of an individual, any income by way of interest on moneys standing to his credit in a Non-Resident (External) Account in any bank in India in accordance with the Foreign Exchange Management Act, 1999 (42 of 1999), and the rules made thereunder :

Provided that such individual is a person resident outside India as defined in clause (w) of section 2 of the said Act or is a person who has been permitted by the Reserve Bank of India to maintain the aforesaid Account ;

(4B) in the case of an individual, being a citizen of India or a person of Indian origin, who is a non-resident, any income from interest on such savings certificates issued before the 1st day of June, 2002 by the Central Government as that Government may, by notification in the Official Gazette, specify in this behalf :

Provided that the individual has subscribed to such certificates in convertible foreign exchange remitted from a country outside India in accordance with the provisions of the Foreign Exchange Management Act, 1999 (42 of 1999), and any rules made thereunder. Explanation.—For the purposes of this clause,—

(a) a person shall be deemed to be of Indian origin if he, or either of his parents or any of his grandparents, was born in undivided India ;

(b) “convertible foreign exchange” means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Management Act, 1999 (42 of 1999), and any rules made thereunder ;

(4C) any income by way of interest payable to a non-resident, not being a company, or to a foreign company, by any Indian company or business trust in respect of monies borrowed from a source outside India by way of issue of rupee denominated bond, as referred to in clause (ia) of sub-section (2) of section 194LC, during the period beginning from the 17th day of September, 2018 and ending on the 31st day of March, 2019;

(4D) any income accrued or arisen to, or received by a specified fund as a result of transfer of capital asset referred to in clause (viiab) of section 47, on a recognised stock exchange located in any International Financial Services Centre and where the consideration for such transaction is paid or payable in convertible foreign exchange or as a result of transfer of securities (other than shares in a company resident in India) or any income from securities issued by a non-resident (not being a permanent establishment of a non-resident in India) and where such income otherwise does not accrue or arise in India or any income from a securitisation trust which is chargeable under the head “Profits and gains of business or profession”, to the extent such income accrued or arisen to, or is received, is attributable to units held by non-resident (not being the permanent establishment of a non-resident in India) or is attributable to the investment division of offshore banking unit, as the case may be, computed in the prescribed manner.

Explanation.—For the purposes of this clause, the expression—

(a) “convertible foreign exchange” means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Management Act, 1999 (42 of 1999) and the rules made thereunder;

(aa) “investment division of offshore banking unit” means an investment division of a banking unit of a non-resident located in an International Financial Services Centre, as referred to in sub-section (1A) of section 80LA and which has commenced its operations on or before the 31st day of March, [2030];

(b) “manager” shall have the meaning assigned to it in clause (q) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012, made under the Securities and Exchange Board of India Act, 1992 (15 of 1992);

(ba) “permanent establishment” shall have the same meaning assigned to it in clause (iiia) of section 92F;

(bb) “securities” shall have the same meaning as assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and shall also include such other securities or instruments as may be notified by the Central Government in the Official Gazette in this behalf;

(bc) “securitisation trust” shall have the same meaning assigned to it in clause (d) of the Explanation to section 115TCA;

(c) “specified fund” means,—

(i) a fund established or incorporated in India in the form of a trust or a company or a limited liability partnership or a body corporate,—

[(I) (a)] which has been granted a certificate of registration as a Category III Alternative Investment Fund and is regulated under the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012, made under the Securities and Exchange Board of India Act, 1992 (15 of 1992) or [regulated under the International Financial Services Centres Authority (Fund Management) Regulations, 2022, made under the] International Financial Services Centres Authority Act, 2019 (50 of 2019);

[(b) which has been granted a certificate as a retail scheme or an Exchange Traded Fund and satisfies the conditions laid down for such schemes or funds under the International Financial Services Centres Authority (Fund Management) Regulations, 2022, made under the International Financial Services Centres Authority Act, 2019 (50 of 2019);]

(II) which is located in any International Financial Services Centre; and

(III) of which all the units other than unit held by a sponsor or manager are held by non-residents :

Provided that the condition specified in this item shall not apply where any unit holder or holders, being non­resident during the previous year when such unit or units were issued, becomes resident under clause (1) or clause (1A) of section 6 in any previous year subsequent to that year, if the aggregate value and number of the units held by such resident unit holder or holders do not exceed five per cent of the total units issued and fulfil such other conditions as may be prescribed; or

(ii) investment division of an offshore banking unit, which has been—

(I) granted a certificate of registration as a Category-I foreign portfolio investor under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992) and which has commenced its operations on or before the 31st day of March, 23[2030]; and

(II) fulfils such conditions including maintenance of separate accounts for its investment division, as may be prescribed;

(d) “sponsor” shall have the meaning assigned to it in clause (w) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012, made under the Securities and Exchange Board of India Act, 1992 (15 of 1992);

(e) “trust” means a trust established under the Indian Trusts Act, 1882 (2 of 1882) or under any other law for the time being in force;

(f) “unit” means beneficial interest of an investor in the fund and shall include shares or partnership interests; 24[(4E) any income accrued or arisen to, or received by a non-resident as a result of—

(i) transfer of non-deliverable forward contracts or offshore derivative instruments or over-the-counter derivatives; or

(ii) distribution of income on offshore derivative instruments [or over-the-counter derivatives],

entered into with an offshore banking unit of an International Financial Services Centre referred to in sub-section (1A) of section 80LA 25[or any Foreign Portfolio Investor being a unit of an International Financial Services Centre], which fulfils such conditions as may be prescribed;]

Following Explanation shall be inserted in clause (4E) of section 10 by the Finance Act, 2025, w.e.f. 1-4-2026:

Explanation.—For the purposes of this clause, “Foreign Portfolio Investor” means a person registered under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992);

(4F) any income of a non-resident by way of royalty or interest , on account of lease of an aircraft or a ship in a previous year, paid by a unit of an International Financial Services Centre as referred to in sub-section (1A) of section 80LA, if the unit has commenced its operations on or before the 31st day of March, [2030].

Explanation.—For the purposes of this clause,—

(i) “aircraft” means an aircraft or a helicopter, or an engine of an aircraft or a helicopter, or any part thereof;

(ii) “ship” means a ship or an ocean vessel, engine of a ship or ocean vessel, or any part thereof; 27[(4G) any income received by a non-resident from,—

(i) portfolio of securities or financial products or funds, managed or administered by any portfolio manager on behalf of such non­resident; or

(ii) such activity carried out by such person, as may be notified by the Central Government in the Official Gazette, in an account maintained with an Offshore Banking Unit in any International Financial Services Centre, as referred to in sub-section (1A) of section 80LA, to the extent such income accrues or arises outside India and is not deemed to accrue or arise in India.

Explanation.—For the purposes of this clause, “portfolio manager” shall have the same meaning as assigned to it in clause (z) of sub-regulation (1) of regulation 2 of the International Financial Services Centres Authority (Capital Market Intermediaries) Regulations, 2021, made under the International Financial Services Centres Authority Act, 2019 (50 of 2019);

(4H) any income of a non-resident or a Unit of an International Financial Services Centre, as referred to in sub-section (1A) of section 80LA, engaged primarily in the business of leasing of an aircraft [or a ship], by way of capital gains arising from the transfer of equity shares of domestic company, being a Unit of an International Financial Services Centre, as referred to in sub-section (1A) of section 80LA, engaged primarily in the business of leasing of an aircraft [or a 29[2030]:

Provided that the provisions of this clause shall apply for capital gains arising from the transfer of equity shares of such domestic company in a previous year relevant to an assessment year falling within the—

(a) period of ten assessment years beginning with the assessment year relevant to the previous year in which the domestic company has commenced operations; or

(b) period of ten assessment years beginning with the assessment year commencing on the 1st day of April, 2024, where the period referred to in clause (a) ends before the 1st day of April, 2034.

[Explanation.—For the purposes of this clause,—

(a) “aircraft” means an aircraft or a helicopter, or an engine of an aircraft or a helicopter, or any part thereof;

(b) “ship” means a ship or an ocean vessel, engine of a ship or ocean vessel, or any part thereof;]] (5) in the case of an individual, the value of any travel concession or assistance received by, or due to, him,—

(a) from his employer for himself and his family, in connection with his proceeding on leave to any place in India ;

(b) from his employer or former employer for himself and his family, in connection with his proceeding to any place in India after retirement from service or after the termination of his service, subject to such conditions as may be prescribed (including conditions as to number of journeys and the amount which shall be exempt per head) having regard to the travel concession or assistance granted to the employees of the Central Government :

Provided that the amount exempt under this clause shall in no case exceed the amount of expenses actually incurred for the purpose of such travel:

Provided further that for the assessment year beginning on the 1st day of April, 2021, the value in lieu of any travel concession or assistance received by, or due to, such individual shall also be exempt under this clause subject to the fulfilment of such conditions (including the condition of incurring such amount of such expenditure within such period), as may be prescribed.

Explanation 1.—For the purposes of this clause, “family”, in relation to an individual, means—

(i) the spouse and children of the individual ; and

(ii) the parents, brothers and sisters of the individual or any of them, wholly or mainly dependent on the individual.

Explanation 2.—For the removal of doubts, it is hereby clarified that where an individual claims exemption and the exemption is allowed under the second proviso in connection with the prescribed expenditure, no exemption shall be allowed under this clause in respect of such prescribed expenditure to any other individual;

(5A) [Omitted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999;]

(5B) [Omitted by the Finance Act, 2002, w.e.f. 1-4-2003;]

(6) in the case of an individual who is not a citizen of India,—

(i) [***]

(ii) the remuneration received by him as an official, by whatever name called, of an embassy, high commission, legation, commission, consulate or the trade representation of a foreign State, or as a member of the staff of any of these officials, for service in such capacity :

Provided that the remuneration received by him as a trade commissioner or other official representative in India of the Government of a foreign State (not holding office as such in an honorary capacity), or as a member of the staff of any of those officials, shall be exempt only if the remuneration of the corresponding officials or, as the case may be, members of the staff, if any, of the Government resident for similar purposes in the country concerned enjoys a similar exemption in that country :

Provided further that such members of the staff are subjects of the country represented and are not engaged in any business or profession or employment in India otherwise than as members of such staff ;

(iii) [Sub-clause (ii) substituted for sub-clauses (ii) to (v) by the Finance Act, 1988, w.e.f. 1-4-1989;] to (v)

(vi) the remuneration received by him as an employee of a foreign enterprise for services rendered by him during his stay in India, provided the following conditions are fulfilled—

(a) the foreign enterprise is not engaged in any trade or business in India ;

(b) his stay in India does not exceed in the aggregate a period of ninety days in such previous year ; and

(c) such remuneration is not liable to be deducted from the income of the employer chargeable under this Act ; (via) [Omitted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999;]

(vii) [Omitted by the Finance Act, 1993, w.e.f. 1-4-1993;]

(viia) [Omitted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999;]

(viii) any income chargeable under the head “Salaries” received by or due to any such individual being a non-resident as remuneration for services rendered in connection with his employment on a foreign ship where his total stay in India does not exceed in the aggregate a period of ninety days in the previous year ;

(ix) [Omitted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999;]

(x) [Omitted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999;]

(xi) the remuneration received by him as an employee of the Government of a foreign State during his stay in India in connection with his training in any establishment or office of, or in any undertaking owned by,—

(i) the Government ; or

(ii)any company in which the entire paid-up share capital is held by the Central Government, or any State Government or Governments, or partly by the Central Government and partly by one or more State Governments ; or

(iii) any company which is a subsidiary of a company referred to in item (ii) ; or

(iv) any corporation established by or under a Central, State or Provincial Act ; or

(v) any society registered under the Societies Registration Act, 1860 (21 of 1860), or under any other corresponding law for the time being in force and wholly financed by the Central Government, or any State Government or State Governments, or partly by the Central Government and partly by one or more State Governments ;

(6A) where in the case of a foreign company deriving income by way of royalty or fees for technical services received from Government or an Indian concern in pursuance of an agreement made by the foreign company with Government or the Indian concern after the 31st day of March, 1976 but before the 1st day of June, 2002 and,—

(a) where the agreement relates to a matter included in the industrial policy, for the time being in force, of the Government of India, such agreement is in accordance with that policy ; and

(b) in any other case, the agreement is approved by the Central Government, the tax on such income is payable, under the terms of the agreement, by Government or the Indian concern to the Central Government, the tax so paid.

Explanation.—For the purposes of this clause and clause (6B),—

(a) “fees for technical services” shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9 ;

(b) “foreign company” shall have the same meaning as in section 80B ;

(c) “royalty” shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9;

(6B) where in the case of a non-resident (not being a company) or of a foreign company deriving income (not being salary, royalty or fees for technical services) from Government or an Indian concern in pursuance of an agreement entered into before the 1st day of June, 2002 by the Central Government with the Government of a foreign State or an international organisation, the tax on such income is payable by Government or the Indian concern to the Central Government under the terms of that agreement or any other related agreement approved before that date by the Central Government, the tax so paid ;

(6BB) where in the case of the Government of a foreign State or a foreign enterprise deriving income from an Indian company engaged in the business of operation of aircraft, as a consideration of acquiring an aircraft or an aircraft engine (other than payment for providing spares, facilities or services in connection with the operation of leased aircraft) on lease under an agreement entered into after the 31st day of March, 1997 but before the 1st day of April, 1999, or entered into after the 31st day of March, 2007 and approved by the Central Government in this behalf and the tax on such income is payable by such Indian company under the terms of that agreement to the Central Government, the tax so paid.

Explanation.—For the purposes of this clause, the expression “foreign enterprise” means a person who is a non-resident;

(6C) any income arising to such foreign company, as the Central Government may, by notification in the Official Gazette, specify in this behalf, by way of royalty or fees for technical services received in pursuance of an agreement entered into with that Government for providing services in or outside India in projects connected with security of India ;

(6D) any income arising to a non-resident, not being a company, or a foreign company, by way of royalty from, or fees for technical services rendered in or outside India to, the National Technical Research Organisation;

(7) any allowances or perquisites paid or allowed as such outside India by the Government to a citizen of India for rendering service outside India ;

(8) in the case of an individual who is assigned to duties in India in connection with any co-operative technical assistance programmes and projects in accordance with an agreement entered into by the Central Government and the Government of a foreign State (the terms whereof provide for the exemption given by this clause)—

(a) the remuneration received by him directly or indirectly from the Government of that foreign State for such duties, and

(b) any other income of such individual which accrues or arises outside India, and is not deemed to accrue or arise in India, in respect of which such individual is required to pay any income or social security tax to the Government of that foreign State :

Provided that nothing contained in this clause shall apply to such remuneration and income of the previous year relevant to the assessment year beginning on or after the 1st day of April, 2023;

(8A) in the case of a consultant—

(a) any remuneration or fee received by him or it, directly or indirectly, out of the funds made available to an international organisation [hereafter referred to in this clause and clause (8B) as the agency] under a technical assistance grant agreement between the agency and the Government of a foreign State ; and

(b) any other income which accrues or arises to him or it outside India, and is not deemed to accrue or arise in India, in respect of which such consultant is required to pay any income or social security tax to the Government of the country of his or its origin: Provided that nothing contained in this clause shall apply to such remuneration, fee and income of the previous year relevant to the assessment year beginning on or after the 1st day of April, 2023.

Explanation.—In this clause, “consultant” means—

(i) any individual, who is either not a citizen of India or, being a citizen of India, is not ordinarily resident in India ; or

(ii) any other person, being a non-resident,

engaged by the agency for rendering technical services in India in connection with any technical assistance programme or project, provided the following conditions are fulfilled, namely :—

(1) the technical assistance is in accordance with an agreement entered into by the Central Government and the agency ; and

(2) the agreement relating to the engagement of the consultant is approved by the prescribed authority for the purposes of this clause ;

(8B) in the case of an individual who is assigned to duties in India in connection with any technical assistance programme and project in accordance with an agreement entered into by the Central Government and the agency—

(a) the remuneration received by him, directly or indirectly, for such duties from any consultant referred to in clause (8A) ; and

(b) any other income of such individual which accrues or arises outside India, and is not deemed to accrue or arise in India, in respect of which such individual is required to pay any income or social security tax to the country of his origin, provided the following conditions are fulfilled, namely :—

(i) the individual is an employee of the consultant referred to in clause (8A) and is either not a citizen of India or, being a citizen of India, is not ordinarily resident in India ; and

(ii) the contract of service of such individual is approved by the prescribed authority before the commencement of his service : Provided that nothing contained in this clause shall apply to such remuneration and income of the previous year relevant to the assessment year beginning on or after the 1st day of April, 2023;

(9) the income of any member of the family of any such individual as is referred to in clause (8) or clause (8A) or, as the case may be, clause (8B) accompanying him to India, which accrues or arises outside India, and is not deemed to accrue or arise in India, in respect of which such member is required to pay any income or social security tax to the Government of that foreign State or, as the case may be, country of origin of such member:

Provided that nothing contained in this clause shall apply to such income of the previous year relevant to the assessment year beginning on or after the 1st day of April, 2023;

(10) (i) any death-cum-retirement gratuity received under the revised Pension Rules of the Central Government or, as the case may be, the Central Civil Services (Pension) Rules, 1972, or under any similar scheme applicable to the members of the civil services of the Union or holders of posts connected with defence or of civil posts under the Union (such members or holders being persons not governed by the said Rules) or to the members of the all-India services or to the members of the civil services of a State or holders of civil posts under a State or to the employees of a local authority or any payment of retiring gratuity received under the Pension Code or Regulations applicable to the members of the defence services ;

(ii) any gratuity received under the Payment of Gratuity Act, 1972 (39 of 1972), to the extent it does not exceed an amount calculated in accordance with the provisions of sub-sections (2) and (3) of section 4 of that Act ;

(iii) any other gratuity received by an employee on his retirement or on his becoming incapacitated prior to such retirement or on termination of his employment, or any gratuity received by his widow, children or dependants on his death, to the extent it does not, in either case, exceed one-half month’s salary for each year of completed service, calculated on the basis of the average salary for the ten months immediately preceding the month in which any such event occurs, subject to such limit as the Central Government may, by notification in the Official Gazette, specify in this behalf having regard to the limit applicable in this behalf to the employees of that Government :

Provided that where any gratuities referred to in this clause are received by an employee from more than one employer in the same previous year, the aggregate amount exempt from income-tax under this clause shall not exceed the limit so specified :

Provided further that where any such gratuity or gratuities was or were received in any one or more earlier previous years also and the whole or any part of the amount of such gratuity or gratuities was not included in the total income of the assessee of such previous year or years, the amount exempt from income-tax under this clause shall not exceed the limit so specified as reduced by the amount or, as the case may be, the aggregate amount not included in the total income of any such previous year or years.

Explanation.—In this clause, and in clause (10AA), “salary” shall have the meaning assigned to it in clause (h) of rule 2 of Part A of the Fourth Schedule ;

(10A) (i) any payment in commutation of pension received under the Civil Pensions (Commutation) Rules of the Central Government or under any similar scheme applicable to the members of the civil services of the Union or holders of posts connected with defence or of civil posts under the Union (such members or holders being persons not governed by the said Rules) or to the members of the all-India services or to the members of the defence services or to the members of the civil services of a State or holders of civil posts under a State or to the employees of a local authority or a corporation established by a Central, State or Provincial Act ;

(ii) any payment in commutation of pension received under any scheme of any other employer, to the extent it does not exceed—

(a) in a case where the employee receives any gratuity, the commuted value of one-third of the pension which he is normally entitled to receive, and

(b) in any other case, the commuted value of one-half of such pension, such commuted value being determined having regard to the age of the recipient, the state of his health, the rate of interest and officially recognised tables of mortality ;

(iii) any payment in commutation of pension received from a fund under clause (23AAB) ;

(10AA) (i) any payment received by an employee of the Central Government or a State Government as the cash equivalent of the leave salary in respect of the period of earned leave at his credit at the time of his retirement whether on superannuation or otherwise ;

(ii) any payment of the nature referred to in sub-clause (i) received by an employee, other than an employee of the Central Government or a State Government, in respect of so much of the period of earned leave at his credit at the time of his retirement whether on superannuation or otherwise as does not exceed ten months, calculated on the basis of the average salary drawn by the employee during the period of ten months immediately preceding his retirement whether on superannuation or otherwise, subject to such limit as the Central Government may, by notification in the Official Gazette, specify in this behalf having regard to the limit applicable in this behalf to the employees of that Government :

Provided that where any such payments are received by an employee from more than one employer in the same previous year, the aggregate amount exempt from income-tax under this sub-clause shall not exceed the limit so specified :

Provided further that where any such payment or payments was or were received in any one or more earlier previous years also and the whole or any part of the amount of such payment or payments was or were not included in the total income of the assessee of such previous year or years, the amount exempt from income-tax under this sub-clause shall not exceed the limit so specified, as reduced by the amount or, as the case may be, the aggregate amount not included in the total income of any such previous year or years.

Explanation.—For the purposes of sub-clause (ii),— the entitlement to earned leave of an employee shall not exceed thirty days for every year of actual service rendered by him as an employee of the employer from whose service he has retired ;

(10B) any compensation received by a workman under the Industrial Disputes Act, 1947 (14 of 1947), or under any other Act or Rules, orders or notifications issued thereunder or under any standing orders or under any award, contract of service or otherwise, at the time of his retrenchment :

Provided that the amount exempt under this clause shall not exceed—

(i) an amount calculated in accordance with the provisions of clause (b) of section 25F of the Industrial Disputes Act, 1947 (14 of 1947); or

(ii) such amount, not being less than fifty thousand rupees, as the Central Government may, by notification in the Official Gazette, specify in this behalf, whichever is less :

Provided further that the preceding proviso shall not apply in respect of any compensation received by a workman in accordance with any scheme which the Central Government may, having regard to the need for extending special protection to the workmen in the undertaking to which such scheme applies and other relevant circumstances, approve in this behalf.

Explanation.— For the purposes of this clause—

(a) compensation received by a workman at the time of the closing down of the undertaking in which he is employed shall be deemed to be compensation received at the time of his retrenchment ;

(b) compensation received by a workman, at the time of the transfer (whether by agreement or by operation of law) of the ownership or management of the undertaking in which he is employed from the employer in relation to that undertaking to a new employer, shall be deemed to be compensation received at the time of his retrenchment if—

(i) the service of the workman has been interrupted by such transfer ; or

(ii) the terms and conditions of service applicable to the workman after such transfer are in any way less favourable to the workman than those applicable to him immediately before the transfer ; or

(iii) the new employer is, under the terms of such transfer or otherwise, legally not liable to pay to the workman, in the event of his retrenchment, compensation on the basis that his service has been continuous and has not been interrupted by the transfer ;

(c) the expressions “employer” and “workman” shall have the same meanings as in the Industrial Disputes Act, 1947 (14 of 1947);

(10BB) any payments made under the Bhopal Gas Leak Disaster (Processing of Claims) Act, 1985 (21 of 1985), and any scheme framed thereunder except payment made to any assessee in connection with the Bhopal Gas Leak Disaster to the extent such assessee has been allowed a deduction under this Act on account of any loss or damage caused to him by such disaster ;

(10BC) any amount received or receivable from the Central Government or a State Government or a local authority by an individual or his legal heir by way of compensation on account of any disaster, except the amount received or receivable to the extent such individual or his legal heir has been allowed a deduction under this Act on account of any loss or damage caused by such disaster.

Explanation.—For the purposes of this clause, the expression “disaster” shall have the meaning assigned to it under clause (d) of section 2 of the Disaster Management Act, 2005 (53 of 2005);

(10C) any amount received or receivable by an employee of—

(i) a public sector company ; or

(ii) any other company ; or

(iii) an authority established under a Central, State or Provincial Act ; or

(iv) a local authority ; or

(v) a co-operative society ; or

(vi) a University established or incorporated by or under a Central, State or Provincial Act and an institution declared to be a University under section 3 of the University Grants Commission Act, 1956 (3 of 1956) ; or

(vii) an Indian Institute of Technology within the meaning of clause (g) of section 3 of the Institutes of Technology Act, 1961 (59 of 1961) ; or

(viia) any State Government; or

(viib) the Central Government; or

(viic) an institution, having importance throughout India or in any State or States, as the Central Government may, by notification in the Official Gazette, specify in this behalf; or

(viii) such institute of management as the Central Government may, by notification in the Official Gazette, specify in this behalf, on his voluntary retirement or termination of his service, in accordance with any scheme or schemes of voluntary retirement or in the case of a public sector company referred to in sub-clause (i), a scheme of voluntary separation, to the extent such amount does not exceed five lakh rupees :

Provided that the schemes of the said companies or authorities or societies or Universities or the Institutes referred to in sub-clauses (vii) and (viii), as the case may be, governing the payment of such amount are framed in accordance with such guidelines (including inter alia criteria of economic viability) as may be prescribed :

Provided further that where exemption has been allowed to an employee under this clause for any assessment year, no exemption thereunder shall be allowed to him in relation to any other assessment year :

Provided also that where any relief has been allowed to an assessee under section 89 for any assessment year in respect of any amount received or receivable on his voluntary retirement or termination of service or voluntary separation, no exemption under this clause shall be allowed to him in relation to such, or any other, assessment year;

(10CC) in the case of an employee, being an individual deriving income in the nature of a perquisite, not provided for by way of monetary payment, within the meaning of clause (2) of section 17, the tax on such income actually paid by his employer, at the option of the employer, on behalf of such employee, notwithstanding anything contained in section 200 of the Companies Act, 1956 (1 of 1956);

(10D) any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy, other than—

(a) any sum received under sub-section (3) of section 80DD or sub-section (3) of section 80DDA; or

(b) any sum received under a Keyman insurance policy; or

(c) any sum received under an insurance policy issued on or after the 1st day of April, 2003 but on or before the 31st day of March, 2012 in respect of which the premium payable for any of the years during the term of the policy exceeds twenty per cent of the actual capital sum assured ; or

(d) any sum received under an insurance policy issued on or after the 1st day of April, 2012 in respect of which the premium payable for any of the years during the term of the policy exceeds ten per cent of the actual capital sum assured:

Provided that the provisions of sub-clauses (c) and (d) shall not apply to any sum received on the death of a person:

Provided further that for the purpose of calculating the actual capital sum assured under sub-clause (c), effect shall be given to the Explanation to sub-section (3) of section 80C [***] :

Provided also that where the policy, issued on or after the 1st day of April, 2013, is for insurance on life of any person, who is—

(i) a person with disability or a person with severe disability as referred to in section 80U; or

(ii) suffering from disease or ailment as specified in the rules made under section 80DDB,

the provisions of this sub-clause shall have effect as if for the words “ten per cent”, the words “fifteen per cent” had been substituted: Provided also that nothing contained in this clause shall apply with respect to any unit linked insurance policy, issued on or after the 1st day of February, 2021, if the amount of premium payable for any of the previous year during the term of such policy exceeds two lakh and fifty thousand rupees:

Provided also that if the premium is payable, by a person, for more than one unit linked insurance policies, issued on or after the 1st day of February, 2021, the provisions of this clause shall apply only with respect to those unit linked insurance policies, where the aggregate amount of premium does not exceed the amount referred to in fourth proviso in any of the previous year during the term of any of those policies:

32[Provided also that nothing contained in this clause shall apply with respect to any life insurance policy, other than a unit linked insurance policy, issued on or after the 1st day of April, 2023, if the amount of premium payable for any of the previous years during the term of such policy exceeds five lakh rupees:

Provided also that if the premium is payable by a person for more than one life insurance policy, other than unit linked insurance policy, issued on or after the 1st day of April, 2023, the provisions of this clause shall apply only with respect to those life insurance policies, other than unit linked insurance policies, where the aggregate amount of premium does not exceed the amount referred to in the sixth proviso in any of the previous years during the term of any of those policies:

Provided that the provisions of this clause shall not apply to the income by way of interest accrued during the previous year in the account of a person to the extent it relates to the amount or the aggregate of amounts of contribution made by that person exceeding two lakh and fifty thousand rupees in any previous year in that fund, on or after the 1st day of April, 2021 and computed in such manner as may be prescribed :

Provided further that if the contribution by such person is in a fund in which there is no contribution by the employer of such person, the provisions of the first proviso shall have the effect as if for the words “two lakh and fifty thousand rupees”, the words “five lakh rupees” had been substituted;

(12A) any payment from the National Pension System Trust to an assessee on closure of his account or on his opting out of the pension scheme referred to in section 80CCD, to the extent it does not exceed sixty per cent of the total amount payable to him at the time of such closure or his opting out of the scheme;

33a[(12AA) any payment from the National Pension System Trust to an assessee, who is a subscriber to the Unified Pension Scheme, to the extent that it does not exceed sixty per cent. of the individual corpus, as specified in notification number FX-1/3/2024-PR, dated the 24th January, 2025 of the Department of Financial Services, made at the time of his superannuation or voluntary retirement or retirement under clause (j) of rule 56 of the Fundamental Rules [which is not treated as penalty under the Central Civil Services (Classification, Control and Appeal) Rules, 1965];

(12AB) any sum received as lump sum amount as per clause (vi) of paragraph 2 of the notification number FX-1/3/2024-PR, dated the 24th January, 2025 of the Department of Financial Services, by an assessee being a subscriber to the Unified Pension Scheme;]

(12B) any payment from the National Pension System Trust to an employee under the pension scheme referred to in section 80CCD, on partial withdrawal made out of his account in accordance with the terms and conditions, specified under the Pension Fund Regulatory and Development Authority Act, 2013 (23 of 2013) and the regulations made thereunder, to the extent it does not exceed twenty-five per cent of the amount of contributions made by him;

Following clause (12BA) shall be inserted after clause (12B) of section 10 by the Finance Act, 2025, w.e.f. 1-4-2026:

(12BA) any payment from the National Pension System Trust to an assessee, being the parent or guardian of a minor, under the pension scheme referred to in section 80CCD, on partial withdrawal made out of the account of the minor, as per the terms and conditions, specified under the Pension Fund Regulatory and Development Authority Act, 2013 (23 of 2013) and the regulations made thereunder, to the extent it does not exceed twenty-five per cent of the amount of contributions made by him;

34[(12C) any payment from the Agniveer Corpus Fund to a person enrolled under the Agnipath Scheme, or to his nominee.

Explanation.—For the purposes of this clause “Agniveer Corpus Fund” and “Agnipath Scheme” shall have the meanings respectively assigned to them in section 80CCH;]

(13) any payment from an approved superannuation fund made—

(i) on the death of a beneficiary; or

(ii) to an employee in lieu of or in commutation of an annuity on his retirement at or after a specified age or on his becoming incapa­citated prior to such retirement; or

(iii) by way of refund of contributions on the death of a beneficiary ; or

(iv) by way of refund of contributions to an employee on his leaving the service in connection with which the fund is established otherwise than by retirement at or after a specified age or on his becoming incapacitated prior to such retirement, to the extent to which such payment does not exceed the contributions made prior to the commencement of this Act and any interest thereon; or

(v) by way of transfer to the account of the employee under a pension scheme referred to in section 80CCD and notified by the Central Government;

(13A) any special allowance specifically granted to an assessee by his employer to meet expenditure actually incurred on payment of rent (by whatever name called) in respect of residential accommodation occupied by the assessee, to such extent as may be prescribed having regard to the area or place in which such accommodation is situate and other relevant considerations.

Explanation.—For the removal of doubts, it is hereby declared that nothing contained in this clause shall apply in a case where—

(a) the residential accommodation occupied by the assessee is owned by him ; or

(b) the assessee has not actually incurred expenditure on payment of rent (by whatever name called) in respect of the residential accommodation occupied by him ;

(14) (i) any such special allowance or benefit, not being in the nature of a perquisite within the meaning of clause (2) of section 17, specifically granted to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of an office or employment of profit, as may be prescribed, to the extent to which such expenses are actually incurred for that purpose ;

(ii) any such allowance granted to the assessee either to meet his personal expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at the place where he ordinarily resides, or to compensate him for the increased cost of living, as may be prescribed and to the extent as may be prescribed :

Provided that nothing in sub-clause (ii) shall apply to any allowance in the nature of personal allowance granted to the assessee to remunerate or compensate him for performing duties of a special nature relating to his office or employment unless such allowance is related to the place of his posting or residence ;

(14A) [***]

(15) (i) income by way of interest, premium on redemption or other payment on such securities, bonds, annuity certificates, savings certificates, other certificates issued by the Central Government and deposits as the Central Government may, by notification in the Official Gazette, specify in this behalf, subject to such conditions and limits as may be specified in the said notification ;

(iib) in the case of an individual or a Hindu undivided family, interest on such Capital Investment Bonds as the Central Government may, by notification in the Official Gazette, specify in this behalf :

Provided that the Central Government shall not specify, for the purposes of this sub-clause, such Capital Investment Bonds on or after the 1st day of June, 2002;

(iic) in the case of an individual or a Hindu undivided family, interest on such Relief Bonds as the Central Government may, by notification in the Official Gazette, specify in this behalf ;

(iid) interest on such bonds, as the Central Government may, by notification in the Official Gazette, specify, arising to—

(a) a non-resident Indian, being an individual owning the bonds ; or

(b) any individual owning the bonds by virtue of being a nominee or survivor of the non-resident Indian ; or

(c) any individual to whom the bonds have been gifted by the non-resident Indian :

Provided that the aforesaid bonds are purchased by a non-resident Indian in foreign exchange and the interest and principal received in respect of such bonds, whether on their maturity or otherwise, is not allowable to be taken out of India :

Provided further that where an individual, who is a non-resident Indian in any previous year in which the bonds are acquired, becomes a resident in India in any subsequent year, the provisions of this sub-clause shall continue to apply in relation to such individual :

Provided also that in a case where the bonds are encashed in a previous year prior to their maturity by an individual who is so entitled, the provisions of this sub-clause shall not apply to such individual in relation to the assessment year relevant to such previous year :

Provided also that the Central Government shall not specify, for the purposes of this sub-clause, such bonds on or after the 1st day of June, 2002.

Explanation.—For the purposes of this sub-clause, the expression “non-resident Indian” shall have the meaning assigned to it in clause (e) of section 115C;

(iii) interest on securities held by the Issue Department of the Central Bank of Ceylon constituted under the Ceylon Monetary Law Act, 1949;

(iiia) interest payable to any bank incorporated in a country outside India and authorised to perform central banking functions in that country on any deposits made by it, with the approval of the Reserve Bank of India, with any scheduled bank.

Explanation.—For the purposes of this sub-clause, “scheduled bank” shall have the meaning assigned to it in clause (ii) of the Explanation to clause (viia) of sub-section (1) of section 36;

(iiib) interest payable to the Nordic Investment Bank, being a multilateral financial institution constituted by the Governments of Denmark, Finland, Iceland, Norway and Sweden, on a loan advanced by it to a project approved by the Central Government in terms of the Memorandum of Understanding entered into by the Central Government with that Bank on the 25th day of November, 1986;

(iiic) interest payable to the European Investment Bank, on a loan granted by it in pursuance of the framework-agreement for financial co­operation entered into on the 25th day of November, 1993 by the Central Government with that Bank;

(iv) interest payable—

(a) by Government or a local authority on moneys borrowed by it before the 1st day of June, 2001 from, or debts owed by it before the 1st day of June, 2001 to, sources outside India;

(b) by an industrial undertaking in India on moneys borrowed by it under a loan agreement entered into before the 1st day of June, 2001 with any such financial institution in a foreign country as may be approved in this behalf by the Central Government by general or special order ;

(c) by an industrial undertaking in India on any moneys borrowed or debt incurred by it before the 1st day of June, 2001 in a foreign country in respect of the purchase outside India of raw materials or components or capital plant and machinery, to the extent to which such interest does not exceed the amount of interest calculated at the rate approved by the Central Government in this behalf, having regard to the terms of the loan or debt and its repayment.

Explanation 1.—For the purposes of this item, “purchase of capital plant and machinery” includes the purchase of such capital plant and machinery under a hire-purchase agreement or a lease agreement with an option to purchase such plant and machinery. Explanation 2.—For the removal of doubts, it is hereby declared that the usance interest payable outside India by an undertaking engaged in the business of ship-breaking in respect of purchase of a ship from outside India shall be deemed to be the interest payable on a debt incurred in a foreign country in respect of the purchase outside India;

(d) by the Industrial Finance Corporation of India established by the Industrial Finance Corporation Act, 1948 (15 of 1948), or the Industrial Development Bank of India established under the Industrial Development Bank of India Act, 1964 (18 of 1964), or the Export-Import Bank of India established under the Export-Import Bank of India Act, 1981 (28 of 1981), or the National Housing Bank established under section 3 of the National Housing Bank Act, 1987 (53 of 1987), or the Small Industries Development Bank of India established under section 3 of the Small Industries Development Bank of India Act, 1989 (39 of 1989), or the Industrial Credit and Investment Corporation of India a company formed and registered under the Indian Companies Act, 1913 (7 of 1913), on any moneys borrowed by it from sources outside India before the 1st day of June, 2001, to the extent to which such interest does not exceed the amount of interest calculated at the rate approved by the Central Government in this behalf, having regard to the terms of the loan and its repayment;

(e) by any other financial institution established in India or a banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any bank or banking institution referred to in section 51 of that Act), on any moneys borrowed by it from sources outside India before the 1st day of June, 2001 under a loan agreement approved by the Central Government where the moneys are borrowed either for the purpose of advancing loans to industrial undertakings in India for purchase outside India of raw materials or capital plant and machinery or for the purpose of importing any goods which the Central Government may consider necessary to import in the public interest, to the extent to which such interest does not exceed the amount of interest calculated at the rate approved by the Central Government in this behalf, having regard to the terms of the loan and its repayment;

(f) by an industrial undertaking in India on any moneys borrowed by it in foreign currency from sources outside India under a loan agreement approved by the Central Government before the 1st day of June, 2001 having regard to the need for industrial development in India, to the extent to which such interest does not exceed the amount of interest calculated at the rate approved by the Central Government in this behalf, having regard to the terms of the loan and its repayment;

(fa) by a scheduled bank to a non-resident or to a person who is not ordinarily resident within the meaning of sub-section (6) of section 6 on deposits in foreign currency where the acceptance of such deposits by the bank is approved by the Reserve Bank of India. Explanation.—For the purposes of this item, the expression “scheduled bank” means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934), but does not include a co-operative bank;

(g) by a public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes, being a company eligible for deduction under clause (viii) of sub-section (1) of section 36 on any moneys borrowed by it in foreign currency from sources outside India under a loan agreement approved by the Central Government before the 1st day of June, 2003, to the extent to which such interest does not exceed the amount of interest calculated at the rate approved by the Central Government in this behalf, having regard to the terms of the loan and its repayment.

Explanation.—For the purposes of items (f), (fa) and (g), the expression “foreign currency” shall have the meaning assigned to it in the Foreign Exchange Management Act, 1999 (42 of 1999);

(h) by any public sector company in respect of such bonds or debentures and subject to such conditions, including the condition that the holder of such bonds or debentures registers his name and the holding with that company, as the Central Government may, by notification in the Official Gazette, specify in this behalf;

(i) by Government on deposits made by an employee of the Central Government or a State Government or a public sector company, in accordance with such scheme as the Central Government may, by notification in the Official Gazette, frame in this behalf, out of the moneys due to him on account of his retirement, whether on superannuation or otherwise.

Explanation 1.—For the purposes of this sub-clause, the expression “industrial undertaking” means any undertaking which is engaged in—

(a) the manufacture or processing of goods; or

(aa) the manufacture of computer software or recording of programme on any disc, tape, perforated media or other information device;

or

(b) the business of generation or distribution of electricity or any other form of power; or

(ba) the business of providing telecommunication services; or

(c) mining; or

(d) the construction of ships; or

(da) the business of ship-breaking; or

(e) the operation of ships or aircrafts or construction or operation of rail systems.

Explanation 1A.—For the purposes of this sub-clause, the expression “interest” shall not include interest paid on delayed payment of loan or on default if it is in excess of two per cent per annum over the rate of interest payable in terms of such loan.

Explanation 2.—For the purposes of this clause, the expression “interest” includes hedging transaction charges on account of currency fluctuation;

(v) interest on—

(a) securities held by the Welfare Commissioner, Bhopal Gas Victims, Bhopal, in the Reserve Bank’s SGL Account No. SL/DH 048;

(b) deposits for the benefit of the victims of the Bhopal gas leak disaster held in such account, with the Reserve Bank of India or with a public sector bank, as the Central Government may, by notification in the Official Gazette, specify, whether prospectively or retrospectively but in no case earlier than the 1st day of April, 1994 in this behalf.

Explanation.—For the purposes of this sub-clause, the expression “public sector bank” shall have the meaning assigned to it in the Explanation to clause (23D);

(vi) interest on Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 or deposit certificates issued under the Gold Monetisation Scheme, 2015 notified by the Central Government;

(vii) interest on bonds—

(a) issued by a local authority or by a State Pooled Finance Entity; and

(b) specified by the Central Government by notification in the Official Gazette.

Explanation.—For the purposes of this sub-clause, the expression “State Pooled Finance Entity” shall mean such entity which is set up in accordance with the guidelines for the Pooled Finance Development Scheme notified by the Central Government in the Ministry of Urban Development;

(viii) any income by way of interest received by a non-resident or a person who is not ordinarily resident, in India on a deposit made on or after the 1st day of April, 2005, in an Offshore Banking Unit referred to in clause (u) of section 2 of the Special Economic Zones Act, 2005;

(ix) any income by way of interest payable to a non-resident by a unit located in an International Financial Services Centre in respect of monies borrowed by it on or after the 1st day of September, 2019.

Explanation.—For the purposes of this sub-clause,—

(a) “International Financial Services Centre” shall have the meaning assigned to it in clause (q) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005);

(b) “unit” shall have the meaning assigned to it in clause (zc) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005);

(15A) any payment made, by an Indian company engaged in the business of operation of aircraft, to acquire an aircraft or an aircraft engine (other than a payment for providing spares, facilities or services in connection with the operation of leased aircraft) on lease from the Government of a foreign State or a foreign enterprise under an agreement, not being an agreement entered into between the 1st day of April, 1997 and the 31st day of March, 1999, and approved by the Central Government in this behalf :

Provided that nothing contained in this clause shall apply to any such agreement entered into on or after the 1st day of April, 2007.

Explanation.—For the purposes of this clause, the expression “foreign enterprise” means a person who is a non-resident;

35[(15B) any income of a foreign company from lease rentals, by whatever name called, of cruise ships, received from a specified company which operates such ship or ships in India, where such foreign company and the specified company are subsidiaries of the same holding company, and such income is received or accrues or arises in India for any relevant assessment year beginning on or before the 1st day of April, 2030.

Explanation.–For the purposes of this clause,—

(a) “specified company” means any company, other than a domestic company which operates cruise ships in India and opts to pay tax in accordance with the provisions of section 44BBC;

(b) “holding company”, in relation to a foreign company or a specified company, means a company of which such companies are subsidiary companies;

(c) “subsidiary company” or “subsidiary”, in relation to a holding company, means a company in which the holding company exercises or controls more than one-half of the total share capital either at its own or together with one or more of its subsidiary companies;]

(16) scholarships granted to meet the cost of education;

(17) any income by way of—

(i) daily allowance received by any person by reason of his membership of Parliament or of any State Legislature or of any Committee thereof;

(ii) any allowance received by any person by reason of his membership of Parliament under the Members of Parliament (Constituency Allowance) Rules, 1986;

(iii) any constituency allowance received by any person by reason of his membership of any State Legislature under any Act or rules made by that State Legislature;

(17A) any payment made, whether in cash or in kind,—

(i) in pursuance of any award instituted in the public interest by the Central Government or any State Government or instituted by any other body and approved by the Central Government in this behalf; or

(ii)as a reward by the Central Government or any State Government for such purposes as may be approved by the Central Govern­ment in this behalf in the public interest;

(18) any income by way of—

(i) pension received by an individual who has been in the service of the Central Government or State Government and has been awarded “Param Vir Chakra” or “Maha Vir Chakra” or “Vir Chakra” or such other gallantry award as the Central Government may, by notification in the Official Gazette, specify in this behalf;

(ii) family pension received by any member of the family of an individual referred to in sub-clause (i).

Explanation.—For the purposes of this clause, the expression “family” shall have the meaning assigned to it in the Explanation to clause (5);

(18A) [Omitted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999;]

(19) family pension received by the widow or children or nominated heirs, as the case may be, of a member of the armed forces (including para­military forces) of the Union, where the death of such member has occurred in the course of operational duties, in such circumstances and subject to such conditions, as may be prescribed;

(19A) the annual value of any one palace in the occupation of a Ruler, being a palace, the annual value whereof was exempt from income-tax before the commencement of the Constitution (Twenty-sixth Amendment) Act, 1971, by virtue of the provisions of the Merged States (Taxation Concessions) Order, 1949, or the Part B States (Taxation Concessions) Order, 1950, or, as the case may be, the Jammu and Kashmir (Taxation Concessions) Order, 1958:

Provided that for the assessment year commencing on the 1st day of April, 1972, the annual value of every such palace in the occupation of such Ruler during the relevant previous year shall be exempt from income-tax;

(20) the income of a local authority which is chargeable under the head “Income from house property”, “Capital gains” or “Income from other sources” or from a trade or business carried on by it which accrues or arises from the supply of a commodity or service (not being water or electricity) within its own jurisdictional area or from the supply of water or electricity within or outside its own jurisdictional area. Explanation.—For the purposes of this clause, the expression “local authority” means—

(i) Panchayat as referred to in clause (d) of article 243 of the Constitution; or

(ii) Municipality as referred to in clause (e) of article 243P of the Constitution; or

(iii) Municipal Committee and District Board, legally entitled to, or entrusted by the Government with, the control or management of a Municipal or local fund; or

(iv) Cantonment Board as defined in section 3 of the Cantonments Act, 1924 (2 of 1924);

(20A) [***]

(21) any income of a research association for the time being approved for the purpose of clause (ii) or clause (iii) of sub-section (1) of section 35:

Provided that the research association—

(a) applies its income, or accumulates it for application, wholly and exclusively to the objects for which it is established, and the provisions of sub-section (2) and sub-section (3) of section 11 shall apply in relation to such accumulation subject to the following modifications, namely :—

(i) in sub-section (2),—

(1) the words, brackets, letters and figure “referred to in clause (a) or clause (b) of sub-section (1) read with the Explanation to that sub-section” shall be omitted;

(2) for the words “to charitable or religious purposes”, the words “for the purposes of scientific research or research in social science or statistical research” shall be substituted;

(3) the reference to “Assessing Officer” in clause (a) thereof shall be construed as a reference to the “prescribed authority” referred to in clause (ii) or clause (iii) of sub-section (1) of section 35;

(ii) in sub-section (3), in clause (a), for the words “charitable or religious purposes”, the words “the purposes of scientific research or research in social science or statistical research” shall be substituted; and

(b) does not invest or deposit its funds, other than—

(i) any assets held by the research association where such assets form part of the corpus of the fund of the association as on the 1st day of June, 1973;

(ii) any assets (being debentures issued by, or on behalf of, any company or corporation), acquired by the research association before the 1st day of March, 1983;

(iii) any accretion to the shares, forming part of the corpus of the fund mentioned in sub-clause (i), by way of bonus shares allotted to the research association;

(iv) voluntary contributions received and maintained in the form of jewellery, furniture or any other article as the Board may, by notification in the Official Gazette, specify, for any period during the previous year otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11:

Provided further that the exemption under this clause shall not be denied in relation to voluntary contribution, other than voluntary contribution in cash or voluntary contribution of the nature referred to in clause (b) of the first proviso to this clause, subject to the condition that such voluntary contribution is not held by the research association, otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11, after the expiry of one year from the end of the previous year in which such asset is acquired or the 31st day of March, 1992, whichever is later:

Provided also that nothing contained in this clause shall apply in relation to any income of the research association, being profits and gains of business, unless the business is incidental to the attainment of its objectives and separate books of account are maintained by it in respect of such business:

Provided also that where the research association is approved by the Central Government and subsequently that Government is satisfied that—

(i) the research association has not applied its income in accordance with the provisions contained in clause (a) of the first proviso; or

(ii) the research association has not invested or deposited its funds in accordance with the provisions contained in clause (b) of the first proviso; or

(iii) the activities of the research association are not genuine; or

(iv) the activities of the research association are not being carried out in accordance with all or any of the conditions subject to which such association was approved,

it may, at any time after giving a reasonable opportunity of showing cause against the proposed withdrawal to the concerned association, by order, withdraw the approval and forward a copy of the order withdrawing the approval to such association and to the Assessing Officer;

(22) [Omitted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999;]

(22A) [Omitted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999;]

(22B) any income of such news agency set up in India solely for collection and distribution of news as the Central Government may, by notification in the Official Gazette, specify in this behalf:

[Provided also that nothing contained in this clause shall apply to any income of the news agency of the previous year relevant to the assessment year beginning on or after the 1st day of April, 2024;]

(23) [Omitted by the Finance Act, 2002, w.e.f. 1-4-2003;]

(23A) any income (other than income chargeable under the head “Income from house property” or any income received for rendering any specific services or income by way of interest or dividends derived from its investments) of an association or institution established in India having as its object the control, supervision, regulation or encouragement of the profession of law, medicine, accountancy, engineering or architecture or such other profession as the Central Government may specify in this behalf, from time to time, by notification in the Official Gazette:

Provided that—

(i) the association or institution applies its income, or accumulates it for application, solely to the objects for which it is established; and

(ii) the association or institution is for the time being approved for the purpose of this clause by the Central Government by general or special order:

Provided further that where the association or institution has been approved by the Central Government and subsequently that Government is satisfied that—

(i) such association or institution has not applied or accumulated its income in accordance with the provisions contained in the first proviso; or

(ii) the activities of the association or institution are not being carried out in accordance with all or any of the conditions subject to which such association or institution was approved,

it may, at any time after giving a reasonable opportunity of showing cause against the proposed withdrawal to the concerned association or institution, by order, withdraw the approval and forward a copy of the order withdrawing the approval to such association or institution and to the Assessing Officer;

(23AA) any income received by any person on behalf of any Regimental Fund or Non-Public Fund established by the armed forces of the Union for the welfare of the past and present members of such forces or their dependants;

(23AAA) any income received by any person on behalf of a fund established, for such purposes as may be notified by the Board in the Official Gazette, for the welfare of employees or their dependants and of which fund such employees are members if such fund fulfils the following conditions, namely :—

(a) the fund—

(i) applies its income or accumulates it for application, wholly and exclusively to the objects for which it is established; and

(ii) invests its funds and contributions and other sums received by it in the forms or modes specified in sub-section (5) of section 11;

(b) the fund is approved by the Principal Commissioner or Commissioner in accordance with the rules made in this behalf:

Provided that any such approval shall at any one time have effect for such assessment year or years not exceeding three assessment years as may be specified in the order of approval;

(23AAB) any income of a fund, by whatever name called, set up by the Life Insurance Corporation of India on or after the 1st day of August, 1996 or any other insurer under a pension scheme,—

(i) to which contribution is made by any person for the purpose of receiving pension from such fund;

(ii) which is approved by the Controller of Insurance or the Insurance Regulatory and Development Authority established under sub­section (1) of section 3 of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999), as the case may be. Explanation.—For the purposes of this clause, the expression “Controller of Insurance” shall have the meaning assigned to it in clause (5B) of section 2 of the Insurance Act, 1938 (4 of 1938);

(23B) any income of an institution constituted as a public charitable trust or registered under the Societies Registration Act, 1860 (21 of 1860), or under any law corresponding to that Act in force in any part of India, and existing solely for the development of khadi or village industries or both, and not for purposes of profit, to the extent such income is attributable to the business of production, sale, or marketing, of khadi or products of village industries:

Provided that—

(i) the institution applies its income, or accumulates it for application, solely for the development of khadi or village industries or both; and

(ii) the institution is, for the time being, approved for the purpose of this clause by the Khadi and Village Industries Commission: Provided further that the Commission shall not, at any one time, grant such approval for more than three assessment years beginning with the assessment year next following the financial year in which it is granted:

Provided also that where the institution has been approved by the Khadi and Village Industries Commission and subsequently that Commission is satisfied that—

(i) the institution has not applied or accumulated its income in accordance with the provisions contained in the first proviso; or

(ii) the activities of the institution are not being carried out in accordance with all or any of the conditions subject to which such institution was approved,

it may, at any time after giving a reasonable opportunity of showing cause against the proposed withdrawal to the concerned institution, by order, withdraw the approval and forward a copy of the order withdrawing the approval to such institution and to the Assessing Officer. Explanation.—For the purposes of this clause,—

(i) “Khadi and Village Industries Commission” means the Khadi and Village Industries Commission established under the Khadi and Village Industries Commission Act, 1956 (61 of 1956);

(ii) “khadi” and “village industries” have the meanings respectively assigned to them in that Act;

(23BB) any income of an authority (whether known as the Khadi and Village Industries Board or by any other name) established in a State by or under a State or Provincial Act for the development of khadi or village industries in the State.

Explanation.—For the purposes of this clause, “khadi” and “village industries” have the meanings respectively assigned to them in the Khadi and Village Industries Commission Act, 1956 (61 of 1956);

(23BBA) any income of any body or authority (whether or not a body corporate or corporation sole) established, constituted or appointed by or under any Central, State or Provincial Act which provides for the administration of any one or more of the following, that is to say, public religious or charitable trusts or endowments (including maths, temples, gurdwaras, wakfs, churches, synagogues, agiaries or other places of public religious worship) or societies for religious or charitable purposes registered as such under the Societies Registration Act, 1860 (21 of 1860), or any other law for the time being in force:

Provided that nothing in this clause shall be construed to exempt from tax the income of any trust, endowment or society referred to therein;

(23BBB) any income of the European Economic Community derived in India by way of interest, dividends or capital gains from investments made out of its funds under such scheme as the Central Government may, by notification in the Official Gazette, specify in this behalf. Explanation.—For the purposes of this clause, “European Economic Community” means the European Economic Community established by the Treaty of Rome of 25th March, 1957;

(23BBC) any income of the SAARC Fund for Regional Projects set up by Colombo Declaration issued on the 21st day of December, 1991 by the Heads of State or Government of the Member Countries of South Asian Association for Regional Cooperation established on the 8th day of December, 1985 by the Charter of the South Asian Association for Regional Cooperation;

(23BBD) any income of the Secretariat of the Asian Organisation of the Supreme Audit Institutions registered as “ASOSAI-SECRETARIAT” under the Societies Registration Act, 1860 (21 of 1860) for ten previous years relevant to the assessment years beginning on the 1st day of April, 2001 and ending on the 31st day of March, 2011;

(23BBE) any income of the Insurance Regulatory and Development Authority established under sub-section (1) of section 3 of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999);

(23BBF) [***]

(23BBG) any income of the Central Electricity Regulatory Commission constituted under sub-section (1) of section 76 of the Electricity Act, 2003 (36 of 2003);

(23BBH) any income of the Prasar Bharati (Broadcasting Corporation of India) established under sub-section (1) of section 3 of the Prasar Bharati (Broadcasting Corporation of India) Act, 1990 (25 of 1990);

(23C) any income received by any person on behalf of—

(i) the Prime Minister’s National Relief Fund or the Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES FUND); or

(ii) the Prime Minister’s Fund (Promotion of Folk Art); or

(iii) the Prime Minister’s Aid to Students Fund; or

(iiia) the National Foundation for Communal Harmony; or

(iiiaa) the Swachh Bharat Kosh, set up by the Central Government; or

(iiiaaa) the Clean Ganga Fund, set up by the Central Government; or

(iiiaaaa) the Chief Minister’s Relief Fund or the Lieutenant Governor’s Relief Fund in respect of any State or Union territory as referred to in sub-clause (iiihf) of clause (a) of sub-section (2) of section 80G; or

(iiiab) any university or other educational institution existing solely for educational purposes and not for purposes of profit, and which is wholly or substantially financed by the Government; or

(iiiac) any hospital or other institution for the reception and treatment of persons suffering from illness or mental defectiveness or for the reception and treatment of persons during convalescence or of persons requiring medical attention or rehabilitation, existing solely for philanthropic purposes and not for purposes of profit, and which is wholly or substantially financed by the Government.

Explanation.—For the purposes of sub-clauses (iiiab) and (iiiac), any university or other educational institution, hospital or other institution referred therein, shall be considered as being substantially financed by the Government for any previous year, if the Government grant to such university or other educational institution, hospital or other institution exceeds such percentage of the total receipts including any voluntary contributions, as may be prescribed, of such university or other educational institution, hospital or other institution, as the case may be, during the relevant previous year; or

(iiiad) any university or other educational institution existing solely for educational purposes and not for purposes of profit if the aggregate annual receipts of the person from such university or universities or educational institution or educational institutions do not exceed five crore rupees; or

(iiiae) any hospital or other institution for the reception and treatment of persons suffering from illness or mental defectiveness or for the reception and treatment of persons during convalescence or of persons requiring medical attention or rehabilitation, existing solely for philanthropic purposes and not for purposes of profit, if the aggregate annual receipts of the person from such hospital or hospitals or institution or institutions do not exceed five crore rupees.

Explanation.—For the purposes of sub-clauses (iiiad) and (iiiae), it is hereby clarified that if the person has receipts from university or universities or educational institution or institutions as referred to in sub-clause (iiiad), as well as from hospital or hospitals or institution or institutions as referred to in sub-clause (iiiae), the exemptions under these clauses shall not apply, if the aggregate of annual receipts of the person from such university or universities or educational institution or institutions or hospital or hospitals or institution or institutions, exceed five crore rupees; or

(iv) any other fund or institution established for charitable purposes which may be approved by the Principal Commissioner or Commissioner, having regard to the objects of the fund or institution and its importance throughout India or throughout any State or States; or

(v) any trust (including any other legal obligation) or institution wholly for public religious purposes or wholly for public religious and charitable purposes, which may be approved by the Principal Commissioner or Commissioner, having regard to the manner in which the affairs of the trust or institution are administered and supervised for ensuring that the income accruing thereto is properly applied for the objects thereof;

(vi) any university or other educational institution existing solely for educational purposes and not for purposes of profit, other than those mentioned in sub-clause (iiiab) or sub-clause (iiiad) and which may be approved by the Principal Commissioner or Commissioner; or

(via) any hospital or other institution for the reception and treatment of persons suffering from illness or mental defectiveness or for the reception and treatment of persons during convalescence or of persons requiring medical attention or rehabilitation, existing solely for philanthropic purposes and not for purposes of profit, other than those mentioned in sub-clause (iiiac) or sub-clause (iiiae) and which may be approved by the Principal Commissioner or Commissioner :

Provided that the exemption to the fund or trust or institution or university or other educational institution or hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via), under the respective sub-clauses, shall not be available to it unless such fund or trust or institution or university or other educational institution or hospital or other medical institution makes an application [before the 1st day of October, 2024,] in the prescribed form and manner to the Principal Commissioner or Commissioner, for grant of approval,—

(i) where such fund or trust or institution or university or other educational institution or hospital or other medical institution is approved under the second proviso [as it stood immediately before its amendment by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020], within three months from the 1st day of April, 2021;

(ii) where such fund or trust or institution or university or other educational institution or hospital or other medical institution is approved and the period of such approval is due to expire, at least six months prior to expiry of the said period;

(iii) where such fund or trust or institution or university or other educational institution or hospital or other medical institution has been provisionally approved, at least six months prior to expiry of the period of the provisional approval or within six months of commencement of its activities, whichever is earlier;

39[(iv) in any other case, where activities of the fund or trust or institution or university or other educational institution or hospital or other medical institution have—

(A) not commenced, at least one month prior to the commencement of the previous year relevant to the assessment year from which the said approval is sought;

(B) commenced and no income or part thereof of the said fund or trust or institution or university or other educational institution or hospital or other medical institution has been excluded from the total income on account of applicability of sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) or section 11 or section 12 for any previous year ending on or before the date of such application, at any time after the commencement of such activities,] and the said fund or trust or institution or university or other educational institution or hospital or other medical institution is approved under the second proviso:

Provided further that the Principal Commissioner or Commissioner, on receipt of an application made under the first proviso [before the 1st day of October, 2024], shall,—

(i) where the application is made under clause (i) of the said proviso, pass an order in writing granting approval to it for a period of five years;

(ii) where the application is made under clause (ii) or clause (iii) [or sub-clause (B) of clause (iv)] of the said proviso,— 41

(a) call for such documents or information from it or make such inquiries as he thinks necessary in order to satisfy himself about—

(A) the genuineness of activities of such fund or trust or institution or university or other educational institution or hospital or other medical institution; and

(B) the compliance of such requirements of any other law for the time being in force by it as are material for the purpose of achieving its objects; and

(b) after satisfying himself about the objects and the genuineness of its activities under item (A), and compliance of the requirements under item (B), of sub-clause (a),—

(A) pass an order in writing granting approval to it for a period of five years;

42[(B) if he is not so satisfied, pass an order in writing,—

(I) in a case referred to in clause (ii) or clause (iii) of the first proviso, rejecting such application and also cancelling its approval;

(II) in a case referred to in sub-clause (B) of clause (iv) of the first proviso, rejecting such application, after affording it a reasonable opportunity of being heard;]

42[(iii) where the application is made under sub-clause (A) of clause (iv) of the said proviso or the application made under clause (iv) of the said proviso, as it stood immediately before its amendment by the Finance Act, 2023, pass an order in writing granting approval to it provisionally for a period of three years from the assessment year from which the approval is sought, and send a copy of such order to the fund or trust or institution or university or other educational institution or hospital or other medical institution:] Provided also that the fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via)—

(a) applies its income, or accumulates it for application, wholly and exclusively to the objects for which it is established and in a case where more than fifteen per cent of its income is accumulated on or after the 1st day of April, 2002, the period of the accumulation of the amount exceeding fifteen per cent of its income shall in no case exceed five years; and

(b) does not invest or deposit its funds, other than—

(i) any assets held by the fund, trust or institution or any university or other educational institution or any hospital or other medical institution where such assets form part of the corpus of the fund, trust or institution or any university or other educational institution or any hospital or other medical institution as on the 1st day of June, 1973;

(ia) any asset, being equity shares of a public company, held by any university or other educational institution or any hospital or other medical institution where such assets form part of the corpus of any university or other educational institution or any hospital or other medical institution as on the 1st day of June, 1998;

(ii) any assets (being debentures issued by, or on behalf of, any company or corporation), acquired by the fund, trust or institution or any university or other educational institution or any hospital or other medical institution before the 1st day of March, 1983;

(iii) any accretion to the shares, forming part of the corpus mentioned in sub-clause (i) and sub-clause (ia), by way of bonus shares allotted to the fund, trust or institution or any university or other educational institution or any hospital or other medical institution ;

(iv) voluntary contributions received and maintained in the form of jewellery, furniture or any other article as the Board may, by notification in the Official Gazette, specify, for any period during the previous year otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11.

Explanation 1.—For the removal of doubts, it is hereby clarified that for the purposes of this proviso, the income of the funds or trust or institution or any university or other educational institution or any hospital or other medical institution, shall not include income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of such fund or trust or institution or any university or other educational institution or any hospital or other medical institution subject to the condition that such voluntary contributions are invested or deposited in one or more of the forms or modes specified in sub-section (5) of section 11 maintained specifically for such corpus.

Explanation 1A.—For the purposes of this proviso, where the property held under a trust or institution referred to in clause (v) includes any temple, mosque, gurdwara, church or other place notified under clause (b) of sub-section (2) of section 80G, any sum received by such trust or institution as a voluntary contribution for the purpose of renovation or repair of such temple, mosque, gurdwara, church or other place, may, at its option, be treated by such trust or institution as forming part of the corpus of that trust or institution, subject to the condition that the trust or institution,—

(a) applies such corpus only for the purpose for which the voluntary contribution was made;

(b) does not apply such corpus for making contribution or donation to any person;

(c) maintains such corpus as separately identifiable; and

(d) invests or deposits such corpus in the forms and modes specified under sub-section (5) of section 11.

Explanation 1B.—For the purposes of Explanation 1A, where any trust or institution referred to in sub-clause (v) has treated any sum received by it as forming part of the corpus, and subsequently any of the conditions specified in clause (a) or clause (b) or clause (c) or clause (d) of the said Explanation is violated, such sum shall be deemed to be the income of such trust or institution of the previous year during which the violation takes place.

Explanation 2.—For the purposes of determining the amount of application under this proviso,—

(i) application for charitable or religious purposes from the corpus as referred to in Explanation 1, shall not be treated as application of income for charitable or religious purposes:

Provided that the amount not so treated as application or part thereof, shall be treated as application for charitable or religious purposes in the previous year in which the amount, or part thereof, is invested or deposited back, into one or more of the forms or modes specified in sub-section (5) of section 11 maintained specifically for such corpus, from the income of that year and to the extent of such investment or deposit: [***]

44[Provided further that the provisions of the first proviso shall apply only if there was no violation of the conditions specified in the twelfth, thirteenth and twenty-first provisos, and those specified in Explanation 2 and Explanation 3, of this clause, at the time the application was made from the corpus:

Provided also that the amount invested or deposited back shall not be treated as application for charitable or religious purposes under the first proviso unless such investment or deposit is made within a period of five years from the end of the previous year in which such application was made from the corpus:

Provided also that nothing contained in the first proviso shall apply where the application from the corpus is made on or before the 31st day of March, 2021;]

(ii) application for charitable or religious purposes, from any loan or borrowing, shall not be treated as application of income for charitable or religious purposes:

Provided that the amount not so treated as application or part thereof, shall be treated as application for charitable or religious purposes in the previous year in which the loan or borrowing, or part thereof, is repaid from the income of that year and to the extent of such repayment:

44[Provided further that the provisions of the first proviso shall apply only if there was no violation of the conditions specified in the twelfth, thirteenth and twenty-first provisos, and those specified in Explanation 2 and Explanation 3, of this clause at the time the application was made from loan or borrowing:

Provided also that the amount repaid shall not be treated as application for charitable or religious purposes under the first proviso unless such repayment is made within a period of five years from the end of the previous year in which such application was made from loan or borrowing:

Provided also that nothing contained in the first proviso shall apply where the application from any loan or borrowing is made on or before the 31st day of March, 2021; and]

[(iii) any amount credited or paid out of the income of any fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via), other than the amount referred to in the twelfth proviso, to any other fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via), or trust or institution registered under section 12AB, as the case may be, shall be treated as application for charitable or religious purposes only to the extent of eighty-five per cent of such amount credited or paid.]

Explanation 3.—For the purposes of determining the amount of application under this proviso, where eighty-five per cent of the income referred to in clause (a) of this proviso is not applied wholly and exclusively to the objects for which the fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) is established, during the previous year but is accumulated or set apart, either in whole or in part, for application to such objects, such income so accumulated or set apart shall not be included in the total income of the previous year of the person in receipt of the income, if the following conditions are complied with, namely:—

(a) such person furnishes a statement in such form and manner, as may be prescribed, to the Assessing Officer stating the purpose for which the income is being accumulated or set apart and the period for which the income is to be accumulated or set apart, which shall in no case exceed five years;

(b) the money so accumulated or set apart is invested or deposited in the forms or modes specified in sub-section (5) of section 11; and

(c) the statement referred to in clause (a) is [furnished at least two months prior to] the due date specified under sub-section (1) of section 139 for furnishing the return of income for the previous year:

Provided that in computing the period of five years referred to in clause (a), the period during which the income could not be applied for the purpose for which it is so accumulated or set apart, due to an order or injunction of any court, shall be excluded.

Explanation 4.—Any income referred to in Explanation 3, which,—

(a) is applied for purposes other than wholly and exclusively to the objects for which the fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) is established or ceases to be accumulated or set apart for application thereto; or

(b) ceases to remain invested or deposited in any of the forms or modes specified in sub-section (5) of section 11; or

(c) is not utilised for the purpose for which it is so accumulated or set apart during the period referred to in clause (a) of Explanation 3; or

(d) is credited or paid to any trust or institution registered under section 12AA or section 12AB or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via), shall be deemed to be the income of such person of the previous year—

(i) in which it is so applied or ceases to be so accumulated or set apart under clause (a); or

(ii) in which it ceases to remain so invested or deposited under clause (b); or

(iii) being the last previous year of the period, for which the income is accumulated or set apart under clause (a) of Explanation 3, but not utilised for the purpose for which it is so accumulated or set apart under clause (c); or

(iv) in which it is credited or paid to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution under clause (d).

Explanation 5.—Notwithstanding anything contained in Explanation 4, where due to circumstances beyond the control of the person in receipt of the income, any income invested or deposited in accordance with the provisions of clause (b) of Explanation 3 cannot be applied for the purpose for which it was accumulated or set apart, the Assessing Officer may, on an application made to him in this behalf, allow such person to apply such income for such other purpose in India as is specified in the application by that person and as is in conformity with the objects for which the fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) is established; and thereupon the provisions of Explanation 4 shall apply as if the purpose specified by that person in the application under this Explanation were a purpose specified in the notice given to the Assessing Officer under clause (a) of Explanation 3:

Provided that the Assessing Officer shall not allow application of such income by way of payment or credit made for the purposes referred to in clause (d) of Explanation 4 :

Provided also that the exemption under sub-clause (iv) or sub-clause (v) shall not be denied in relation to any funds invested or deposited before the 1st day of April, 1989, otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11 if such funds do not continue to remain so invested or deposited after the 30th day of March, 1993 :

Provided also that the exemption under sub-clause (vi) or sub-clause (via) shall not be denied in relation to any funds invested or deposited before the 1st day of June, 1998, otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11 if such funds do not continue to remain so invested or deposited after the 30th day of March, 2001:

Provided also that the exemption under sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) shall not be denied in relation to voluntary contribution, other than voluntary contribution in cash or voluntary contribution of the nature referred to in clause (b) of the third proviso to this sub-clause, subject to the condition that such voluntary contribution is not held by the trust or institution or any university or other educational institution or any hospital or other medical institution, otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11, after the expiry of one year from the end of the previous year in which such asset is acquired or the 31st day of March, 1992, whichever is later:

Provided also that nothing contained in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) shall apply in relation to any income of the fund or trust or institution or any university or other educational institution or any hospital or other medical institution, being profits and gains of business, unless the business is incidental to the attainment of its objectives and separate books of account are maintained by it in respect of such business:

Provided also that any approval granted under the second proviso shall apply in relation to the income of the fund or trust or institution or university or other educational institution or hospital or other medical institution,—

(i) where the application is made under clause (i) of the first proviso, from the assessment year from which approval was earlier granted to it;

(ii) where the application is made under clause (iii) of the first proviso, from the first of the assessment years for which it was provisionally approved;

(iii) in any other case, from the assessment year immediately following the financial year in which such application is made:

Provided also that the order under clause (i), sub-clause (b) of clause (ii) and clause (iii) of the second proviso shall be passed, in such form and manner as may be prescribed, before expiry of the period of three months, six months and one month, respectively, calculated from the end of the month in which the application was received:

Provided also that where the total income of the fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via), without giving effect to the provisions of the said sub-clauses, exceeds the maximum amount which is not chargeable to tax in any previous year, such fund or institution or trust or any university or other educational institution or any hospital or other medical institution shall,—

(a) keep and maintain books of account and other documents in such form and manner and at such place, as may be prescribed; and

(b) get its accounts audited in respect of that year by an accountant as defined in the Explanation below sub-section (2) of section 288 before the specified date referred to in section 44AB and furnish by that date, the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed:

Provided also that any amount of donation received by the fund or institution in terms of clause (d) of sub-section (2) of section 80G in respect of which accounts of income and expenditure have not been rendered to the authority prescribed under clause (v) of sub-section (5C) of that section, in the manner specified in that clause, or which has been utilised for purposes other than providing relief to the victims of earthquake in Gujarat or which remains unutilised in terms of sub-section (5C) of section 80G and not transferred to the Prime Minister’s National Relief Fund on or before the 31st day of March, 2004 shall be deemed to be the income of the previous year and shall accordingly be charged to tax:

Provided also that any amount credited or paid out of income of any fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via), to any other fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) or trust or institution registered under section 12AA or section 12AB, being voluntary contribution made with a specific direction that they shall form part of the corpus, shall not be treated as application of income to the objects for which such fund or trust or institution or university or educational institution or hospital or other medical institution, as the case may be, is established:

Provided also that for the purposes of determining the amount of application under item (a) of the third proviso, the provisions of sub-clause (ia) of clause (a) of section 40 and sub-sections (3) and (3A) of section 40A, shall, mutatis mutandis, apply as they apply in computing the income chargeable under the head “Profits and gains of business or profession”:

Provided also that where the fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) does not apply its income during the year of receipt and accumulates it, any payment or credit out of such accumulation to any trust or institution registered under section 12AA or section 12AB or to any fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) shall not be treated as application of income to the objects for which such fund or trust or institution or university or educational institution or hospital or other medical institution, as the case may be, is established :

Provided also that where the fund or institution referred to in sub-clause (iv) or trust or institution referred to in sub-clause (v) or any university or other educational institution referred to in sub-clause (vi) or any hospital or other medical institution referred to in sub-clause (via) is approved or provisionally approved under the said clause and subsequently—

(a) the Principal Commissioner or Commissioner has noticed occurrence of one or more specified violations during any previous year; or

(b) the Principal Commissioner or Commissioner has received a reference from the Assessing Officer under the second proviso to sub­section (3) of section 143 for any previous year; or

(c) such case has been selected in accordance with the risk management strategy, formulated by the Board from time to time, for any previous year, the Principal Commissioner or Commissioner, shall,—

(i) call for such documents or information from the fund or institution or trust or any university or other educational institution or any hospital or other medical institution, or make such inquiry as he thinks necessary in order to satisfy himself about the occurrence of any specified violation;

(ii) pass an order in writing cancelling the approval of such fund or institution or trust or any university or other educational institution or any hospital or other medical institution, on or before the specified date, after affording a reasonable opportunity of being heard, for such previous year and all subsequent previous years, if he is satisfied that one or more specified violation has taken place;

(iii) pass an order in writing refusing to cancel the approval of such fund or institution or trust or any university or other educational institution or any hospital or other medical institution, on or before the specified date, if he is not satisfied about the occurrence of one or more specified violations;

(iv) forward a copy of the order under clause (ii) or clause (iii), as the case may be, to the Assessing Officer and such fund or institution or trust or any university or other educational institution or any hospital or other medical institution.

Explanation 1.—For the purposes of this proviso, “specified date” shall mean the day on which the period of six months, calculated from the end of the quarter in which the first notice is issued by the Principal Commissioner or Commissioner, on or after the 1st day of April, 2022, calling for any document or information, or for making any inquiry, under clause (i) expires.

Explanation 2.—For the purposes of this proviso, the following shall mean “specified violation”,—

(a) where any income of the fund or institution or trust or any university or other educational institution or any hospital or other medical institution has been applied other than for the objects for which it is established; or

(b) the fund or institution or trust or any university or other educational institution or any hospital or other medical institution has income from profits and gains of business, which is not incidental to the attainment of its objectives or separate books of account are not maintained by it in respect of the business which is incidental to the attainment of its objectives; or

(c) any activity of the fund or institution or trust or any university or other educational institution or any hospital or other medical institution,—

(A) is not genuine; or

(B) is not being carried out in accordance with all or any of the conditions subject to which it was notified or approved; or

(d) the fund or institution or trust or any university or other educational institution or any hospital or other medical institution has not complied with the requirement of any other law for the time being in force, and the order, direction or decree, by whatever name called, holding that such non-compliance has occurred, has either not been disputed or has [attained finality; or]

[(e) the application referred to in the first proviso of this clause is not complete or it contains false or incorrect information.]

Explanation 3.—For the purposes of clause (b) of this proviso, where the Assessing Officer has intimated the Central Government or the prescribed authority under the first proviso of sub-section (3) of section 143 about the contravention of the provisions of sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of this clause by any fund or institution or trust or university or other educational institution or any hospital or other medical institution in respect of an assessment year, and the approval granted to such fund or institution or trust or university or other educational institution or any hospital or other medical institution has not been withdrawn, or the notification issued in its case has not been rescinded, on or before the 31st day of March, 2022, such intimation shall be deemed to be a reference received by the Principal Commissioner or Commissioner as on the 1st day of April, 2022, and the provisions of clause (b) of the second proviso to sub-section (3) of section 143 shall apply accordingly for such assessment year:

Provided also that any anonymous donation referred to in section 115BBC on which tax is payable in accordance with the provisions of the said section shall be included in the total income :

Provided also that all applications made under the first proviso [as it stood before its amendment by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020] pending before the Principal Commissioner or Commissioner, on which no order has been passed before the 1st day of April, 2021, shall be deemed to be applications made under clause (iv) of the first proviso on that date:

Provided also that the income of a trust or institution referred to in sub-clause (iv) or sub-clause (v) shall be included in its total income of the previous year if the provisions of the first proviso to clause (15) of section 2 become applicable to such trust or institution in the said previous year, whether or not any approval granted or notification issued in respect of such trust or institution has been withdrawn or rescinded :

Provided also that where the fund or institution referred to in sub-clause (iv) or the trust or institution referred to in sub-clause (v) or any university or other educational institution referred to in sub-clause (vi) or any hospital or other medical institution referred to in sub-clause (via) has been approved by the Principal Commissioner or Commissioner, and the approval is in force for any previous year, then, nothing contained in any other provision of this section, other than clause (1) thereof, shall operate to exclude any income received on behalf of such fund or institution or trust or university or other educational institution or hospital or other medical institution, as the case may be, from the total income of the person in receipt thereof for that previous year.

Explanation.—Where, on or after the 1st day of April, 2022 any fund or institution referred to in sub-clause (iv) or any trust or institution referred to in sub-clause (v) or any university or other educational institution referred to in sub-clause (vi) or any hospital or other medical institution referred to in sub-clause (via) is notified under clause (46) [or (46A)] of section 10, the approval or provisional approval granted to such fund or institution or trust or university or other educational institution or hospital or other medical institution shall become inoperative from the date of notification of such fund or institution or trust or university or other educational institution or hospital or other medical institution, as the case may be, under clause (46) [or clause (46A)] of the said section:

Provided also that the fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) shall furnish the return of income for the previous year in accordance with the provisions of sub-section (4C) of section 139, [within the time allowed under sub-section (1) or sub-section (4) of that section] :

Provided also that where the income or part of income or property of any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via), has been applied directly or indirectly for the benefit of any person referred to in sub-section (3) of section 13, such income or part of income or property shall, after taking into account the provisions of sub-sections (2), (4) and (6) of the said section, be deemed to be the income of such fund or institution or trust or university or other educational institution or hospital or other medical institution of the previous year in which it is so applied:

Provided also that where any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) violates the conditions of the tenth proviso or twentieth proviso, or where the provisions of the eighteenth proviso are applicable, its income chargeable to tax shall be computed after allowing deduction for the expenditure (other than capital expenditure) incurred in India, for the objects of the fund or institution or trust or university or other educational institution or hospital or other medical institution, subject to fulfilment of the following conditions, namely:

Provided also that no approval under the second proviso shall be granted in relation to any application made on or after the 1st day of October, 2024.]

Explanation 1.—In this clause, where any income is required to be applied or accumulated, then, for such purpose the income shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of any asset, acquisition of which has been claimed as an application of income under this clause in the same or any other previous year.

Explanation 2.—For the purposes of this clause, it is clarified that the calculation of income required to be applied or accumulated during the previous year shall be made without any set off or deduction or allowance of any excess application of any of the year preceding to the previous year.

Explanation 3.—For the purposes of this clause, any sum payable by any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) shall be considered as application of income during the previous year in which such sum is actually paid by it (irrespective of the previous year in which the liability to pay such sum was incurred by the fund or institution or trust or any university or other educational institution or any hospital or other medical institution according to the method of accounting regu-larly employed by it):

Provided that where during any previous year any sum has been claimed to have been applied by the fund or institution or trust or any university or other educational institution or any hospital or other medical institution, such sum shall not be allowed as application in any subsequent previous year;

(23D) any income of—

(i) a Mutual Fund registered under the Securities and Exchange Board of India Act, 1992 (15 of 1992) or regulations made thereunder;

(ii) such other Mutual Fund set up by a public sector bank or a public financial institution or authorised by the Reserve Bank of India and subject to such conditions as the Central Government may, by notification in the Official Gazette, specify in this behalf. Explanation.—For the purposes of this clause,—

(a) the expression “public sector bank” means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new Bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980) and a bank included in the category “other public sector banks” by the Reserve Bank of India;

(b) the expression “public financial institution” shall have the meaning assigned to it in section 4A of the Companies Act, 1956 (1 of 1956);

(c) the expression “Securities and Exchange Board of India” shall have the meaning assigned to it in clause (a) of sub-section (1) of section 2 of the Securities and Exchange Board of India Act, 1992 (15 of 1992);

(23DA) any income of a securitisation trust from the activity of securitisation.

Explanation.—For the purposes of this clause,—

(a) “securitisation” shall have the same meaning as assigned to it,—

(i) in clause (r) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Public Offer and Listing of Securitised Debt Instruments) Regulations, 2008 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992) and the Securities Contracts (Regulation) Act, 1956 (42 of 1956); or

(ia) in clause (z) of sub-section (1) of section 2 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002); or

(ii) under the guidelines on securitisation of standard assets issued by the Reserve Bank of India;

(b) “securitisation trust” shall have the meaning assigned to it in the Explanation below section 115TCA;

(23E) [Omitted by the Finance Act, 2002, w.e.f. 1-4-2003;]

(23EA) any income, by way of contributions received from recognised stock exchanges and the members thereof, of such Investor Protection Fund set up by recognised stock exchanges in India, either jointly or separately, as the Central Government may, by notification in the Official Gazette, specify in this behalf:

Provided that where any amount standing to the credit of the Fund and not charged to income-tax during any previous year is shared, either wholly or in part, with a recognised stock exchange, the whole of the amount so shared shall be deemed to be the income of the previous year in which such amount is so shared and shall accordingly be chargeable to income-tax;

(23EB) [***]

(23EC) any income, by way of contributions received from commodity exchanges and the members thereof, of such Investor Protection Fund set up by commodity exchanges in India, either jointly or separately, as the Central Government may, by notification in the Official Gazette, specify in this behalf:

Provided that where any amount standing to the credit of the said Fund and not charged to income-tax during any previous year is shared, either wholly or in part, with a commodity exchange, the whole of the amount so shared shall be deemed to be the income of the previous year in which such amount is so shared and shall accordingly be chargeable to income-tax.

Explanation.—For the purposes of this clause, “commodity exchange” shall mean a “registered association” as defined in clause (jj) of section 2 of the Forward Contracts (Regulation) Act, 1952 (74 of 1952);

(23ED) any income, by way of contributions received from a depository, of such Investor Protection Fund set up in accordance with the regulations by a depository as the Central Government may, by notification in the Official Gazette, specify in this behalf:

Provided that where any amount standing to the credit of the Fund and not charged to income-tax during any previous year is shared, either wholly or in part with a depository, the whole of the amount so shared shall be deemed to be the income of the previous year in which such amount is so shared and shall, accordingly, be chargeable to income-tax.

Explanation.—For the purposes of this clause,—

(i) “depository” shall have the same meaning as assigned to it in clause (e) of sub-section (1) of section 2 of the Depositories Act, 1996 (22 of 1996);

(ii) “regulations” means the regulations made under the Securities and Exchange Board of India Act, 1992 (15 of 1992) and the Depositories Act, 1996 (22 of 1996);

(23EE) any specified income of such Core Settlement Guarantee Fund, set up by a recognised clearing corporation in accordance with the regulations, as the Central Government may, by notification in the Official Gazette, specify in this behalf:

Provided that where any amount standing to the credit of the Fund and not charged to income-tax during any previous year is shared, either wholly or in part with the specified person, the whole of the amount so shared shall be deemed to be the income of the previous year in which such amount is so shared and shall, accordingly, be chargeable to income-tax.

Explanation.—For the purposes of this clause,—

(i) “recognised clearing corporation” shall have the same meaning as assigned to it in clause (o) of sub-regulation (1) of regulation 2 of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992) and the Securities Contracts (Regulation) Act, 1956 (42 of 1956) [or 53-54 clause (n) of sub-regulation (1) of regulation 2 of the International Financial Services Centres Authority (Market Infrastructure Institutions) Regulations, 2021 made under the International Financial Services Centres Authority Act, 2019 (50 of 2019)];

(ii) “regulations” means the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992) and the Securities Contracts (Regulation) Act, 1956 (42 of 1956) [or the International Financial Services Centres Authority (Market Infrastructure Institutions) Regulations, 2021 53-54 made under the International Financial Services Centres Authority Act, 2019 (50 of 2019)];

(iii) “specified income” shall mean,—

(a) the income by way of contribution received from specified persons;

(b) the income by way of penalties imposed by the recognised clearing corporation and credited to the Core Settlement Guarantee Fund; or

(c) the income from investment made by the Fund;

(iv) “specified person” shall mean,—

(a) any recognised clearing corporation which establishes and maintains the Core Settlement Guarantee Fund;

(b) any recognised stock exchange, being a shareholder in such recognised clearing corporation, or a contributor to the Core Settlement Guarantee Fund; and

(c) any clearing member contributing to the Core Settlement Guarantee Fund;

(23F) any income by way of dividends or long-term capital gains of a venture capital fund or a venture capital company from investments made by way of equity shares in a venture capital undertaking :

Provided that such venture capital fund or venture capital company is approved for the purposes of this clause by the prescribed authority in accordance with the rules made in this behalf and satisfies the prescribed conditions :

Provided further that any approval by the prescribed authority shall, at any one time, have effect for such assessment year or years, not exceeding three assessment years, as may be specified in the order of approval :

Provided also that nothing contained in this clause shall apply in respect of any investment made after the 31st day of March, 1999. Explanation.—For the purposes of this clause,—

(a) “venture capital fund” means such fund, operating under a trust deed registered under the provisions of the Registration Act, 1908 (16 of 1908), established to raise monies by the trustees for investments mainly by way of acquiring equity shares of a venture capital undertaking in accordance with the prescribed guidelines;

(b) “venture capital company” means such company as has made investments by way of acquiring equity shares of venture capital undertakings in accordance with the prescribed guidelines;

(c) “venture capital undertaking” means such domestic company whose shares are not listed in a recognised stock exchange in India and which is engaged in the business of generation or generation and distribution of electricity or any other form of power or engaged in the business of providing telecommunication services or in the business of developing, maintaining and operating any infrastructure facility or engaged in the manufacture or production of such articles or things (including computer software) as may be notified by the Central Government in this behalf; and

(d) “infrastructure facility” means a road, highway, bridge, airport, port, rail system, a water supply project, irrigation project, sanitation and sewerage system or any other public facility of a similar nature as may be notified by the Board in this behalf in the Official Gazette and which fulfils the conditions specified in sub-section (4A) of section 80-IA;

(23FA) any income by way of dividends, other than dividends referred to in section 115-O, or long-term capital gains of a venture capital fund or a venture capital company from investments made by way of equity shares in a venture capital undertaking :

Provided that such venture capital fund or venture capital company is approved, for the purposes of this clause, by the Central Government on an application made to it in accordance with the rules made in this behalf and which satisfies the prescribed conditions :

Provided further that any approval by the Central Government shall, at any one time, have effect for such assessment year or years, not exceeding three assessment years, as may be specified in the order of approval :

Provided also that nothing contained in this clause shall apply in respect of any investment made after the 31st day of March, 2000. Explanation.—For the purposes of this clause,—

(a) “venture capital fund” means such fund, operating under a trust deed registered under the provisions of the Registration Act, 1908 (16 of 1908), established to raise monies by the trustees for investments mainly by way of acquiring equity shares of a venture capital undertaking in accordance with the prescribed guidelines;

(b) “venture capital company” means such company as has made investments by way of acquiring equity shares of venture capital undertakings in accordance with the prescribed guidelines; and

(c) “venture capital undertaking” means such domestic company whose shares are not listed in a recognised stock exchange in India and which is engaged in the—

(i) business of—

(A) software;

(B) information technology;

(C) production of basic drugs in the pharmaceutical sector;

(D) bio-technology;

(E) agriculture and allied sectors; or

(F) such other sectors as may be notified by the Central Government in this behalf; or

(ii) production or manufacture of any article or substance for which patent has been granted to the National Research Laboratory or any other scientific research institution approved by the Department of Science and Technology;

(23FB) any income of a venture capital company or venture capital fund from investment in a venture capital undertaking :

Provided that nothing contained in this clause shall apply in respect of any income of a venture capital company or venture capital fund, being an investment fund specified in clause (a) of the Explanation 1 to section 115UB, of the previous year relevant to the assessment year beginning on or after the 1st day of April, 2016.

Explanation.—For the purposes of this clause,—

(a) “venture capital company” means a company which—

(A) has been granted a certificate of registration, before the 21st day of May, 2012, as a Venture Capital Fund and is regulated under the Securities and Exchange Board of India (Venture Capital Funds) Regulations, 1996 (hereinafter referred to as the Venture Capital Funds Regulations) made under the Securities and Exchange Board of India Act, 1992 (15 of 1992); or

(B) has been granted a certificate of registration as Venture Capital Fund as a sub-category of Category I Alternative Investment Fund and is regulated under the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 (hereinafter referred to as the Alternative Investment Funds Regulations) made under the Securities and Exchange Board of India Act, 1992 (15 of 1992), and which fulfils the following conditions, namely:—

(i) it is not listed on a recognised stock exchange;

(ii) it has invested not less than two-thirds of its investible funds in unlisted equity shares or equity linked instruments of venture capital undertaking; and

(iii) it has not invested in any venture capital undertaking in which its director or a substantial shareholder (being a beneficial owner of equity shares exceeding ten per cent of its equity share capital) holds, either individually or collectively, equity shares in excess of fifteen per cent of the paid-up equity share capital of such venture capital undertaking;

(b) “venture capital fund” means a fund—

(A) operating under a trust deed registered under the provisions of the Registration Act, 1908 (16 of 1908), which—

(I) has been granted a certificate of registration, before the 21st day of May, 2012, as a Venture Capital Fund and is regulated under the Venture Capital Funds Regulations; or

(II) has been granted a certificate of registration as Venture Capital Fund as a sub-category of Category I Alternative Investment Fund under the Alternative Investment Funds Regulations [or as referred to in sub-regulation (2) of 55 regulation 18 of the International Financial Services Centres Authority (Fund Management) Regulations, 2022 made under the International Financial Services Centres Authority Act, 2019 (50 of 2019),] and which fulfils the follow-ing conditions, namely:—

(i) it has invested not less than two-thirds of its investible funds in unlisted equity shares or equity linked instruments of venture capital undertaking;

(ii) it has not invested in any venture capital undertaking in which its trustee or the settler holds, either individually or collectively, equity shares in excess of fifteen per cent of the paid-up equity share capital of such venture capital undertaking; [***]

(iii) the units, if any, issued by it are not listed in any recognised stock exchange; [and] 57 58[(iv) any other condition as may be prescribed; or]

(B) operating as a venture capital scheme made by the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963);

(c) “venture capital undertaking” means—

(i) a venture capital undertaking as defined in clause (n) of regulation 2 of the Venture Capital Funds Regulations; or

(ii) a venture capital undertaking as defined in clause (aa) of sub-regulation (1) of regulation 2 of the Alternative Investment Funds Regulations;

(23FBA) any income of an investment fund other than the income chargeable under the head “Profits and gains of business or profession”;

(23FBB) any income referred to in section 115UB, accruing or arising to, or received by, a unit holder of an investment fund, being that proportion of income which is of the same nature as income chargeable under the head “Profits and gains of business or profession”. Explanation.—For the purposes of clauses (23FBA) and (23FBB), the expression “investment fund” shall have the meaning assigned to it in clause (a) of the Explanation 1 to section 115UB;

(23FBC) any income accruing or arising to, or received by, a unit holder from a specified fund or on transfer of units in a specified fund.

Explanation.—For the purposes of this clause, the expressions—

(a) “specified fund” shall have the same meaning as assigned to it in clause (c) of the Explanation to clause (4D);

(b) “unit” means beneficial interest of an investor in the fund and shall include shares or partnership interests; (23FC) any income of a business trust by way of—

(a) interest received or receivable from a special purpose vehicle; or

(b) dividend received or receivable from a special purpose vehicle.

Explanation.—For the purposes of this clause, the expression “special purpose vehicle” means an Indian company in which the business trust holds controlling interest and any specific percentage of shareholding or interest, as may be required by the regulations under which such trust is granted registration;

(23FCA) any income of a business trust, being a real estate investment trust, by way of renting or leasing or letting out any real estate asset owned directly by such business trust.

Explanation.—For the purposes of this clause, the expression “real estate asset” shall have the same meaning as assigned to it in clause (zj) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Real Estate Investment Trusts) Regulations, 2014 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992);

(23FD) any distributed income, referred to in section 115UA, received by a unit holder from the business trust, not being that proportion of the income which is of the same nature as the income referred to in sub-clause (a) of clause (23FC) or sub-clause (b) of said clause (in a case where the special purpose vehicle has exercised the option under section 115BAA) or clause (23FCA);

(23FE) any income of a specified person in the nature of dividend, interest [, any sum referred to in clause (xii) of sub-section (2) of section 56] or long-term capital gains [(whether or not such capital gains are deemed as short-term capital gains under section 50AA)] arising from 60 an investment made by it in India, whether in the form of debt or share capital or unit, if the investment—

(i) is made on or after the 1st day of April, 2020 but on or before the 31st day of March, [2030]; 61

(ii) is held for at least three years; and

(iii) is in—

(a) a business trust referred to in sub-clause (i) of clause (13A) of section 2; or

(b) a company or enterprise or an entity carrying on the business of developing, or operating and maintaining, or developing, operating and maintaining any infrastructure facility as defined in the Explanation to clause (i) of sub-section (4) of section 80-IA or such other business as the Central Government may, by notification in the Official Gazette, specify in this behalf; or

(c) a Category-I or Category-II Alternative Investment Fund regulated under the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012, made under the Securities and Exchange Board of India Act, 1992 (15 of 1992), having not less than fifty per cent investment in one or more of the company or enterprise or entity referred to in item (b) or item (d) or item (e) or in an Infrastructure Investment Trust referred to in sub-clause (i) of clause (13A) of section 2; or

(d) a domestic company, set up and registered on or after the 1st day of April, 2021, having minimum seventy-five per cent investments in one or more of the companies or enterprises or entities referred to in item (b); or

(e) a non-banking financial company registered as an Infrastructure Finance Company as referred to in notification number RBI/2009-10/316 issued by the Reserve Bank of India or in an Infrastructure Debt Fund, a non-banking finance company, as referred to in the Infrastructure Debt Fund – Non-Banking Financial Companies (Reserve Bank) Directions, 2011, issued by the Reserve Bank of India, having minimum ninety per cent lending to one or more of the companies or enterprises or entities referred to in item (b):

Provided that if any difficulty arises regarding interpretation or implementation of the provisions of this clause, the Board may, with the approval of the Central Government, issue guidelines for the purpose of removing the difficulty:

Provided further that every guideline issued under the first proviso, shall be laid before each House of Parliament and shall be binding on the income-tax authority and the specified person:

Provided also that where any income has not been included in the total income of the specified person due to the provisions of this clause, and subsequently during any previous year the specified person fails to satisfy any of the conditions of this clause so that the said income would not have been eligible for such non-inclusion, such income shall be chargeable to income-tax as the income of the specified person of that previous year:

Provided also that in case a Category-I or Category-II Alternative Investment Fund referred to in item (c) of sub-clause (iii) has investment of less than one hundred per cent in one or more of the companies or enterprises or entities referred to in item (b) or item (d) or item (e) of the said sub-clause or in an Infrastructure Investment Trust referred to in item (c) of the said sub-clause, income accrued or arisen or received or attributable to such investment, directly or indirectly, which is exempt under this clause shall be calculated proportionately to that investment made in one or more of the companies or enterprises or entities referred to in item (b) or item (d) or item (e) of the said sub-clause or in the Infrastructure Investment Trust referred to in item (c) of the said sub-clause, in such manner as may be prescribed:

Provided also that in case a domestic company referred to in item (d) of sub-clause (iii) has investment of less than one hundred per cent in one or more of the companies or enterprises or entities referred to in item (b) of the said sub-clause, income accrued or arisen or received or attributable to such investments, directly or indirectly, which is exempt under this clause shall be calculated proportionately to the investment made in one or more of the companies or enterprises or entities referred to in item (b) of the said sub-clause, in such manner as may be prescribed:

Provided also that in case a non-banking finance company registered as an Infrastructure Finance Company or Infrastructure Debt Fund, referred to in item (e) of sub-clause (iii), has lending of less than one hundred per cent in one or more of the companies or enterprises or entities referred to in item (b) of the said sub-clause, income accrued or arisen or received or attributable to such lending, directly or indirectly, which is exempt under this clause shall be calculated proportionately to the lending made in one or more of the companies or enterprises or entities referred to in item (b) of the said sub-clause, in such manner as may be prescribed:

Provided also that in case a sovereign wealth fund or pension fund has loans or borrowings, directly or indirectly, for the purposes of making investment in India, such fund shall be deemed to be not eligible for exemption under this clause.

Explanation 1.—For the purposes of this clause, “specified person” means—

(a) a wholly owned subsidiary of the Abu Dhabi Investment Authority which—

(i) is a resident of the United Arab Emirates; and

(ii) makes investment, directly or indirectly, out of the fund owned by the Government of the Abu Dhabi;

(b) a sovereign wealth fund which satisfies the following conditions, namely:—

(i) it is wholly owned and controlled, directly or indirectly, by the Government of a foreign country;

(ii) it is set up and regulated under the law of such foreign country;

(iii) the earnings of the said fund are credited either to the account of the Government of that foreign country or to any other account designated by that Government so that no portion of the earnings inures any benefit to any private person;

(iv) the asset of the said fund vests in the Government of such foreign country upon dissolution:

Provided that the provisions of sub-clauses (iii) and (iv) shall not apply to any payment made to creditors or depositors for loan taken or borrowing for the purposes other than for making investment in India;

(v) it does not participate in the day to day operations of investee but the monitoring mechanism to protect the investment with the investee including the right to appoint directors or executive director shall not be considered as participation in the day to day operations of the investee; and

(vi) it is specified by the Central Government, by notification in the Official Gazette, for this purpose and fulfils conditions specified in such notification;

(c) a pension fund, which—

(i) is created or established under the law of a foreign country including the laws made by any of its political constituents being a province, State or local body, by whatever name called;

(ii) is not liable to tax in such foreign country or if liable to tax, exemption from taxation for all its income has been provided by such foreign country;

(iii) satisfies such other conditions as may be prescribed;

(iiia) it does not participate in the day to day operations of investee but the monitoring mechanism to protect the investment with the investee including the right to appoint directors or executive director shall not be considered as participation in day to day operations of the investee; and

(iv) is specified by the Central Government, by notification in the Official Gazette, for this purpose and fulfils conditions specified in such notification.

33a[(d) (i) the Public Investment Fund of the Government of the Kingdom of Saudi Arabia; and

(ii) a wholly owned subsidiary of the Public Investment Fund of the Government of the Kingdom of Saudi Arabia, which—

(A) is a resident of Saudi Arabia; and

(B) makes investment, directly or indirectly, out of the fund owned by the said Government.] Explanation 2.— For the purposes of this clause,—

(i) “investee” means a business trust, or a company, or an enterprise, or an entity, or a Category I or Category II Alternative Investment Fund, or an Infrastructure Investment Trust or a domestic company, or an Infrastructure Finance Company or an Infrastructure Debt Fund referred to in item (e) of sub-clause (iii), in which the sovereign wealth fund or the pension fund, as the case may be, has made the investment, directly or indirectly, under the provisions of this clause;

(ii) “loan and borrowing” means—

(a) any loan taken or borrowing by a sovereign wealth fund from, or any deposit or investment made in a sovereign wealth fund by, any person other than the Government of the country in which the sovereign wealth fund is set up;

(b) any loan taken or borrowing by a pension fund from or any deposit or investment made in a pension fund by, any person but shall not include the deposit or investment which represents statutory obligations and defined contributions of one or more funds or plans established for providing retirement, social security, employment, disability, death benefits or any similar compensation to the participants or beneficiaries of such funds or plans, as the case may be.

Explanation 3.—For the purposes of this clause, the Central Government may prescribe that the method of calculation of “fifty per cent” referred to in item (c) or “seventy-five per cent” referred to in item (d) or “ninety per cent” referred to in item (e), of sub-clause (iii) shall be such as may be prescribed;

(23FF) any income of the nature of capital gains, arising or received by a non-resident or a specified fund, which is on account of transfer of share of a company resident in India, by the resultant fund or a specified fund to the extent attributable to units held by non-resident (not being a permanent establishment of a non-resident in India) in such manner as may be prescribed, and such shares were transferred from the original fund, or from its wholly owned special purpose vehicle, to the resultant fund in relocation, and where capital gains on such shares were not chargeable to tax if that relocation had not taken place.

Explanation.—For the purposes of this clause,—

(a) the expressions “original fund”, “relocation” and “resultant fund” shall have the meanings respectively assigned to them in the Explanation to clause (viiac) and clause (viiad) of section 47;

(b) the expression “specified fund” shall have the meaning assigned to it in clause (c) of the Explanation to clause (4D) of section 10; (23G) [Omitted by the Finance Act, 2006, w.e.f. 1-4-2007;]

(24) any income chargeable under the heads “Income from house property” and “Income from other sources” of—

(a) a registered union within the meaning of the Trade Unions Act, 1926 (16 of 1926), formed primarily for the purpose of regulating the relations between workmen and employers or between workmen and workmen;

(b) an association of registered unions referred to in sub-clause (a);

(25) (i) interest on securities which are held by, or are the property of, any provident fund to which the Provident Funds Act, 1925 (19 of 1925), applies, and any capital gains of the fund arising from the sale, exchange or transfer of such securities;

(ii) any income received by the trustees on behalf of a recognised provident fund;

(iii) any income received by the trustees on behalf of an approved superannuation fund;

(iv) any income received by the trustees on behalf of an approved gratuity fund;

(v) any income received—

(a) by the Board of Trustees constituted under the Coal Mines Provident Funds and Miscellaneous Provisions Act, 1948 (46 of 1948), on behalf of the Deposit-linked Insurance Fund established under section 3G of that Act; or

(b) by the Board of Trustees constituted under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952), on behalf of the Deposit-linked Insurance Fund established under section 6C of that Act;

(25A) any income of the Employees’ State Insurance Fund set up under the provisions of the Employees’ State Insurance Act, 1948 (34 of 1948);

(26) in the case of a member of a Scheduled Tribe as defined in clause (25) of article 366 of the Constitution, residing in any area specified in Part I or Part II of the Table appended to paragraph 20 of the Sixth Schedule to the Constitution or in the States of Arunachal Pradesh, Manipur, Mizoram, Nagaland and Tripura or in the areas covered by notification No. TAD/R/35/50/109, dated the 23rd February, 1951, issued by the Governor of Assam under the proviso to sub-paragraph (3) of the said paragraph 20 [as it stood immediately before the commencement of the North-Eastern Areas (Reorganisation) Act, 1971 (81 of 1971)] or in the Ladakh region of the State of Jammu and Kashmir, any income which accrues or arises to him,—

(a) from any source in the areas or States aforesaid, or

(b) by way of dividend or interest on securities;

(26A) [***]

(26AA) [***]

63[(26AAA) in case of an individual, being a Sikkimese, any income which accrues or arises to him—

(a) from any source in the State of Sikkim; or

(b) by way of dividend or interest on securities.

Explanation.—For the purposes of this clause “Sikkimese” shall mean—

(i) an individual, whose name is recorded in the register maintained under the Sikkim Subjects Regulation, 1961 read with the Sikkim Subject Rules, 1961 (hereinafter referred to as the “Register of Sikkim Subjects”), immediately before the 26th day of April, 1975; or

(ii) an individual, whose name is included in the Register of Sikkim Subjects by virtue of the Government of India Order No. 26030/36/90-I.C.I., dated the 7th August, 1990 and Order of even number dated the 8th April, 1991; or

(iii) any other individual, whose name does not appear in the Register of Sikkim Subjects, but it is established beyond doubt that the name of such individual’s father or husband or paternal grand-father or brother from the same father has been recorded in that register; or

(iv) any other individual, whose name does not appear in the Register of Sikkim Subjects but it is established that such individual was domiciled in Sikkim on or before the 26th day of April, 1975; or

(v) any other individual, who was not domiciled in Sikkim on or before the 26th day of April, 1975, but it is established beyond doubt that such individual’s father or husband or paternal grand-father or brother from the same father was domiciled in Sikkim on or before the 26th day of April, 1975;]

(26AAB) any income of an agricultural produce market committee or board constituted under any law for the time being in force for the purpose of regulating the marketing of agricultural produce;

(26B) any income of a corporation established by a Central, State or Provincial Act or of any other body, institution or association (being a body, institution or association wholly financed by Government) where such corporation or other body or institution or association has been established or formed for promoting the interests of the members of the Scheduled Castes or the Scheduled Tribes or backward classes or of any two or all of them.

Explanation.—For the purposes of this clause,—

(a) “Scheduled Castes” and “Scheduled Tribes” shall have the meanings respectively assigned to them in clauses (24) and (25) of article 366 of the Constitution;

(b) “backward classes” means such classes of citizens, other than the Scheduled Castes and the Scheduled Tribes, as may be notified—

(i) by the Central Government; or

(ii) by any State Government, as the case may be, from time to time;

(26BB) any income of a corporation established by the Central Government of a minority community.

Explanation.—For the purposes of this clause, “minority community” means a community notified as such by the Central Government in the Official Gazette in this behalf;

(26BBB) any income of a corporation established by a Central, State or Provincial Act for the welfare and economic upliftment of ex-servicemen being the citizens of India.

Explanation.—For the purposes of this clause, “ex-serviceman” means a person who has served in any rank, whether as combatant or non­combatant, in the armed forces of the Union or armed forces of the Indian States before the commencement of the Constitution (but excluding the Assam Rifles, Defence Security Corps, General Reserve Engineering Force, Lok Sahayak Sena, Jammu and Kashmir Militia and Territorial Army) for a continuous period of not less than six months after attestation and has been released, otherwise than by way of dismissal or discharge on account of misconduct or inefficiency, and in the case of a deceased or incapacitated ex-serviceman includes his wife, children, father, mother, minor brother, widowed daughter and widowed sister, wholly dependant upon such ex-serviceman immediately before his death or incapacitation;

(27) any income of a co-operative society formed for promoting the interests of the members of either the Scheduled Castes or Scheduled Tribes or both referred to in clause (26B):

Provided that the membership of the co-operative society consists of only other co-operative societies formed for similar purposes and the finances of the society are provided by the Government and such other societies;

(28) [***]

(29) [Omitted by the Finance Act, 2002, w.e.f. 1-4-2003;]

(29A) any income accruing or arising to—

(a) the Coffee Board constituted under section 4 of the Coffee Act, 1942 (7 of 1942) in any previous year relevant to any assessment year commencing on or after the 1st day of April, 1962 or the previous year in which such Board was constituted, whichever is later;

(b) the Rubber Board constituted under sub-section (1) of section 4 of the Rubber Board Act, 1947 (24 of 1947) in any previous year relevant to any assessment year commencing on or after the 1st day of April, 1962 or the previous year in which such Board was constituted, whichever is later;

(c) the Tea Board established under section 4 of the Tea Act, 1953 (29 of 1953) in any previous year relevant to any assessment year commencing on or after the 1st day of April, 1962 or the previous year in which such Board was constituted, whichever is later;

(d) the Tobacco Board constituted under the Tobacco Board Act, 1975 (4 of 1975) in any previous year relevant to any assessment year commencing on or after the 1st day of April, 1975 or the previous year in which such Board was constituted, whichever is later;

(e) the Marine Products Export Development Authority established under section 4 of the Marine Products Export Development Authority Act, 1972 (13 of 1972) in any previous year relevant to any assessment year commencing on or after the 1st day of April, 1972 or the previous year in which such Authority was constituted, whichever is later;

(f) the Agricultural and Processed Food Products Export Development Authority established under section 4 of the Agricultural and Processed Food Products Export Development Act, 1985 (2 of 1986) in any previous year relevant to any assessment year commencing on or after the 1st day of April, 1985 or the previous year in which such Authority was constituted, whichever is later;

(g) the Spices Board constituted under sub-section (1) of section 3 of the Spices Board Act, 1986 (10 of 1986) in any previous year relevant to any assessment year commencing on or after the 1st day of April, 1986 or the previous year in which such Board was constituted, whichever is later;

(h) the Coir Board established under section 4 of the Coir Industry Act, 1953 (45 of 1953);

(30) in the case of an assessee who carries on the business of growing and manufacturing tea in India, the amount of any subsidy received from or through the Tea Board under any such scheme for replantation or replacement of tea bushes or for rejuvenation or consolidation of areas used for cultivation of tea as the Central Government may, by notification in the Official Gazette, specify:

Provided that the assessee furnishes to the Assessing Officer, along with his return of income for the assessment year concerned or within such further time as the Assessing Officer may allow, a certificate from the Tea Board as to the amount of such subsidy paid to the assessee during the previous year.

Explanation.—In this clause, “Tea Board” means the Tea Board established under section 4 of the Tea Act, 1953 (29 of 1953);

(31) in the case of an assessee who carries on the business of growing and manufacturing rubber, coffee, cardamom or such other commodity in India, as the Central Government may, by notification in the Official Gazette, specify in this behalf, the amount of any subsidy received from or through the concerned Board under any such scheme for replantation or replacement of rubber plants, coffee plants, cardamom plants or plants for the growing of such other commodity or for rejuvenation or consolidation of areas used for cultivation of rubber, coffee, cardamom or such other commodity as the Central Government may, by notification in the Official Gazette, specify:

Provided that the assessee furnishes to the Assessing Officer, along with his return of income for the assessment year concerned or within such further time as the Assessing Officer may allow, a certificate from the concerned Board, as to the amount of such subsidy paid to the assessee during the previous year.

Explanation.—In this clause, “concerned Board” means,—

(i) in relation to rubber, the Rubber Board constituted under section 4 of the Rubber Act, 1947 (24 of 1947),

(ii) in relation to coffee, the Coffee Board constituted under section 4 of the Coffee Act, 1942 (7 of 1942),

(iii) in relation to cardamom, the Spices Board constituted under section 3 of the Spices Board Act, 1986 (10 of 1986),

(iv) in relation to any other commodity specified under this clause, any Board or other authority established under any law for the time being in force which the Central Government may, by notification in the Official Gazette, specify in this behalf;

(32) in the case of an assessee referred to in sub-section (1A) of section 64, any income includible in his total income under that sub-section, to the extent such income does not exceed one thousand five hundred rupees in respect of each minor child whose income is so includible;

(33) any income arising from the transfer of a capital asset, being a unit of the Unit Scheme, 1964 referred to in Schedule I to the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002) and where the transfer of such asset takes place on or after the 1st day of April, 2002;

(34) any income by way of dividends referred to in section 115-O :

Provided that nothing in this clause shall apply to any income by way of dividend chargeable to tax in accordance with the provisions of section 115BBDA:

Provided further that nothing contained in this clause shall apply to any income by way of dividend received on or after the 1st day of April, 2020 other than the dividend on which tax under section 115-O and section 115BBDA, wherever applicable, has been paid;

(34A) any income arising to an assessee, being a shareholder, on account of buy back of shares by the company as referred to in section 115QA: 64[Provided that this clause shall not apply with respect to any buy back of shares by a company on or after the 1st day of October, 2024;] 65[(34B) any income of a Unit of any International Financial Services Centre, primarily engaged in the business of leasing of an aircraft [or a ship], by way of dividends from a company being a Unit of any International Financial Services Centre primarily engaged in the business of leasing of an aircraft [or a ship].

(ii) such land, during the period of two years immediately preceding the date of transfer, was being used for agricultural purposes by such Hindu undivided family or individual or a parent of his;

(iii) such transfer is by way of compulsory acquisition under any law, or a transfer the consideration for which is determined or approved by the Central Government or the Reserve Bank of India;

(iv) such income has arisen from the compensation or consideration for such transfer received by such assessee on or after the 1st day of April, 2004.

Explanation.—For the purposes of this clause, the expression “compensation or consideration” includes the compensation or consideration enhanced or further enhanced by any court, Tribunal or other authority;

(37A) any income chargeable under the head “Capital gains” in respect of transfer of a specified capital asset arising to an assessee, being an individual or a Hindu undivided family, who was the owner of such specified capital asset as on the 2nd day of June, 2014 and transfers that specified capital asset under the Land Pooling Scheme (herein referred to as “the scheme”) covered under the Andhra Pradesh Capital City Land Pooling Scheme (Formulation and Implementation) Rules, 2015 made under the provisions of the Andhra Pradesh Capital Region Development Authority Act, 2014 (Andhra Pradesh Act 11 of 2014) and the rules, regulations and Schemes made under the said Act. Explanation.—For the purposes of this clause, “specified capital asset” means,—

(a) the land or building or both owned by the assessee as on the 2nd day of June, 2014 and which has been transferred under the scheme; or

(b) the land pooling ownership certificate issued under the scheme to the assessee in respect of land or building or both referred to in clause (a); or

(c) the reconstituted plot or land, as the case may be, received by the assessee in lieu of land or building or both referred to in clause (a) in accordance with the scheme, if such plot or land, as the case may be, so received is transferred within two years from the end of the financial year in which the possession of such plot or land was handed over to him;

(38) any income arising from the transfer of a long-term capital asset, being an equity share in a company or a unit of an equity oriented fund or a unit of a business trust where—

(a) the transaction of sale of such equity share or unit is entered into on or after the date on which Chapter VII of the Finance (No. 2) Act, 2004 comes into force; and

(b) such transaction is chargeable to securities transaction tax under that Chapter :

Provided that the income by way of long-term capital gain of a company shall be taken into account in computing the book profit and income-tax payable under section 115JB :

Provided also that nothing contained in sub-clause (b) shall apply to a transaction undertaken on a recognised stock exchange located in any International Financial Services Centre and where the consideration for such transaction is paid or payable in foreign currency: Provided also that nothing contained in this clause shall apply to any income arising from the transfer of a long-term capital asset, being an equity share in a company, if the transaction of acquisition, other than the acquisition notified by the Central Government in this behalf, of such equity share is entered into on or after the 1st day of October, 2004 and such transaction is not chargeable to securities transaction tax under Chapter VII of the Finance (No. 2) Act, 2004 (23 of 2004):

Provided also that nothing contained in this clause shall apply to any income arising from the transfer of long-term capital asset, being an equity share in a company or a unit of an equity oriented fund or a unit of a business trust, made on or after the 1st day of April, 2018. Explanation.—For the purposes of this clause,—

(a) “equity oriented fund” means a fund—

(i) where the investible funds are invested by way of equity shares in domestic companies to the extent of more than sixty-five per cent of the total proceeds of such fund; and

(ii) which has been set up under a scheme of a Mutual Fund specified under clause (23D):

Provided that the percentage of equity shareholding of the fund shall be computed with reference to the annual average of the monthly averages of the opening and closing figures;

(b) “International Financial Services Centre” shall have the same meaning as assigned to it in clause (q) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005);

(c) “recognised stock exchange” shall have the meaning assigned to it in clause (ii) of the Explanation 1 to sub-section (5) of section 43;

(39) any specified income, arising from any international sporting event held in India, to the person or persons notified by the Central Government in the Official Gazette, if such international sporting event—

(a) is approved by the international body regulating the international sport relating to such event;

(b) has participation by more than two countries;

(c) is notified by the Central Government in the Official Gazette for the purposes of this clause.

Explanation.—For the purposes of this clause, “the specified income” means the income, of the nature and to the extent, arising from the international sporting event, which the Central Government may notify in this behalf;

(40) any income of any subsidiary company by way of grant or otherwise received from an Indian company, being its holding company engaged in the business of generation or transmission or distribution of power if receipt of such income is for settlement of dues in connection with reconstruction or revival of an existing business of power generation:

Provided that the provisions of this clause shall apply if reconstruction or revival of any existing business of power generation is by way of transfer of such business to the Indian company notified under sub-clause (a) of clause (v) of sub-section (4) of section 80-IA;

(41) [***]

(42) any specified income arising to a body or authority which—

(a) has been established or constituted or appointed under a treaty or an agreement entered into by the Central Government with two or more countries or a convention signed by the Central Government;

(b) is established or constituted or appointed not for the purposes of profit;

(c) is notified by the Central Government in the Official Gazette for the purposes of this clause.

Explanation.—For the purposes of this clause, “specified income” means the income, of the nature and to the extent, arising to the body or authority referred to in this clause, which the Central Government may notify in this behalf;

(43) any amount received by an individual as a loan, either in lump sum or in instalment, in a transaction of reverse mortgage referred to in clause (xvi) of section 47;

(44) any income received by any person for, or on behalf of, the New Pension System Trust established on the 27th day of February, 2008 under the provisions of the Indian Trusts Act, 1882 (2 of 1882);

(45) [***]

(46) any specified income arising to a body or authority or Board or Trust or Commission (by whatever name called) [other than those covered under clause (46A)] , or a class thereof which—

(a) has been established or constituted by or under a Central, State or Provincial Act, or constituted by the Central Government or a State Government, with the object of regulating or administering any activity for the benefit of the general public;

(b) is not engaged in any commercial activity; and

(c) is notified by the Central Government in the Official Gazette for the purposes of this clause.

Explanation.—For the purposes of this clause, “specified income” means the income, of the nature and to the extent arising to a body or authority or Board or Trust or Commission (by whatever name called) [other than those covered under clause (46A)], or a class thereof referred to in this clause, which the Central Government may, by notification in the Official Gazette, specify in this behalf; [(46A) any income arising to a body or authority or Board or Trust or Commission, not being a company, which—

(a) has been established or constituted by or under a Central Act or State Act with one or more of the following purposes, namely:–

(i) dealing with and satisfying the need for housing accommodation;

(ii) planning, development or improvement of cities, towns and villages;

(iii) regulating, or regulating and developing, any activity for the benefit of the general public; or

(iv) regulating any matter, for the benefit of the general public, arising out of the object for which it has been created; and

(b) is notified by the Central Government in the Official Gazette for the purposes of this clause;
(46B) any income accruing or arising to,—

(i) National Credit Guarantee Trustee Company Limited, being a company established and wholly financed by the Central Government for the purposes of operating credit guarantee funds established and wholly financed by the Central Government; or

(ii) a credit guarantee fund established and wholly financed by the Central Government and managed by the National Credit Guarantee Trustee Company Limited; or

(iii) Credit Guarantee Fund Trust for Micro and Small Enterprises, being a trust created by the Government of India and the Small Industries Development Bank of India established under sub-section (1) of section 3 of the Small Industries Development Bank of India Act, 1989 (39 of 1989);]

(47) any income of an infrastructure debt fund, set up in accordance with the guidelines as may be prescribed, which is notified by the Central Government in the Official Gazette for the purposes of this clause;

(48) any income received in India in Indian currency by a foreign company on account of sale of crude oil, any other goods or rendering of services, as may be notified by the Central Government in this behalf, to any person in India:

Provided that—

(i) receipt of such income in India by the foreign company is pursuant to an agreement or an arrangement entered into by the Central Government or approved by the Central Government;

(ii) having regard to the national interest, the foreign company and the agreement or arrangement are notified by the Central Government in this behalf; and

(iii) the foreign company is not engaged in any activity, other than

(48A) any income accruing or arising to a foreign company on account of storage of crude oil in a facility in India and sale of crude oil therefrom to any person resident in India:

Provided that—

(i) the storage and sale by the foreign company is pursuant to an agreement or an arrangement entered into by the Central Government or approved by the Central Government; and

(ii) having regard to the national interest, the foreign company and the agreement or arrangement are notified by the Central Government in this behalf;

(48B) any income accruing or arising to a foreign company on account of sale of leftover stock of crude oil, if any, from the facility in India after the expiry of the agreement or the arrangement referred to in clause (48A) or on termination of the said agreement or the arrangement, in accordance with the terms mentioned therein, as the case may be, subject to such conditions as may be notified by the Central Government in this behalf;

(48C) any income accruing or arising to the Indian Strategic Petroleum Reserves Limited, being a wholly owned subsidiary of the Oil Industry Development Board under the Ministry of Petroleum and Natural Gas, as a result of arrangement for replenishment of crude oil stored in its storage facility in pursuance of directions of the Central Government in this behalf:

Provided that nothing contained in this clause shall apply to an arrangement, if the crude oil is not replenished in the storage facility within three years from the end of the financial year in which the crude oil was removed from the storage facility for the first time;

(48D) any income accruing or arising to an institution established for financing the infrastructure and development, set up under an Act of Parliament and notified by the Central Government for the purposes of this clause, for a period of ten consecutive assessment years beginning from the assessment year relevant to the previous year in which such institution is set up;

(48E) any income accruing or arising to a developmental financing institution, licensed by the Reserve Bank of India under an Act of the Parliament referred to in clause (48D) and notified by the Central Government for the purposes of this clause, for a period of five consecutive assessment years beginning from the assessment year relevant to the previous year in which the developmental financing institution is set up :

Provided that the Central Government may, by issuing notification under this clause, extend the period of exemption under this clause for a further period, not exceeding five more consecutive assessment years, subject to fulfilment of such conditions as may be specified in the said notification;

(49) [***]

(50) [any income arising from any–

(i) specified service provided on or after the date on which the provisions of Chapter VIII of the Finance Act, 2016 (28 of 2016) comes into force; or

(ii) e-commerce supply or services made or provided or facilitated on or after the 1st day of April, 2020 but before the 1st day of August, 2024, and chargeable to equalisation levy under that Chapter:]

Explanation 2.—For the purposes of this clause,—

(i) “e-commerce supply or services” shall have the meaning assigned to it in clause (cb) of section 164 of the Finance Act, 2016 (28 of 2016);

(ii) “specified service” shall have the meaning assigned to it in clause (i) of section 164 of the Finance Act, 2016 (28 of 2016).

Notes:

¹⁹ Sub. for “2025” by Act No. 7 of 2025, w.e.f. 1-4-2025. Earlier “2025” was sub. for “2024” by Act No. 8 of 2024, w.e.f. 1-4-2024.

²⁰ Item (I) renumbered as item (I)(a) by Act No. 15 of 2024, w.e.f. 1-4-2025.

²¹ Ins. by Act No. 08 of 2023, w.e.f. 1-4-2023.

²² Sub. by Act No. 7 of 2025, w.e.f. 1-4-2025. Prior to its substitution, sub-item (b), as Ins. by Act No. 15 of 2024, w.e.f. 1-4-2025, read as under : “(b) which has been granted a certificate as a retail scheme or an Exchange Traded Fund, and is regulated under the International Financial Services Centres Authority (Fund Management) Regulations, 2022, made under the International Financial Services Centres Authority Act, 2019 (50 of 2019) and satisfies such conditions, as may be prescribed;”

²³ Sub. for “2025” by Act No. 7 of 2025, w.e.f. 1-4-2025. Earlier “2025” was sub. for “2024” by Act No. 8 of 2024, w.e.f. 1-4-2024.

²⁴ Sub. by Act No. 08 of 2023, w.e.f. 1-4-2024.

²⁵ Italicised words shall be Ins. by Act No. 7 of 2025, w.e.f. 1-4-2026.

²⁶ Sub. for “2025” by Act No. 7 of 2025, w.e.f. 1-4-2025. Earlier “2025” was sub. for “2024” by Act No. 8 of 2024, w.e.f. 1-4-2024.

²⁷ Clauses (4G) and (4H) sub. for clause (4G) by Act No. 08 of 2023, w.e.f. 1-4-2024.

²⁸ Ins. by Act. No. 7 of 2025, w.e.f. 1-4-2025.

²⁹ Sub. for “2026” by Act. No. 7 of 2025, w.e.f. 1-4-2025.

³⁰ Sub. for “2026” by Act. No. 7 of 2025, w.e.f. 1-4-2025. Prior to its substitution, Explanation read as under:

‘Explanation.—For the purposes of this clause, “aircraft” means an aircraft or a helicopter, or an engine of an aircraft or a helicopter, or any part thereof;’

³¹ Words “or the Explanation to sub-section (2A) of section 88, as the case may be” omtt. by Act No. 08 of 2023, w.e.f. 1-4-2023.

³² Sub. for the sixth proviso by Act No. 08 of 2023, w.e.f. 1-4-2024.

³³ Sub. for the eighth proviso by Act No. 7 of 2025, w.e.f. 1-4-2025. Prior to its substitution, the eighth proviso read as under:

“Provided also that the provisions of the fourth, fifth, sixth and seventh provisos shall not apply to any sum received on the death of a person:”

^33a Inserted by the Act No. 29 of 2025, w.r.e.f. 1-4-2025.

³⁴ Ins. by Act No. 08 of 2023, w.e.f. 1-4-2023.

³⁵ Ins. by Act No. 15 of 2024, w.e.f. 1-4-2025.

³⁶ Ins. by Act No. 08 of 2023, w.e.f. 1-4-2024.

³⁷ Omtt. by Act No. 08 of 2023, w.e.f. 1-4-2023.

³⁸ Ins. by Act No. 15 of 2024, w.e.f. 1-10-2024.

³⁹ Sub. by Act No. 08 of 2023, w.e.f. 1-10-2023.

⁴⁰ Ins. by Act No. 15 of 2024, w.e.f. 1-10-2024.

⁴¹ Ins. by Act No. 08 of 2023, w.e.f. 1-10-2023.

⁴² Sub. by Act No. 08 of 2023, w.e.f. 1-10-2023.

⁴³ Word “and” omtt. by Act No. 08 of 2023, w.e.f. 1-4-2023.

⁴⁴ Ins. by Act No. 08 of 2023, w.e.f. 1-4-2023.

⁴⁵ Ins. by Act No. 08 of 2023, w.e.f. 1-4-2024.

⁴⁶ Sub. for “furnished on or before” by Act No. 08 of 2023, w.e.f. 1-4-2023.

⁴⁷ Sub. for “attained finality.” by Act No. 08 of 2023, w.e.f. 1-4-2023.

⁴⁸ Ins. by Act No. 08 of 2023, w.e.f. 1-4-2023.

⁴⁹ Ins. by Act No. 08 of 2023, w.e.f. 1-4-2024.

⁵⁰ Sub. for “within the time allowed under that section” by Act No. 08 of 2023, w.e.f. 1-4-2023.

⁵¹ Ins. by Act No. 15 of 2024, w.e.f. 1-10-2024.

⁵² Omtt. by Act No. 08 of 2023 w.e.f. 1-4-2023.

^53-54 Ins. by Act No. 15 of 2024, w.e.f. 1-4-2025.

⁵⁵ Ins. by Act No. 15 of 2024 w.e.f. 1-4-2025.

⁵⁶ Word “and” omtt. by Act No. 15 of 2024 w.e.f. 1-4-2025.

⁵⁷ Sub. for “or” by Act No. 15 of 2024 w.e.f. 1-4-2025.

⁵⁸ Ins. by Act No. 15 of 2024 w.e.f. 1-4-2025.

⁵⁹ Ins. by Act No. 08 of 2023, w.e.f. 1-4-2024.

⁶⁰ Ins. by Act No. 7 of 2025, w.e.f. 1-4-2025.

⁶¹ Sub. for “2025” by Act No. 7 of 2025, w.e.f. 1-4-2025. Earlier “2025” was sub. for “2024” by Act No. 08 of 2024, w.e.f. 1-4-2024.

⁶² Omtt. by Act No. 08 of 2023, w.e.f. 1-4-2023.

⁶³ Sub. by Act No. 08 of 2023, w.r.e.f. 1-4-1990.

⁶⁴ Ins. by Act No. 15 of 2024, w.e.f. 1-10-2024.

⁶⁵ Ins. by Act No. 08 of 2023, w.e.f. 1-4-2024.

⁶⁶ Ins. by Act No. 7 of 2025, w.e.f. 1-4-2025.

⁶⁷ Sub. by Act No. 7 of 2025, w.e.f. 1-4-2025. Prior to its substitution, Explanation read as under:

‘Explanation.—For the purposes of this clause, “International Financial Services Centre” shall have the same meaning as assigned to it in clause (q) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005);’

⁶⁸ Omtt. by Act No. 08 of 2023, w.e.f. 1-4-2023.

⁶⁹ Ins. by Act No. 08 of 2023, w.e.f. 1-4-2024.

⁷⁰ Clauses (46A) and (46B) Ins. by Act No. 08 of 2023, w.e.f. 1-4-2024.

⁷¹ Omtt. by Act No. 08 of 2023, w.e.f. 1-4-2023.

⁷² Sub. by Act No. 15 of 2024, w.r.e.f. 1-8-2024.

⁷³ Ins. by Act No. 7 of 2025, w.e.f. 1-4-2025.

Section – 45

E.—Capital gains

Capital gains.

45. (1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 54, 54B, 54D, 54E, 54EA, 54EB, 54F , 54G and 54H, be chargeable to income-tax under the head “Capital gains”, and shall be deemed to be the income of the previous year in which the transfer took place.

(1A) Notwithstanding anything contained in sub-section (1), where any person receives at any time during any previous year any money or other assets under an insurance from an insurer on account of damage to, or destruction of, any capital asset, as a result of—

(i) flood, typhoon, hurricane, cyclone, earthquake or other convulsion of nature; or

(ii) riot or civil disturbance; or

(iii) accidental fire or explosion; or

(iv) action by an enemy or action taken in combating an enemy (whether with or without a declaration of war),

then, any profits or gains arising from receipt of such money or other assets shall be chargeable to income-tax under the head “Capital gains” and shall be deemed to be the income of such person of the previous year in which such money or other asset was received and for the purposes of section 48, value of any money or the fair market value of other assets on the date of such receipt shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of such capital asset.

Explanation.—For the purposes of this sub-section, the expression “insurer” shall have the meaning assigned to it in clause (9) of section 2 of the Insurance Act, 1938 (4 of 1938).

(1B) Notwithstanding anything contained in sub-section (1), where any person receives at any time during any previous year any amount under a unit linked insurance policy, to which exemption under clause (10D) of section 10 does not apply [on account of the applicability of the fourth and fifth provisos thereof], including the amount allocated by way of bonus on such policy, then, any profits or gains arising from receipt of such amount by such person shall be chargeable to income-tax under the head “Capital gains” and shall be deemed to be the income of such person of the previous year in which such amount was received and the income taxable shall be calculated in such manner as may be prescribed.

(2) Notwithstanding anything contained in sub-section (1), the profits or gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by him as stock-in-trade of a business carried on by him shall be chargeable to income-tax as his income of the previous year in which such stock-in-trade is sold or otherwise transferred by him and, for the purposes of section 48, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset.

(2A) Where any person has had at any time during previous year any beneficial interest in any securities, then, any profits or gains arising from transfer made by the depository or participant of such beneficial interest in respect of securities shall be chargeable to income-tax as the income of the beneficial owner of the previous year in which such transfer took place and shall not be regarded as income of the depository who is deemed to be the registered owner of securities by virtue of sub-section (1) of section 10 of the Depositories Act, 1996 (22 of 1996), and for the purposes of—

(i) section 48; and

(ii) proviso to clause (42A) of section 2,

the cost of acquisition and the period of holding of any securities shall be determined on the basis of the first-in-first-out method.

Explanation.—For the purposes of this sub-section, the expressions “beneficial owner”, “depository” and “security” shall have the meanings respectively assigned to them in clauses (a), (e) and (l) of sub-section (1) of section 2 of the Depositories Act, 1996.

(3) The profits or gains arising from the transfer of a capital asset by a person to a firm or other association of persons or body of individuals (not being a company or a co-operative society) in which he is or becomes a partner or member, by way of capital contribution or otherwise, shall be chargeable to tax as his income of the previous year in which such transfer takes place and, for the purposes of section 48, the amount recorded in the books of account of the firm, association or body as the value of the capital asset shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset.

(4) Notwithstanding anything contained in sub-section (1), where a specified person receives during the previous year any money or capital asset or both from a specified entity in connection with the reconstitution of such specified entity, then any profits or gains arising from such receipt by the specified person shall be chargeable to income-tax as income of such specified entity under the head “Capital gains” and shall be deemed to be the income of such specified entity of the previous year in which such money or capital asset or both were received by the specified person, and notwithstanding anything to the contrary contained in this Act, such profits or gains shall be determined in accordance with the following formula, namely:—

A = B + C – D

Where,

A = income chargeable to income-tax under this sub section as income of the specified entity under the head “Capital gains”;

B = value of any money received by the specified person from the specified entity on the date of such receipt;

C = the amount of fair market value of the capital asset received by the specified person from the specified entity on the date of such receipt; and

D = the amount of balance in the capital account (represented in any manner) of the specified person in the books of account of the specified entity at the time of its reconstitution:

Provided that if the value of “A” in the above formula is negative, its value shall be deemed to be zero :

Provided further that the balance in the capital account of the specified person in the books of account of the specified entity is to be calculated without taking into account the increase in the capital account of the specified person due to revaluation of any asset or due to self-generated goodwill or any other self-generated asset.

Explanation 1.—For the purposes of this sub-section,—

• the expressions “reconstitution of the specified entity”, “specified entity” and “specified person” shall have the meanings respectively assigned to them in section 9B;
• “self-generated goodwill” and “self-generated asset” mean goodwill or asset, as the case may be, which has been acquired without incurring any cost for purchase or which has been generated during the course of the business or profession.

Explanation 2.—For the removal of doubts, it is clarified that when a capital asset is received by a specified person from a specified entity in connection with the reconstitution of such specified entity, the provisions of this sub-section shall operate in addition to the provisions of section 9B and the taxation under the said provisions thereof shall be worked out independently.

(5) Notwithstanding anything contained in sub-section (1), where the capital gain arises from the transfer of a capital asset, being a transfer by way of compulsory acquisition under any law, or a transfer the consideration for which was determined or approved by the Central Government or the Reserve Bank of India, and the compensation or the consideration for such transfer is enhanced or further enhanced by any court, Tribunal or other authority, the capital gain shall be dealt with in the following manner, namely :—

(a) the capital gain computed with reference to the compensation awarded in the first instance or, as the case may be, the consideration determined or approved in the first instance by the Central Government or the Reserve Bank of India shall be chargeable as income under the head “Capital gains” of the previous year in which such compensation or part thereof, or such consideration or part thereof, was first received; and

(b) the amount by which the compensation or consideration is enhanced or further enhanced by the court, Tribunal or other authority shall be deemed to be income chargeable under the head “Capital gains” of the previous year in which such amount is received by the assessee :

Provided that any amount of compensation received in pursuance of an interim order of a court, Tribunal or other authority shall be deemed to be income chargeable under the head “Capital gains” of the previous year in which the final order of such court, Tribunal or other authority is made;

(c) where in the assessment for any year, the capital gain arising from the transfer of a capital asset is computed by taking the compensation or consideration referred to in clause (a) or, as the case may be, enhanced compensation or consideration referred to in clause (b), and subsequently such compensation or consideration is reduced by any court, Tribunal or other authority, such assessed capital gain of that year shall be recomputed by taking the compensation or consideration as so reduced by such court, Tribunal or other authority to be the full value of the consideration.

Explanation.—For the purposes of this sub-section,—

(i) in relation to the amount referred to in clause (b), the cost of acquisition and the cost of improvement shall be taken to be nil;

(ii) the provisions of this sub-section shall apply also in a case where the transfer took place prior to the 1st day of April, 1988;

(iii) where by reason of the death of the person who made the transfer, or for any other reason, the enhanced compensation or consideration is received by any other person, the amount referred to in clause (b) shall be deemed to be the income, chargeable to tax under the head “Capital gains”, of such other person.

(5A) Notwithstanding anything contained in sub-section (1), where the capital gain arises to an assessee, being an individual or a Hindu undivided family, from the transfer of a capital asset, being land or building or both, under a specified agreement, the capital gains shall be chargeable to income-tax as income of the previous year in which the certificate of completion for the whole or part of the project is issued by the competent authority; and for the purposes of section 48, the stamp duty value, on the date of issue of the said certificate, of his share, being land or building or both in the project, as increased by [any 41 consideration received in cash or by a cheque or draft or by any other mode] shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset :

Provided that the provisions of this sub-section shall not apply where the assessee transfers his share in the project on or before the date of issue of the said certificate of completion, and the capital gains shall be deemed to be the income of the previous year in which such transfer takes place and the provisions of this Act, other than the provisions of this sub-section, shall apply for the purpose of determination of full value of consideration received or accruing as a result of such transfer.

Explanation.—For the purposes of this sub-section, the expression—

(i) “competent authority” means the authority empowered to approve the building plan by or under any law for the time being in force;

(ii) “specified agreement” means a registered agreement in which a person owning land or building or both, agrees to allow another person to develop a real estate project on such land or building or both, in consideration of a share, being land or building or both in such project, whether with or without payment of part of the consideration in cash;

(iii) “stamp duty value” means the value adopted or assessed or assessable by any authority of the Government for the purpose of payment of stamp duty in respect of an immovable property being land or building or both.

(6) Notwithstanding anything contained in sub-section (1), the difference between the repurchase price of the units referred to in sub-section (2) of section 80CCB and the capital value of such units shall be deemed to be the capital gains arising to the assessee in the previous year in which such repurchase takes place or the plan referred to in that section is terminated and shall be taxed accordingly.

Explanation.—For the purposes of this sub-section, “capital value of such units” means any amount invested by the assessee in the units referred to in sub­section (2) of section 80CCB.

Note:

⁴⁰ Words “on account of the applicability of the fourth and fifth provisos thereof” shall be omtt. by Act No. 7 of 2025, w.e.f. 1-4-2026.

⁴¹ for “the consideration received in cash, if any,” by Act No. 08 of 2023, w.e.f. 1-4-2024.

Section – 47

Transactions not regarded as transfer.

47. Nothing contained in section 45 shall apply to the following transfers :—

(i) any distribution of capital assets on the total or partial partition of a Hindu undivided family;

(ii)[***]

43[(iii) any transfer of a capital asset by an individual or a Hindu undivided family, under a gift or will or an irrevocable trust;]

(iv) any transfer of a capital asset by a company to its subsidiary company, if—

(a) the parent company or its nominees hold the whole of the share capital of the subsidiary company, and

(b) the subsidiary company is an Indian company;

(v) any transfer of a capital asset by a subsidiary company to the holding company, if—

(a) the whole of the share capital of the subsidiary company is held by the holding company, and

(b) the holding company is an Indian company :

Provided that nothing contained in clause (iv) or clause (v) shall apply to the transfer of a capital asset made after the 29th day of February, 1988, as stock-in-trade;

(vi) any transfer, in a scheme of amalgamation, of a capital asset by the amalgamating company to the amalgamated company if the amalgamated company is an Indian company;

(via) any transfer, in a scheme of amalgamation, of a capital asset being a share or shares held in an Indian company, by the amalgamating foreign company to the amalgamated foreign company, if—

(a) at least twenty-five per cent of the shareholders of the amalgamating foreign company continue to remain shareholders of the amalgamated foreign company, and

(b) such transfer does not attract tax on capital gains in the country, in which the amalgamating company is incorporated;

(viaa) any transfer, in a scheme of amalgamation of a banking company with a banking institution sanctioned and brought into force by the Central Government under sub-section (7) of section 45 of the Banking Regulation Act, 1949 (10 of 1949), of a capital asset by the banking company to the banking institution.

Explanation.—For the purposes of this clause,—

(i) “banking company” shall have the same meaning assigned to it in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949);

(ii) “banking institution” shall have the same meaning assigned to it in sub-section (15) of section 45 of the Banking Regulation Act, 1949 (10 of 1949);

(viab) any transfer, in a scheme of amalgamation, of a capital asset, being a share of a foreign company, referred to in the Explanation 5 to clause (i) of sub­section (1) of section 9, which derives, directly or indirectly, its value substantially from the share or shares of an Indian company, held by the amalgamating foreign company to the amalgamated foreign company, if—

(A) at least twenty-five per cent of the shareholders of the amalgamating foreign company continue to remain shareholders of the amalgamated foreign company; and

(B) such transfer does not attract tax on capital gains in the country in which the amalgamating company is incorporated; (vib) any transfer, in a demerger, of a capital asset by the demerged company to the resulting company, if the resulting company is an Indian company;

(vic) any transfer in a demerger, of a capital asset, being a share or shares held in an Indian company, by the demerged foreign company to the resulting foreign company, if—

(a) the shareholders holding not less than three-fourths in value of the shares of the demerged foreign company continue to remain shareholders of the resulting foreign company; and

(b) such transfer does not attract tax on capital gains in the country, in which the demerged foreign company is incorporated :

Provided that the provisions of sections 391 to 394 of the Companies Act, 1956 (1 of 1956) shall not apply in case of demergers referred to in this clause;

(vica) any transfer in a business reorganisation, of a capital asset by the predecessor co-operative bank to the successor co-operative bank or to the converted banking company;

(vicb) any transfer by a shareholder, in a business reorganisation, of a capital asset being a share or shares held by him in the predecessor co-operative bank if the transfer is made in consideration of the allotment to him of any share or shares in the successor co-operative bank or to the converted banking company.

Explanation.—For the purposes of clauses (vica) and (vicb), the expressions “business re-organisation”, “converted banking company”, “predecessor co­operative bank” and “successor co-operative bank” shall have the meanings respectively assigned to them in section 44DB;

(vicc) any transfer in a demerger, of a capital asset, being a share of a foreign company, referred to in the Explanation 5 to clause (i) of sub-section (1) of section 9, which derives, directly or indirectly, its value substantially from the share or shares of an Indian company, held by the demerged foreign company to the resulting foreign company, if—

(a) the shareholders, holding not less than three-fourths in value of the shares of the demerged foreign company, continue to remain shareholders of the resulting foreign company; and

(b) such transfer does not attract tax on capital gains in the country in which the demerged foreign company is incorporated:

Provided that the provisions of sections 391 to 394 of the Companies Act, 1956 (1 of 1956) shall not apply in case of demergers referred to in this clause;

(vid) any transfer or issue of shares by the resulting company, in a scheme of demerger to the shareholders of the demerged company if the transfer or issue is made in consideration of demerger of the undertaking;

(vii) any transfer by a shareholder, in a scheme of amalgamation, of a capital asset being a share or shares held by him in the amalgamating company, if—

(a) the transfer is made in consideration of the allotment to him of any share or shares in the amalgamated company except where the shareholder itself is the amalgamated company, and

(b) the amalgamated company is an Indian company;

(viia) any transfer of a capital asset, being bonds or Global Depository Receipts referred to in sub-section (1) of section 115AC, made outside India by a non-resident to another non-resident;

(viiaa) any transfer, made outside India, of a capital asset being rupee denominated bond of an Indian company issued outside India, by a non-resident to another non-resident;

(viiab) any transfer of a capital asset, being—

(a) bond or Global Depository Receipt referred to in sub-section (1) of section 115AC; or

(b) rupee denominated bond of an Indian company; or

(c) derivative; or

(d) such other securities as may be notified by the Central Government in this behalf,

made by a non-resident on a recognised stock exchange located in any International Financial Services Centre and where the consideration for such transaction is paid or payable in foreign currency.

Explanation.—For the purposes of this clause,—

(a) “International Financial Services Centre” shall have the meaning assigned to it in clause (q) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005);

(b) “recognised stock exchange” shall have the meaning assigned to it in clause (ii) of Explanation 1 to clause (5) of section 43;

(c) “derivative” shall have the meaning assigned to it in clause (ac) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956);

(d) “securities” shall have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956); (viiac) any transfer, in a relocation, of a capital asset by the original fund to the resulting fund;

(viiad) any transfer by a shareholder or unit holder or interest holder, in a relocation, of a capital asset being a share or unit or interest held by him in the original fund in consideration for the share or unit or interest in the resultant fund.

Explanation.— For the purposes of clauses (viiac) and (viiad),—

[(a) “original fund” means—

(A) a fund established or incorporated or registered outside India, which collects funds from its members for investing it for their benefit and fulfils the following conditions, namely:—

(i) the fund is not a person resident in India;

(ii) the fund is a resident of a country or a specified territory with which an agreement referred to in sub-section (1) of section 90 or sub-section (1) of section 90A has been entered into; or is established or incorporated or registered in a country or a specified territory as may be notified by the Central Government in this behalf;

(iii) the fund and its activities are subject to applicable investor protection regulations in the country or specified territory where it is established or incorporated or is a resident; and

(iv) fulfils such other conditions as may be prescribed;

(B) an investment vehicle, in which Abu Dhabi Investment Authority is the direct or indirect sole shareholder or unit holder or beneficiary or interest holder and such investment vehicle is wholly owned and controlled, directly or indirectly, by the Abu Dhabi Investment Authority or the Government of Abu Dhabi; or

(C) a fund notified by the Central Government in the Official Gazette in this behalf subject to such conditions as may be specified;]

(b) “relocation” means transfer of assets of the original fund, or of its wholly owned special purpose vehicle, to a resultant fund on or before the 31st day of March, [2030], where consideration for such transfer is discharged in the form of share or unit or interest in the resulting fund to,

(i) shareholder or unit holder or interest holder of the original fund, in the same proportion in which the share or unit or interest was held by such shareholder or unit holder or interest holder in such original fund, in lieu of their shares or units or interests in the original fund; or

(ii) the original fund, in the same proportion as referred to in sub-clause (i), in respect of which the share or unit or interest is not issued by resultant fund to its shareholder or unit holder or interest holder;

(c) “resultant fund” means a fund established or incorporated in India in the form of a trust or a company or a limited liability partnership, which

(i) has been granted a certificate of registration as a Category I or Category II or Category III Alternative Investment Fund, and is regulated under the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992) or [regulated under the International Financial Services Centres Authority (Fund Management) Regulations, 2022, made under the] International Financial Services Centres Authority Act, 2019 (50 of 2019); and

(ii) is located in any International Financial Services Centre as referred to in sub-section (1A) of section 80LA;

Following clause (c) of the Explanation to clause (viiad) of section 47 shall be substituted by the Finance Act, 2025, w.e.f. 1-4-2026 :

(c) “resultant fund” means a fund established or incorporated in India in the form of a trust or a company or a limited liability partnership, which is located in an International Financial Services Centre as referred to in sub-section (1A) of section 80LA, and has been granted a certificate of registration as a Category I or Category II or Category III Alternative Investment Fund or a certificate as a retail scheme or as an Exchange Traded Fund, and is regulated under the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992) or regulated under the International Financial Services Centres Authority (Fund Management) Regulations, 2022 made under the International Financial Services Centres Authority Act, 2019 (50 of 2019);

(viiae) any transfer of capital asset by India Infrastructure Finance Company Limited to an institution established for financing the infrastructure and development, set up under an Act of Parliament and notified by the Central Government for the purposes of this clause;

(viiaf) any transfer of capital asset, under a plan approved by the Central Government, by a public sector company to another public sector company notified by the Central Government for the purposes of this clause or to the Central Government or to a State Government;

(viib) any transfer of a capital asset, being a Government Security carrying a periodic payment of interest, made outside India through an intermediary dealing in settlement of securities, by a non-resident to another non-resident.

Explanation.—For the purposes of this clause, “Government Security” shall have the meaning assigned to it in clause (b) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956);

(viic) any transfer of Sovereign Gold Bond issued by the Reserve Bank of India under the Sovereign Gold Bond Scheme, 2015, by way of redemption, by an assessee being an individual;

47[(viid) any transfer of a capital asset, being conversion of gold into Electronic Gold Receipt issued by a Vault Manager, or conversion of Electronic Gold Receipt into gold.

Explanation.—For the purposes of this clause, the expressions “Electronic Gold Receipt” and “Vault Manager” shall have the meanings respectively assigned to them in clauses (h) and (l) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Vault Managers) Regulations, 2021 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992);]

(viii) any transfer of agricultural land in India effected before the 1st day of March, 1970;

(ix) any transfer of a capital asset, being any work of art, archaeological, scientific or art collection, book, manuscript, drawing, painting, photograph or print, to the Government or a University or the National Museum, National Art Gallery, National Archives or any such other public museum or institution as may be notified by the Central Government in the Official Gazette to be of national importance or to be of renown throughout any State or States.

Explanation.—For the purposes of this clause, “University” means a University established or incorporated by or under a Central, State or Provincial Act and includes an institution declared under section 3 of the University Grants Commission Act, 1956 (3 of 1956), to be a University for the purposes of that Act;

(x) any transfer by way of conversion of bonds or debentures, debenture-stock or deposit certificates in any form, of a company into shares or debentures of that company;

(xa) any transfer by way of conversion of bonds referred to in clause (a) of sub-section (1) of section 115AC into shares or debentures of any company;

(xb) any transfer by way of conversion of preference shares of a company into equity shares of that company;

(xi) any transfer made on or before the 31st day of December, 1998 by a person (not being a company) of a capital asset being membership of a recognised stock exchange to a company in exchange of shares allotted by that company to the transferor.

Explanation.—For the purposes of this clause, the expression “membership of a recognised stock exchange” means the membership of a stock exchange in India which is recognised under the provisions of the Securities Contracts (Regulation) Act, 1956 (42 of 1956);

(xii) any transfer of a capital asset, being land of a sick industrial company, made under a scheme prepared and sanctioned under section 18 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) where such sick industrial company is being managed by its workers’ co-operative : Provided that such transfer is made during the period commencing from the previous year in which the said company has become a sick industrial company under sub-section (1) of section 17 of that Act and ending with the previous year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses.

Explanation.—For the purposes of this clause, “net worth” shall have the meaning assigned to it in clause (ga) of sub-section (1) of section 3 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986);

(xiii) any transfer of a capital asset or intangible asset by a firm to a company as a result of succession of the firm by a company in the business carried on by the firm, or any transfer of a capital asset to a company in the course of demutualisation or corporatisation of a recognised stock exchange in India as a result of which an association of persons or body of individuals is succeeded by such company :

Provided that—

(a) all the assets and liabilities of the firm or of the association of persons or body of individuals relating to the business immediately before the succession become the assets and liabilities of the company;

(b) all the partners of the firm immediately before the succession become the shareholders of the company in the same proportion in which their capital accounts stood in the books of the firm on the date of the succession;

(c) the partners of the firm do not receive any consideration or benefit, directly or indirectly, in any form or manner, other than by way of allotment of shares in the company; and

(d) the aggregate of the shareholding in the company of the partners of the firm is not less than fifty per cent of the total voting power in the company and their shareholding continues to be as such for a period of five years from the date of the succession;

(e) the demutualisation or corporatisation of a recognised stock exchange in India is carried out in accordance with a scheme for demutualisation or corporatisation which is approved by the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992);

(xiiia) any transfer of a capital asset being a membership right held by a member of a recognised stock exchange in India for acquisition of shares and trading or clearing rights acquired by such member in that recognised stock exchange in accordance with a scheme for demutualisation or corporatisation which is approved by the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992);

(xiiib) any transfer of a capital asset or intangible asset by a private company or unlisted public company (hereafter in this clause referred to as the company) to a limited liability partnership or any transfer of a share or shares held in the company by a shareholder as a result of conversion of the company into a limited liability partnership in accordance with the provisions of section 56 or section 57 of the Limited Liability Partnership Act, 2008 (6 of 2009): Provided that—

(a) all the assets and liabilities of the company immediately before the conversion become the assets and liabilities of the limited liability partnership;

(b) all the shareholders of the company immediately before the conversion become the partners of the limited liability partnership and their capital contribution and profit sharing ratio in the limited liability partnership are in the same proportion as their shareholding in the company on the date of conversion;

(c) the shareholders of the company do not receive any consideration or benefit, directly or indirectly, in any form or manner, other than by way of share in profit and capital contribution in the limited liability partnership;

(d) the aggregate of the profit sharing ratio of the shareholders of the company in the limited liability partnership shall not be less than fifty per cent at any time during the period of five years from the date of conversion;

(e) the total sales, turnover or gross receipts in the business of the company in any of the three previous years preceding the previous year in which the conversion takes place does not exceed sixty lakh rupees;

(ea) the total value of the assets as appearing in the books of account of the company in any of the three previous years preceding the previous year in which the conversion takes place does not exceed five crore rupees; and

(f) no amount is paid, either directly or indirectly, to any partner out of balance of accumulated profit standing in the accounts of the company on the date of conversion for a period of three years from the date of conversion.

Explanation.—For the purposes of this clause, the expressions “private company” and “unlisted public company” shall have the meanings respectively assigned to them in the Limited Liability Partnership Act, 2008 (6 of 2009);

(xiv) where a sole proprietary concern is succeeded by a company in the business carried on by it as a result of which the sole proprietary concern sells or otherwise transfers any capital asset or intangible asset to the company :

Provided that—

(a) all the assets and liabilities of the sole proprietary concern relating to the business immediately before the succession become the assets and liabilities of the company;

(b) the shareholding of the sole proprietor in the company is not less than fifty per cent of the total voting power in the company and his shareholding continues to remain as such for a period of five years from the date of the succession; and

(c) the sole proprietor does not receive any consideration or benefit, directly or indirectly, in any form or manner, other than by way of allotment of shares in the company;

(xv) any transfer in a scheme for lending of any securities under an agreement or arrangement, which the assessee has entered into with the borrower of such securities and which is subject to the guidelines issued by the Securities and Exchange Board of India, established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992) or the Reserve Bank of India constituted under sub-section (1) of section 3 of the Reserve Bank of India Act, 1934 (2 of 1934), in this regard;

(xvi) any transfer of a capital asset in a transaction of reverse mortgage under a scheme made and notified by the Central Government;

(xvii) any transfer of a capital asset, being share of a special purpose vehicle to a business trust in exchange of units allotted by that trust to the transferor.

Explanation.—For the purposes of this clause, the expression “special purpose vehicle” shall have the meaning assigned to it in the Explanation to clause (23FC) of section 10;

(xviii) any transfer by a unit holder of a capital asset, being a unit or units, held by him in the consolidating scheme of a mutual fund, made in consideration of the allotment to him of a capital asset, being a unit or units, in the consolidated scheme of the mutual fund:

Provided that the consolidation is of two or more schemes of equity oriented fund or of two or more schemes of a fund other than equity oriented fund.

Explanation.—For the purposes of this clause,—

(a) “consolidated scheme” means the scheme with which the consolidating scheme merges or which is formed as a result of such merger;

(b) “consolidating scheme” means the scheme of a mutual fund which merges under the process of consolidation of the schemes of mutual fund in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992);

(c) “equity oriented fund” shall have the meaning assigned to it in clause (38)of section 10;

(d) “mutual fund” means a mutual fund specified under clause (23D)of section 10;

(xix) any transfer by a unit holder of a capital asset, being a unit or units, held by him in the consolidating plan of a mutual fund scheme, made in consideration of the allotment to him of a capital asset, being a unit or units, in the consolidated plan of that scheme of the mutual fund. Explanation.—For the purposes of this clause,—

(a) “consolidating plan” means the plan within a scheme of a mutual fund which merges under the process of consolidation of the plans within a scheme of mutual fund in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992);

(b) “consolidated plan” means the plan with which the consolidating plan merges or which is formed as a result of such merger;

(c) “mutual fund” means a mutual fund specified under clause (23D) of section 10;

48[(xx) any transfer of a capital asset, being an interest in a joint venture, held by a public sector company, in exchange of shares of a company incorporated outside India by the Government of a foreign State, in accordance with the laws of that foreign State.

Explanation.—For the purposes of this clause, “joint venture” shall mean a business entity, as may be notified by the Central Government in the Official Gazette.]

Notes:

⁴³ Sub. by Act No. 15 of 2024, w.e.f. 1-4-2025.

⁴⁴ Sub. by Act No. 08 of 2023, w.e.f. 1-4-2023.

⁴⁵ Sub. for “2025” by Act No. 7 of 2025, w.e.f. 1-4-2025. Earlier “2025” was sub. for “2023” by Act No. 08 of 2023, w.e.f. 1-4-2023.

⁴⁶ Ins. by Act No. 08 of 2023, w.e.f. 1-4-2023.

⁴⁷ Ins. by Act No. 08 of 2023, w.e.f. 1-4-2024.

⁴⁸ Ins. by Act No. 08 of 2023, w.e.f. 1-4-2023.

Section – 47A

Withdrawal of exemption in certain cases.

47A. (1) Where at any time before the expiry of a period of eight years from the date of the transfer of a capital asset referred to in clause (iv) or, as the case may be, clause (v) of section 47,—

(i) such capital asset is converted by the transferee company into, or is treated by it as, stock-in-trade of its business; or

(ii) the parent company or its nominees or, as the case may be, the holding company ceases or cease to hold the whole of the share capital of the subsidiary company,

the amount of profits or gains arising from the transfer of such capital asset not charged under section 45 by virtue of the provisions contained in clause (iv) or, as the case may be, clause (v) of section 47 shall, notwithstanding anything contained in the said clauses, be deemed to be income chargeable under the head “Capital gains” of the previous year in which such transfer took place.]

(2) Where at any time, before the expiry of a period of three years from the date of the transfer of a capital asset referred to in clause (xi) of section 47, any of the shares allotted to the transferor in exchange of a membership in a recognised stock exchange are transferred, the amount of profits and gains not charged under section 45 by virtue of the provisions contained in clause (xi) of section 47 shall, notwithstanding anything contained in the said clause, be deemed to be the income chargeable under the head “Capital gains” of the previous year in which such shares are transferred.

(3) Where any of the conditions laid down in the proviso to clause (xiii) or the proviso to clause (xiv) of section 47 are not complied with, the amount of profits or gains arising from the transfer of such capital asset or intangible asset not charged under section 45 by virtue of conditions laid down in the proviso to clause (xiii) or the proviso to clause (xiv) of section 47 shall be deemed to be the profits and gains chargeable to tax of the successor company for the previous year in which the requirements of the proviso to clause (xiii) or the proviso to clause (xiv), as the case may be, are not complied with.

(4) Where any of the conditions laid down in the proviso to clause (xiiib) of section 47 are not complied with, the amount of profits or gains arising from the transfer of such capital asset or intangible assets or share or shares not charged under section 45 by virtue of conditions laid down in the said proviso shall be deemed to be the profits and gains chargeable to tax of the successor limited liability partnership or the shareholder of the predecessor company, as the case may be, for the previous year in which the requirements of the said proviso are not complied with.

Section – 48

Mode of computation.

48. The income chargeable under the head “Capital gains” shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely :—

(i) expenditure incurred wholly and exclusively in connection with such transfer;

(ii) the cost of acquisition of the asset and the cost of any improvement thereto:

^48a[Provided that the cost of acquisition of the asset or the cost of improvement thereto shall not include the deductions claimed on the amount of interest under clause (b) of section 24 or under the provisions of Chapter VIA.

Explanation 1.—For the removal of doubt, it is hereby clarified that the cost of acquisition of a unit of a business trust shall be reduced and shall be deemed to have always been reduced by any sum received by a unit holder from the business trust with respect to such unit, which is not in the nature of income as referred to in clause (23FC) or clause (23FCA) of section 10 and which is not chargeable to tax under clause (xii) of sub-section (2) of section 56 and under sub-section (2) of section 115UA.

Explanation 2.—For the purposes of Explanation 1, it is clarified that where transaction of transfer of a unit is not considered as transfer under section 47 and cost of acquisition of such unit is determined under section 49, sum received with respect to such unit before such transaction as well as after such transaction shall be reduced from the cost of acquisition under the said Explanation;]

(iii) in case of value of any money or capital asset received by a specified person from a specified entity referred to in sub section (4) of section 45, the amount chargeable to income-tax as income of such specified entity under that sub-section which is attributable to the capital asset being transferred by the specified entity, calculated in the prescribed manner:

Provided that in the case of an assessee, who is a non-resident, capital gains arising from the transfer of a capital asset being shares in, or debentures of, an Indian company shall be computed by converting the cost of acquisition, expenditure incurred wholly and exclusively in connection with such transfer and the full value of the consideration received or accruing as a result of the transfer of the capital asset into the same foreign currency as was initially utilised in the purchase of the shares or debentures, and the capital gains so computed in such foreign currency shall be reconverted into Indian currency, so, however, that the aforesaid manner of computation of capital gains shall be applicable in respect of capital gains accruing or arising from every reinvestment thereafter in, and sale of, shares in, or debentures of, an Indian company :

Provided further that where long-term capital gain arises from the transfer [(which takes place before the 23rd day of July, 2024)] of a long-term capital 48b asset, other than capital gain arising to a non-resident from the transfer of shares in, or debentures of, an Indian company referred to in the first proviso, the provisions of clause (ii) shall have effect as if for the words “cost of acquisition” and “cost of any improvement”, the words “indexed cost of acquisition” and “indexed cost of any improvement” had respectively been substituted:

Provided also that nothing contained in the first and second provisos shall apply to the capital gains arising from the transfer of a long-term capital asset being an equity share in a company or a unit of an equity oriented fund or a unit of a business trust referred to in section 112A:

Provided also that nothing contained in the second proviso shall apply to the long-term capital gain arising from the transfer of a long-term capital asset, being a bond or debenture other than—

(a) capital indexed bonds issued by the Government; or

(b) Sovereign Gold Bond issued by the Reserve Bank of India under the Sovereign Gold Bond Scheme, 2015:

Provided also that in case of an assessee being a non-resident, any gains arising on account of appreciation of rupee against a foreign currency at the time of redemption of rupee denominated bond of an Indian company held by him, shall be ignored for the purposes of computation of full value of consideration under this section:

Provided also that where shares, debentures or warrants referred to in the proviso to clause (iii) of section 47 are transferred under a gift or an irrevocable trust, the market value on the date of such transfer shall be deemed to be the full value of consideration received or accruing as a result of transfer for the purposes of this section :

Provided also that no deduction shall be allowed in computing the income chargeable under the head “Capital gains” in respect of any sum paid on account of securities transaction tax under Chapter VII of the Finance (No. 2) Act, 2004.

Explanation.—For the purposes of this section,—

(i) “foreign currency” and “Indian currency” shall have the meanings respectively assigned to them in section 2 of the Foreign Exchange Management Act, 1999 (42 of 1999);

(ii) the conversion of Indian currency into foreign currency and the reconversion of foreign currency into Indian currency shall be at the rate of exchange prescribed in this behalf;

(iii) “indexed cost of acquisition” means an amount which bears to the cost of acquisition the same proportion as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the first year in which the asset was held by the assessee or for the year beginning on the 1st day of April, 2001, whichever is later;

(iv) “indexed cost of any improvement” means an amount which bears to the cost of improvement the same proportion as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the year in which the improvement to the asset took place;

(v) “Cost Inflation Index”, in relation to a previous year, means such Index as the Central Government may, having regard to seventy-five per cent of average rise in the Consumer Price Index (urban) for the immediately preceding previous year to such previous year, by notification in the Official 48c Gazette, specify, in this behalf.

^48a by Act No. 08 of 2023, w.e.f. 1-4-2024.

^48b by Act No. 15 of 2024, w.r.e.f. 23-7-2024.

48c. Notified Cost Inflation Index for relevant financial year is as under :

2001-02 : 100/2002-03 : 105/2003-04 : 109/2004-05 : 113/2005-06 : 117/2006-07 : 122/2007-08 : 129/2008-09 : 137/2009-10 : 148/2010-11 :167/2011-12 : 184/2012-13 : 200/2013-14 : 220/2014-15 : 240/2015-16 : 254/2016-17 : 264/2017-18 : 272/2018-19 : 280/2019-20 : 289/2020-21 :301/2021-22 : 317/2022-23 : 331/2023-24 : 348/2024-25 : 363.

Section – 49

Cost with reference to certain modes of acquisition.

49. (1) Where the capital asset became the property of the assessee—

(i) on any distribution of assets on the total or partial partition of a Hindu undivided family;

(ii) under a gift or will;

(iii) (a) by succession, inheritance or devolution, or

(b) on any distribution of assets on the dissolution of a firm, body of individuals, or other association of persons, where such dissolution had taken place at any time before the 1st day of April, 1987, or

(c) on any distribution of assets on the liquidation of a company, or

(d) under a transfer to a revocable or an irrevocable trust, or

(e) under any such transfer as is referred to in clause (iv) or clause (v) or clause (vi) or clause (via) or clause (viaa) or clause (viab) or clause (vib) or clause (vic) or clause (vica) or clause (vicb) or clause (vicc) or clause (viiac) or clause (viiad) or clause (viiae) or clause (viiaf) or clause (xiii) or clause (xiiib) or clause (xiv) of section 47;

(iv) such assessee being a Hindu undivided family, by the mode referred to in sub-section (2) of section 64 at any time after the 31st day of December, 1969,

the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the assets incurred or borne by the previous owner or the assessee, as the case may be.

Explanation.—In this sub-section the expression “previous owner of the property” in relation to any capital asset owned by an assessee means the last previous owner of the capital asset who acquired it by a mode of acquisition other than that referred to in clause (i) or clause (ii) or clause (iii) or clause (iv) of this sub­section.

(2) Where the capital asset being a share or shares in an amalgamated company which is an Indian company became the property of the assessee in consideration of a transfer referred to in clause (vii) of section 47, the cost of acquisition of the asset shall be deemed to be the cost of acquisition to him of the share or shares in the amalgamating company.

(2A) Where the capital asset, being a share or debenture of a company, became the property of the assessee in consideration of a transfer referred to in clause (x) or clause (xa) of section 47, the cost of acquisition of the asset to the assessee shall be deemed to be that part of the cost of debenture, debenture-stock, bond or deposit certificate in relation to which such asset is acquired by the assessee.

(2AA) Where the capital gain arises from the transfer of specified security or sweat equity shares referred to in sub-clause (vi) of clause (2) of section 17, the cost of acquisition of such security or shares shall be the fair market value which has been taken into account for the purposes of the said sub-clause.

(2AAA) Where the capital asset, being rights of a partner referred to in section 42 of the Limited Liability Partnership Act, 2008 (6 of 2009), became the property of the assessee on conversion as referred to in clause (xiiib) of section 47, the cost of acquisition of the asset shall be deemed to be the cost of acquisition to him of the share or shares in the company immediately before its conversion.

(2AB) Where the capital gain arises from the transfer of specified security or sweat equity shares, the cost of acquisition of such security or shares shall be the fair market value which has been taken into account while computing the value of fringe benefits under clause (ba) of sub-section (1) of section 115WC.

(2ABB) Where the capital asset, being share or shares of a company, is acquired by a non-resident assessee on redemption of Global Depository Receipts referred to in clause (b) of sub-section (1) of section 115AC held by such assessee, the cost of acquisition of the share or shares shall be the price of such share or shares prevailing on any recognised stock exchange on the date on which a request for such redemption was made.

Explanation.—For the purposes of this sub-section, “recognised stock exchange” shall have the meaning assigned to it in clause (ii) of the Explanation 1 to sub- section (5) of section 43.

(2AC) Where the capital asset, being a unit of a business trust, became the property of the assessee in consideration of a transfer as referred to in clause (xvii) of section 47, the cost of acquisition of the asset shall be deemed to be the cost of acquisition to him of the share referred to in the said clause.

(2AD)Where the capital asset, being a unit or units in a consolidated scheme of a mutual fund, became the property of the assessee in consideration of a transfer referred to in clause (xviii)of section 47, the cost of acquisition of the asset shall be deemed to be the cost of acquisition to him of the unit or units in the consolidating scheme of the mutual fund.

(2AE) Where the capital asset, being equity share of a company, became the property of the assessee in consideration of a transfer referred to in clause (xb) of section 47, the cost of acquisition of the asset shall be deemed to be that part of the cost of the preference share in relation to which such asset is acquired by the assessee.

(2AF) Where the capital asset, being a unit or units in a consolidated plan of a mutual fund scheme, became the property of the assessee in consideration of a transfer referred to in clause (xix) of section 47, the cost of acquisition of the asset shall be deemed to be the cost of acquisition to him of the unit or units in the consolidating plan of the scheme of the mutual fund.

(2AG) The cost of acquisition of a unit or units in the segregated portfolio shall be the amount which bears, to the cost of acquisition of a unit or units held by the assessee in the total portfolio, the same proportion as the net asset value of the asset transferred to the segregated portfolio bears to the net asset value of the total portfolio immediately before the segregation of portfolios.

(2AH) The cost of the acquisition of the original units held by the unit holder in the main portfolio shall be deemed to have been reduced by the amount as so arrived at under sub-section (2AG).

Explanation.—For the purposes of sub-section (2AG) and sub-section (2AH), the expressions “main portfolio”, “segregated portfolio” and “total portfolio” shall have the meanings respectively assigned to them in the circular No. SEBI/HO/IMD/DF2/CIR/P/2018/160, dated the 28th December, 2018, issued by the Securities and Exchange Board of India under section 11 of the Securities and Exchange Board of India Act, 1992 (15 of 1992).

^48d[(2AI) Where the capital asset, being shares as referred to in clause (xx) of section 47, became the property of the assessee, the cost of acquisition of such asset shall be deemed to be the cost of acquisition to it of the interest in the joint venture referred to in the said clause.]

(2B) [***]

(2C) The cost of acquisition of the shares in the resulting company shall be the amount which bears to the cost of acquisition of shares held by the assessee in the demerged company the same proportion as the net book value of the assets transferred in a demerger bears to the net worth of the demerged company immediately before such demerger.

(2D) The cost of acquisition of the original shares held by the shareholder in the demerged company shall be deemed to have been reduced by the amount as so arrived at under sub-section (2C).

(2E) The provisions of sub-section (2), sub-section (2C) and sub-section (2D) shall, as far as may be, also apply in relation to business reorganisation of a co­operative bank as referred to in section 44DB.

Explanation.—For the purposes of this section, “net worth” shall mean the aggregate of the paid up share capital and general reserves as appearing in the books of account of the demerged company immediately before the demerger.

(3) Notwithstanding anything contained in sub-section (1), where the capital gain arising from the transfer of a capital asset referred to in clause (iv) or, as the case may be, clause (v) of section 47 is deemed to be income chargeable under the head “Capital gains” by virtue of the provisions contained in section 47A, the cost of acquisition of such asset to the transferee-company shall be the cost for which such asset was acquired by it.

(4) Where the capital gain arises from the transfer of a property, the value of which has been subject to income-tax under clause (vii) or clause (viia) or clause (x) of sub-section (2) of section 56, the cost of acquisition of such property shall be deemed to be the value which has been taken into account for the purposes of the said clause (vii) or clause (viia) or clause (x).

(5) Where the capital gain arises from the transfer of an asset declared under the Income Declaration Scheme, 2016, and the tax, surcharge and penalty have been paid in accordance with the provisions of the Scheme on the fair market value of the asset as on the date of commencement of the Scheme, the cost of acquisition of the asset shall be deemed to be the fair market value of the asset which has been taken into account for the purposes of the said Scheme.

(6) Where the capital gain arises from the transfer of a specified capital asset referred to in clause (c) of the Explanation to clause (37A) of section 10, which has been transferred after the expiry of two years from the end of the financial year in which the possession of such asset was handed over to the assessee, the cost of acquisition of such specified capital asset shall be deemed to be its stamp duty value as on the last day of the second financial year after the end of the financial year in which the possession of the said specified capital asset was handed over to the assessee.

Explanation.—For the purposes of this sub-section, “stamp duty value” means the value adopted or assessed or assessable by any authority of the State Government for the purpose of payment of stamp duty in respect of an immovable property.

(7) Where the capital gain arises from the transfer of a capital asset, being share in the project, in the form of land or building or both, referred to in sub­section (5A) of section 45, not being the capital asset referred to in the proviso to the said sub-section, the cost of acquisition of such asset, shall be the amount which is deemed as full value of consideration in that sub-section.

(8) Where the capital gain arises from the transfer of an asset, being the asset held by a trust or an institution in respect of which accreted income has been computed and the tax has been paid thereon in accordance with the provisions of Chapter XII-EB, the cost of acquisition of such asset shall be deemed to be the fair market value of the asset which has been taken into account for computation of accreted income as on the specified date referred to in sub-section (2) of section 115TD.

(9) Where the capital gain arises from the transfer of a capital asset referred to in clause (via) of section 28, the cost of acquisition of such as set shall be deemed to be the fair market value which has been taken into account for the purposes of the said clause.

49[(10) Where the capital asset, being—

(i) an Electronic Gold Receipt issued by a Vault Manager, became the property of the person as consideration of a transfer, referred to in clause (viid) of section 47, the cost of acquisition of the asset for the purposes of the said transfer, shall be deemed to be the cost of gold in the hands of the person in whose name Electronic Gold Receipt is issued;

(ii) gold released against an Electronic Gold Receipt, which became the property of the person as consideration for a transfer, referred to in clause (viid) of section 47, the cost of acquisition of the asset for the purposes of the said transfer shall be deemed to be the cost of the Electronic Gold Receipt in the hands of such person.]

Note:

^48d Ins. by Act No. 08 of 2023, w.e.f. 1-4-2023.

⁴⁹ Ins. by Act No. 08 of 2023, w.e.f. 1-4-2024.

Section – 50C

Special provision for full value of consideration in certain cases.

50C. (1) Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government (hereafter in this section referred to as the “stamp valuation authority”) for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer :

Provided that where the date of the agreement fixing the amount of consideration and the date of registration for the transfer of the capital asset are not the same, the value adopted or assessed or assessable by the stamp valuation authority on the date of agreement may be taken for the purposes of computing full value of consideration for such transfer:

Provided further that the first proviso shall apply only in a case where the amount of consideration, or a part thereof, has been received by way of an account payee cheque or account payee bank draft or by use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed, on or before the date of the agreement for transfer:

Provided also that where the value adopted or assessed or assessable by the stamp valuation authority does not exceed one hundred and ten per cent of the consideration received or accruing as a result of the transfer, the consideration so received or accruing as a result of the transfer shall, for the purposes of section 48, be deemed to be the full value of the consideration.

(2) Without prejudice to the provisions of sub-section (1), where—

(a) the assessee claims before any Assessing Officer that the value adopted or assessed or assessable by the stamp valuation authority under sub-section (1) exceeds the fair market value of the property as on the date of transfer;

(b) the value so adopted or assessed or assessable by the stamp valuation authority under sub-section (1) has not been disputed in any appeal or revision or no reference has been made before any other authority, court or the High Court,

the Assessing Officer may refer the valuation of the capital asset to a Valuation Officer and where any such reference is made, the provisions of sub-sections (2), (3), (4), (5) and (6) of section 16A, clause (i) of sub-section (1) and sub-sections (6) and (7) of section 23A, sub-section (5) of section 24, section 34AA, section 35 and section 37 of the Wealth-tax Act, 1957 (27 of 1957), shall, with necessary modifications, apply in relation to such reference as they apply in relation to a reference made by the Assessing Officer under sub-section (1) of section 16A of that Act.

Explanation 1.—For the purposes of this section, “Valuation Officer” shall have the same meaning as in clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957).

Explanation 2.—For the purposes of this section, the expression “assessable” means the price which the stamp valuation authority would have, notwithstanding anything to the contrary contained in any other law for the time being in force, adopted or assessed, if it were referred to such authority for the purposes of the payment of stamp duty.

(3) Subject to the provisions contained in sub-section (2), where the value ascertained under sub-section (2) exceeds the value adopted or assessed or assessable by the stamp valuation authority referred to in sub-section (1), the value so adopted or assessed or assessable by such authority shall be taken as the full value of the consideration received or accruing as a result of the transfer.

Income-tax Rules, 1962

Rule – 8AA

62[Method of determination of period of holding of capital assets in certain cases.

8AA. (1) The period for which any capital asset, other than the capital assets mentioned in clause (i) of the Explanation 1 to clause (42A) of section 2 of the Act, is held by an assessee, shall be determined in accordance with the provisions of this rule.

(2) In the case of a capital asset, being a share or debenture of a company, which becomes the property of the assessee in the circumstances mentioned in clause (x) of section 47 of the Act, there shall be included the period for which the bond, debenture, debenture-stock or deposit certificate, as the case may be, was held by the assessee prior to the conversion.]

[(3) In the case of a capital asset, declared under the Income Declaration Scheme, 2016,—

(i) being an immovable property, the period for which such property is held shall be reckoned from the date on which such property is acquired if the date of acquisition is evidenced by a deed registered with any authority of a State Government; and

(ii) in any other case, the period for which such asset is held shall be reckoned from the 1st day of June, 2016.]

⁶⁴[(4) In the case of a capital asset which became the property of the Indian subsidiary company in consequence to conversion of a branch of a foreign company referred to in sub-section (1) of section 115JG, there shall be included the period for which the asset was held by the said branch of the foreign company and by the previous owner, if any, who has acquired the capital asset by a mode of acquisition referred to in clause (i) or clause (ii) or clause (iii) or clause (iv) of sub-section (1) of section 49 or sub-section (1) of section 115JG.]

⁶⁵[(5) In case of the amount which is chargeable to income-tax as income of specified entity under sub-section (4) of section 45 under the head “Capital gains”,—

(I) the amount or a part of it shall be deemed to be from transfer of short-term capital asset, if it is attributed to,—

(a) capital asset which is short-term capital asset at the time of taxation of amount under sub-section (4) of section 45; or

(b) capital asset forming part of block of asset; or

(c) capital asset being self-generated asset and self-generated goodwill as defined in clause (ii) of Explanation 1 to sub-section (4) of section 45; and

(II) the amount or a part of it shall be deemed to be from transfer of long-term capital asset or assets, if it is attributed to capital asset which is not covered by clause (i) and is long-term capital asset at the time of taxation of amount under sub-section (4) of section 45.]

Rule – 8AB

⁶⁶ [Attribution of income taxable under sub-section (4) of section 45 to the capital assets remaining with the specified entity, under section 48.

8AB. (1) For the purposes of clause (iii) of section 48, where the amount is chargeable to income-tax as income of specified entity under sub-section (4) of section 45, the specified entity shall attribute such amount to capital asset remaining with the specified entity in a manner provided in this rule.

(2) Where the aggregate of the value of money and the fair market value of the capital asset received by the specified person from the specified entity, in excess of the balance in his capital account, chargeable to tax under sub-section (4) of section 45, relates to revaluation of any capital asset or valuation of self-generated asset or self-generated goodwill, of the specified entity, the amount attributable to the capital asset remaining with the specified entity for purpose of clause (iii) of section 48 shall be the amount which bears to the amount charged under sub-section (4) of section 45 the same proportion as the increase in, or recognition of, value of that asset because of revaluation or valuation bears to the aggregate of increase in, or recognition of, value of all assets because of the revaluation or valuation.

(3) Where the aggregate of the value of money and the fair market value of the capital asset received by the specified person from the specified entity, in excess of the balance in his capital account, charged to tax under sub-section (4) of section 45 does not relate to revaluation of any capital asset or valuation of self-generated asset or self-generated goodwill, of the specified entity, the amount charged to tax under sub-section (4) of section 45 shall not be attributed to any capital asset for the purposes of clause (iii) of section 48.

(4) Notwithstanding anything contained in sub-rule (2) or (3), where the aggregate of the value of money and the fair market value of the capital asset received by the specified person from the specified entity, in excess of the balance in his capital account, charged to tax under sub-section (4) of section 45 relate only to the capital asset received by the specified person from the specified entity, the amount charged to tax under sub-section (4) of section 45 shall not be attributed to any capital asset for the purposes of clause (iii) of section 48.

(5) The specified entity shall furnish the details of amount attributed to capital asset remaining with the specified entity in Form No. 5C.

(6) Form No. 5C shall be furnished electronically either under digital signature or through electronic verification code and shall be verified by the person who is authorised to verify the return of income of the specified entity under section 140.

(7) Form No. 5C shall be furnished on or before the due date referred to in the Explanation 2 below sub-section (1) of section 139 for the assessment year in which the amount is chargeable to tax under sub-section (4) of section 45.

(8) The Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems), as the case may be, shall—

(i) specify the procedure for filing of Form No. 5C;

(ii) specify the procedure, format, data structure, standards and manner of generation of electronic verification code, referred to in sub-rule (6), for verification of the person furnishing the said Form; and

(iii) be responsible for formulating and implementing appropriate security, archival and retrieval policies in relation to the Form No. 5C so furnished. Explanation 1.—For the purposes of this rule, the amount chargeable to tax under sub-section (4) of section 45 shall relate to revaluation of any capital asset or valuation of self-generated asset or self-generated goodwill, of the specified entity, if the revaluation is based on a valuation report obtained from a registered valuer as defined in clause (g) of rule 11U.

Explanation 2.—For the removal of doubt it is clarified that revaluation of an asset or valuation of self-generated asset or self-generated goodwill does not entitle the specified entity for the depreciation on the increase in value of that asset on account of its revaluation or recognition of the value of self-generated asset or self-generated goodwill due to its valuation.

Explanation 3.—For the purposes of this rule, the expressions “self-generated asset” and “self-generated goodwill” shall have the same meaning as assigned to them in clause (ii) of Explanation 1 to sub-section (4) of section 45.]

Rule – 11UAD

⁸⁵ [Prescribed class of persons for the purpose of section 50CA.

11UAD. The provisions of section 50CA of the Act shall not apply to transfer of any movable property, being unquoted shares, of a company and its subsidiary and the subsidiary of such subsidiary by an assessee, where,—

(i) the Tribunal, on an application moved by the Central Government under section 241 of the Companies Act, 2013, has suspended the Board of Directors of such company and has appointed new directors nominated by the Central Government under section 242 of the said Act; and

(ii) share of such company and its subsidiary and the subsidiary of such subsidiary has been transferred pursuant to a resolution plan approved by the Tribunal under section 242 of the Companies Act, 2013 after affording a reasonable opportunity of being heard to the jurisdictional Principal Commissioner or Commissioner.

Explanation.—For the purposes of this sub-rule,—

(a) a company shall be a subsidiary of another company, if such other company holds more than half in nominal value of the equity share capital of the company;

(b) “Tribunal” shall have the same meaning assigned to it in clause (90) of section 2 of the Companies Act, 2013.]

Rule – 21AI

⁷⁷[Computation of exempt income of specified fund for the purposes of clause (4D) of section 10.

21AI. (1) For the purpose of clause (4D) of section 10, income attributable to units held by non-resident (not being the permanent establishment of a non­resident in India) in a specified fund shall be computed in accordance with the following formula, namely:—

Income exempt under clause (4D) of section 10 = A × C1 + B × C2 + D × F1 + E × F2, where

A = any income accrued or arisen to, or received by a specified fund as a result of transfer of capital asset referred to in clause (viiab) of section 47, on a recognised stock exchange located in any International Financial Services Centre and where the consideration for such transaction is paid or payable in convertible foreign exchange;

B = any income accrued or arisen to, or received by a specified fund as a result of transfer of securities (other than shares in a company resident in India);

C1 = ratio of the aggregate of daily ‘assets under management’ of the specified fund held by non-resident unit holders (not being the permanent establishment of a non-resident in India) to the aggregate of daily total ‘assets under management’ of the specified fund, from the date of acquisition of the capital asset referred to in clause (viiab) of section 47 to the date of transfer of such capital asset;

C2 = ratio of the aggregate of daily ‘assets under management’ of the specified fund held by non-resident unit holders (not being the permanent establishment of a non-resident in India) to the aggregate of daily total ‘assets under management’ of the specified fund, from the date of acquisition of the security (other than shares in a company resident in India) to the date of transfer of such security.

D = any income accrued or arisen to, or received by a specified fund from securities issued by a non-resident (not being a permanent establishment of a non­resident in India) and where such income otherwise does not accrue or arise in India;

E = any income accrued or arisen to, or received by a specified fund from a securitisation trust which is chargeable under the head “Profits and gains of business or profession”;

F1 = ratio of the ‘assets under management’ in the specified fund held by non-resident unit holders (not being the permanent establishment of a non-resident in India) to the total ‘asset under management’ of the specified fund, as on the date of receipt of such income from securities issued by a non- resident (not being a permanent establishment of a non-resident in India) and where such income otherwise does not accrue or arise in India; and

F2 = ratio of the ‘assets under management’ in the specified fund held by non-resident unit holders (not being the permanent establishment of a non-resident in India) to the total ‘asset under management’ of the specified fund, as on the date of receipt of such income from a securitisation trust which is chargeable under the head “Profits and gains of business or profession”.

(2) The specified fund shall furnish an annual statement of exempt income in Form No. 10-IG electronically under digital signature on or before the due date, which is duly verified in the manner indicated therein.

⁷⁸ [(2A) The income attributable to units held by non-resident (not being the permanent establishment of a non-resident in India) in a specified fund shall not be exempt under clause (4D) of section 10 of the Act unless the specified fund complies with sub-rule (2).]

(3) The Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems), as the case may be, shall specify the procedure for filing of the Form No. 10-IG and shall also be responsible for evolving and implementing appropriate security, archival and retrieval policies in relation to the statements so furnished under this rule.

Explanation.—For the purpose of this rule, the expressions,—

(a) “assets under management” means the closing balance of the value of assets or investments of the specified fund as on a particular date;

(b) “International Financial Services Centre” shall have the same meaning as assigned to it in clause (q) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005);

(c) “permanent establishment” shall have the same meaning as assigned to it in clause (iiia) of section 92F;

(d) “securities” shall have the same meaning as assigned to it in clause (bb) of the Explanation to clause (4D) of section 10;

(e) “due date” shall have the same meaning as assigned to it in the Explanation 2 to sub-section (1) of section 139;

(f)”specified fund” shall have the same meaning as assigned to it in sub-clause (i) of clause (c) of the Explanation to clause (4D) of section 10; and

(g) “unit” shall have the same meaning assigned to it in clause (f) of Explanation to clause (4D) of section 10.]

Rule – 26

PART VI
DEDUCTION OF TAX AT SOURCE

⁹⁰ [Rate of exchange for the purpose of deduction of tax at source on income payable in foreign currency.

26. For the purpose of deduction of tax at source on any income payable in foreign currency, the rate of exchange for the calculation of the value in rupees of such income payable—

(i) to an assessee outside India;

(ii) to a Unit located in an International Financial Services Centre;

(iii) by a Unit located in an International Financial Services Centre to an assessee in India,

shall be the telegraphic transfer buying rate of such currency as on the date on which the tax is required to be deducted at source under the provisions of Chapter XVIIB by the person responsible for paying such income.

Explanation.—For the purposes of this rule,—

(i) “International Financial Services Centre” shall have the meaning assigned to it in clause (q) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005);

(ii) “telegraphic transfer buying rate”, in relation to a foreign currency, means the rate or rates of exchange adopted by the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), for buying such currency, having regard to the guidelines specified from time to time by the Reserve Bank of India for buying such currency, where such currency is made available to that bank through a tele- graphic transfer;

(iii) “Unit” shall have the meaning assigned to it in clause (zc) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005).]

Rule – 115

Rate of exchange for conversion into rupees of income expressed in foreign currency.

115. (1) The rate of exchange for the calculation of the value in rupees of any income accruing or arising or deemed to accrue or arise to the assessee in foreign currency or received or deemed to be received by him or on his behalf in foreign currency shall be the telegraphic transfer buying rate of such currency as on the specified date.

Explanation.—For the purposes of this rule,—

(1) “telegraphic transfer buying rate” shall have the same meaning as in the Explanation to rule 26;

(2) “specified date” means—

(a) in respect of income chargeable under the head “Salaries”, the last day of the month immediately preceding the month in which the salary is due, or is paid in advance or in arrears;

(b) in respect of income by way of “interest on securities”, the last day of the month immediately preceding the month in which the income is due;

(c) in respect of income chargeable under the heads “Income from house property”, “Profits and gains of business or profession” [not being income referred to in clause (d)] and “Income from other sources” (not being income by way of dividends and “Interest on securities”), the last day of the previous year of the assessee;

(d) in respect of income chargeable under the head “Profits and gains of business or profession” in the case of a non-resident engaged in the business of operation of ships, the last day of the month immediately preceding the month in which such income is deemed to accrue or arise in India;

(e) in respect of income by way of dividends, the last day of the month immediately preceding the month in which the dividend is declared, distributed or paid by the company;

(f) in respect of income chargeable under the head “Capital gains”, the last day of the month immediately preceding the month in which the capital asset is transferred :

Provided that the specified date, in respect of income referred to in sub-clauses (a) to (f) payable in foreign currency and from which tax has been deducted at source under rule 26, shall be the date on which the tax was required to be deducted] under the provisions of the Chapter XVII-B.

(2) Nothing contained in sub-rule (1) shall apply in respect of income referred to in clause (c) of the Explanation to sub-rule (1) where such income is received in, or brought into India by the assessee or on his behalf before the specified date in accordance with the provisions of the Foreign Exchange Regulation Act, 1973 (46 of 1973).

Rule – 115A

Rate of exchange for conversion of rupees into foreign currency and reconversion of foreign currency into rupees for the purpose of computation of capital gains under the proviso to clause (a) of sub-section (1) of section 48 of the Income-tax Act, 1961.

115A. For the purpose of computing capital gains arising from the transfer of a capital asset being shares in, or debentures of, an Indian company, in the case of an assessee who is a non-resident Indian, the rate of exchange shall be :—

(a) for converting the cost of acquisition of the capital asset, the average of the telegraphic transfer buying rate and telegraphic transfer selling rate of the foreign currency initially utilised in the purchase of the said asset, as on the date of its acquisition;

(b) for converting expenditure incurred wholly and exclusively in connection with the transfer of the capital asset referred to in clause (a), the average of the telegraphic transfer buying rate and telegraphic transfer selling rate of the foreign currency initially utilised in the purchase of the said asset, as on the date of transfer of the capital asset;

(c) for converting the full value of consideration received or accruing as a result of the transfer of the capital asset referred to in clause (a), the average of the telegraphic transfer buying rate and telegraphic transfer selling rate of the foreign currency initially utilised in the purchase of the said asset, as on the date of transfer of the capital asset;

(d) for reconverting capital gains computed in the foreign currency initially utilised in the purchase of the capital asset into rupees, the telegraphic transfer buying rate of such currency, as on the date of transfer of the capital asset.

Explanation.—For the purposes of this rule—

(i) “telegraphic transfer buying rate” shall have the same meaning as in the Explanation to rule 26;

(ii) “telegraphic transfer selling rate”, in relation to a foreign currency, means the rate of exchange adopted by the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), for selling such currency where such currency is made available by that bank through telegraphic transfer.

⁷⁷ Inserted by the IT (Twenty-second Amdt.) Rules, 2021, w.e.f. 9-8-2021.

⁷⁸ Inserted by the IT (Seventeenth Amdt.) Rules, 2022, w.e.f. 16-6-2022.

⁶² Inserted by the IT (Sixth Amdt.) Rules, 2016, w.e.f. 1-4-2016.

⁶³ Inserted by the IT (Thirty-fourth Amdt.) Rules, 2016, w.r.e.f. 1-6-2016.

⁶⁴ Inserted by the IT (Thirteenth Amdt.) Rules, 2018, w.e.f. 6-12-2018.

⁶⁵ Inserted by the IT (Eighteenth Amdt.) Rules, 2021, w.e.f. 2-7-2021.

⁶⁶ Inserted by the IT (Eighteenth Amdt.) Rules, 2021, w.e.f. 2-7-2021.

⁸⁵ Inserted by the IT (Fifteenth Amdt.) Rules, 2020, w.r.e.f. 1-4-2020 and shall be applicable for assessment year 2020-21 and subsequent assessment years.

⁹⁰ Substituted by the IT (Seventeenth Amdt.) Rules, 2023, w.e.f. 17-8-2023.

Various exemptions available from capital gains​

Disclaimer: The contents of this document are for information purposes only. This aims to enable public to have a quick and an easy access to information and do not purport to be legal documents. Viewers are advised to verify the content from Government Acts/Rules/Notifications etc.

Various exemptions available in respect of Capital Gains

Particulars	Section 54	Section 54B	Section 54D	Section 54EC	Section 54EE	Section 54F	Section 54G	Section 54GA	Section 54GB
Eligible Assessee	Individuals and Hindu Undivided Family (HUFs)	Individuals and Hindu Undivided Family (HUFs)	Any assessee	Any assessee	Any assessee	Individuals and Hindu Undivided Family (HUFs)	Any assessee	Any assessee	Individuals and Hindu Undivided Family (HUFs)
Qualifying Asset	Residential House Property	Agricultural land	Land or building forming part of an Industrial undertaking transferred by way of compulsory acquisition	Land or building or both	Any Capital Asset	Any Capital Asset other than residential house property	Plant, machinery, land, or building, or any right in land or building used for the purpose of an industrial undertaking situated in an urban area	Plant, machinery, land, or building, or any right in land or building used for the purpose of an industrial undertaking situated in an urban area	Residential property (i.e. a house or plot of land)
Nature of Capital Gains	Long Term Capital Gains (LTCG)	Long or Short Term Capital Gains (LTCG/ STCG)	Long or Short Term Capital Gains (LTCG/ STCG)	Long Term Capital Gains (LTCG)	Long Term Capital Gains (LTCG)	Long Term Capital Gains (LTCG)	Long or Short Term Capital Gains (LTCG/ STCG)	Long or Short Term Capital Gains (LTCG/ STCG)	Long Term Capital Gains (LTCG)
Investment in new Property	Residential House Property in India	Agricultural land	Land or building for the purposes of shifting or re-establishing the undertaking or setting up another industrial undertaking	– National Highway Authority of India (NHAI Bonds) – Rural Electrification Corporation Limited (REC Bonds) – Any other bond notified by the Central Government	Units of Notified Fund	Residential house property located in India	New plant or machinery, purchase or construct a building, shift the original asset in to a non-urban area	New plant or machinery, purchase or construct a building, shift the original asset in SEZ	equity shares of an ‘eligible company’ or ‘eligible start-up’ However, the eligible company buy new asset within 1 year after the date ofsubscription of shares.
Maximum amount of exemption allowed	lower of: -Amount of long-term capital gains or -Amount invested in new house property and deposited in capital gain account scheme [Note 1]	lower of: – Amount of capital gains; or – Amount of investment in new agricultural land [including the amount deposited in Capital Gains Account Scheme]	lower of: – Amount of capital gains; or – Amount of investment in new land or building [including the amount deposited in Capital Gains Account Scheme]	lower of: – The amount of long-term capital gains; or – The amount invested in specified bonds; or – Rs. 50,00,000	lower of: – Amount of long- term capital gains; – Amount invested in specified assets; or – Rs. 50,00,000	If net consid-eration is invested in new house property – the entire capital gain will be exempt from taxation. If partial consid-eration is invested in new house property – the exemption will be granted in proportion to the amount invested. [Note 1]	lower of: – Amount of capital gains; or – Aggregate of amount invested in new assets, expenses on transfer or establishment and amount deposited in capital gain account scheme	lower of: · Amount of capital gains; or · Aggregate of amount invested in new assets, expenses on transfer or establishment and amount deposited in deposit scheme	Amount of capital gain
Time Limit for making investment in new Property	– Purchase: 1 year before or 2 years after the date of transfer -Constr-uction: within 3 years from the date of transfer	within 2 years after the date of transfer of original asset	within a period of 3 years after the date of compulsory acquisition	within 6 months of the transfer of the land, building, or both	within 6 months of the transfer of the long term capital asset	-Purchase: 1 year before or 2 years after the date of transfer – Constr-uction: within 3 years from the date of transfer	within 1 year before or 3 years after the date of transfer	within 1 year before or 3 years after the date of transfer	Before the due date for furnishing of income-taxreturn.
Time limit to deposit in Capital Gains Account Scheme (CGAS)	On or before the due date of filing the return of income	On or before the due date of filing the return of income	On or before the due date of filing the return of income	–	–	On or before the due date of filing the return of income	On or before the due date of filing the return of income	On or before the due date of filing the return of income	–
Withdrawal of Exemption	– Amount deposited in CGAS not utilised in the prescribed time; – Transfer of new house within 3 years	– Amount deposited in CGAS not utilised in the prescribed time; – Transfer of new agricultural land within 3 years	– Amount deposited in CGAS not utilised in the prescribed time; – Transfer of new land or building within 3 Years	– Transfer of bonds within 5 years; or – Conversion of bonds within 5 Years	– Transfer of new asset within 3 years; or -Conv-ersion of bonds into money within 3 Years	– Acqui-sition of Second House; -Amount deposited in CGAS not utilised in the prescribed time; -Transfer of new house within 3 Years	Amount deposited in CGAS not utilised in the prescribed time; – Transfer of new asset within 3 years	-Amount deposited in CGAS not utilised in the prescribed time; -Transfer of new asset within 3 years	-Shares of the eligible company sold by the assessee; -New Asset sold by the eligible company; – Amount deposited by eligible company in

* The Central Government has notified bonds redeemable after five years and issued on or after 1st day of April, 2025 by ‘Housing and Urban Development Corporation Limited (HUDCO)’ as ‘long-term specified asset’ for section 54EC.[Notification no. 31/2025, dated 07-04-2025]

Note 1: Cost of new assetcannot exceed Rs. 10 crore. Further, if no investment is made by assessee in new asset and sum is deposited in capital gain account scheme, the maximum amount shall be taken into consideration is Rs. 10 crore for the purpose of exemption. (Applicable from Assessment Year 2024-25).

Cost Inflation Index

Disclaimer: The contents of this document are for information purposes only. This aims to enable public to have a quick and an easy access to information and do not purport to be legal documents. Viewers are advised to verify the content from Government Acts/Rules/Notifications etc.

NOTIFIED COST INFLATION INDEX UNDER SECTION 48, EXPLANATION (V)

As per Notification 70/2025, dated 01-07-2025, the following table should be used for the Cost Inflation Index :-

Sl. No.	Financial Year	Cost Inflation Index
(1)	(2)	(3)
1	2001-02	100
2	2002-03	105
3	2003-04	109
4	2004-05	113
5	2005-06	117
6	2006-07	122
7	2007-08	129
8	2008-09	137
9	2009-10	148
10	2010-11	167
11	2011-12	184
12	2012-13	200
13	2013-14	220
14	2014-15	240
15	2015-16	254
16	2016-17	264
17	2017-18	272
18	2018-19	280
19	2019-20	289
20	2020-21	301
21	2021-22	317
22	2022-23	331
23	2023-24	348
24	2024-25	363
25	2025-26	376

Tutorials

Exemptions from Capital Gains

Disclaimer: The contents of this document are for information purposes only. This aims to enable public to have a quick and an easy access to information and do not purport to be legal documents. Viewers are advised to verify the content from Government Acts/Rules/Notifications etc.

Exemptions from Capital Gains

The Income-tax Act allows exemption from capital gains tax if the amount of capital gains or sale consideration, as the case may be, is further invested in specified new assets. These exemptions are provided as per the following sections:

(a) Section 54: Exemption from the capital gains arising from the transfer of residential house property and investment in new house property.

(b) Section 54B: Exemption from the capital gains arising from transferring land used for agricultural purposes and investing in new agricultural land.

(c) Section 54D: Exemption from the capital gains arising from the compulsory acquisition of land and building, forming part of the industrial undertaking and investing in land or building for setting up or shifting of the industrial undertaking.

(d) Section 54EC: Exemption from the capital gains arising from the transfer of land or building or both and investing in specified bonds

(e) Section 54EE: Exemption from the capital gains arising from the transfer of any long-term capital asset and investing in specified assets

(f) Section 54F: Exemption from the capital gains arising from the transfer of a long-term capital asset other than a house property and investing in a residential house property

(g) Section 54G: Exemption from the capital gains arising from the transfer of assets on shifting of industrial undertaking from the urban area to a non-urban area

(h) Section 54GA: Exemption from the capital gains arising from the transfer of assets on shifting of industrial undertaking from the urban area to any SEZ

(i) Section 54GB: Exemption from the capital gains arising from the transfer of residential property and investing in eligible companies or eligible start-ups.

Exemption under Section 54

• The exemption under Section 54is allowed only if the capital gain arises from the transfer of a long-term capital asset being a residential house property or land appurtenant thereto whose income is taxable under the head of ‘income from house property’. Exemption under this section can be claimed only by an Individual or HUF.
• Here, long-term capital asset means an immovable property (land or building or both), held for more than 24 months immediately preceding the date of transfer.
• The exemption under this section can be claimed if the amount is invested for the purchase or construction of a residential house property. However, the exemption is allowed only if such new house property is situated in India.
• Exemption under Section 54is allowed only for investment in one house property. However, the exemption can be claimed for the purchase or construction of 2 house properties if the amount of long-term capital gains does not exceed Rs. 2 crores. This option can be availed once in a lifetime, i.e. once this option is claimed, it cannot be further availed for the same or any succeeding financial years.
• The maximum amount of exemption under Section 54will be lower of the following:

a) Amount of long-term capital gains; or

b) Rs. 10 crores;

c) Aggregate of the amount invested in new house property and the amount deposited in the capital gain account scheme.

• To claim an exemption under Section 54, the taxpayer should purchase another house within one year before or two years after the date of transfer of the old house or should construct another house within three years from the date of transfer.
• Accounts opened under Capital Gains Accounts Scheme are special-purpose accounts opened with an authorised bank. If the assessee could not utilise the capital gains to purchase or construct a residential house by the due date of filing the return of income, he may deposit the amount in such account to claim the exemption from capital gains.
• The amount deposited in the Capital Gains Account Scheme has to be utilised within the specified period for the purchase/construction of the residential house.
• The exemption claimed by the assessee under Section 54can be withdrawn in the following circumstances:

(a) Where the amount deposited is not utilised for purchasing a residential house property within 2 years or constructing a house property within 3 years from the date of transfer, the unutilised deposit in the account is deemed to be long-term capital gains in the year in which the prescribed time limit expires.

(b) Where the new house is transferred before 3 years from the date of its purchase/completion of construction, then at the time of computation of capital gain arising on transfer of the new house, the amount of capital gain claimed as exempt under Section 54 will be deducted from the cost of acquisition of the new house.

Exemption under Section 54B

• Section 54Bprovides the exemption from short-term and long-term capital gains arising from the transfer of agricultural land.
• Only Individuals and HUFs are eligible to claim an exemption under this section.
• The exemption shall be allowed if the agricultural land was used for agricultural purposes for at least 2 years before the date of transfer by the assessee, his parents, or HUF.
• The exemption can be availed if the capital gain is invested in purchasing new agricultural land within the prescribed time limit.
• Exemption under Section 54Bwill be lower of the following:

(a) Amount of capital gains arising on the transfer of agricultural land; or

(b) Investment in new agricultural land [including the amount deposited in Capital Gains Deposit Account Scheme]

• To claim the exemption under this section, the assessee needs to purchase the agricultural land within 2 years after the date of transfer of the original asset.
• If, till the date of filing the return of income, the capital gain is not utilised for the purchase of another agricultural land, then the exemption can be availed by depositing the unutilised amount in Capital Gains Deposit Account Scheme.
• The new land can be purchased by withdrawing the amount from the said account within the specified time limit of 2 years.
• The exemption claimed by the assessee under Section 54Bcan be withdrawn in the following circumstances:

a) Where the new agricultural land is transferred before 3 years from the date of its purchase, then at the time of computation of capital gain arising on transfer of the new agricultural land, the amount of capital gain claimed as exempt under Section 54Bwill be deducted from the cost of acquisition of the new house.

b) Where the amount deposited in the capital gains scheme account is not utilised to purchase agricultural land within 2 years after the date of transfer, the unutilised deposit is deemed to be a long-term capital gain of the relevant previous year in which the time-limit of 2 years expires.

Exemption under Section 54D

• Section 54Dallows exemption from the short-term and long-term capital gains arising from the compulsory acquisition of land or building which forms a part of an industrial undertaking. Such land or building should be used by the assessee for the business of the industrial undertaking for 2 years before the date of compulsory acquisition.
• The exemption is allowed if the assessee purchases any other land or building or any right in any other land or building or constructs any other building for the purposes of shifting or re-establishing the undertaking or setting up another industrial undertaking.
• This exemption is available to all assessees.
• Exemption under Section 54Dwill be lower of the following:

(a) Amount of capital gains arising from transfer of land or building; or

(b) Investment in new land or building [including the amount deposited in Capital Gains Account Scheme]

• The assessee has to purchase a new asset within 3 years after the date of compulsory acquisition of the undertaking.
• Where the capital gain is not utilised for purchasing any land or building or any right in any other land or building for construction of any building till the date of filing the return of income, then the exemption can be availed by depositing the unutilised amount in Capital Gains Deposit Account Scheme.
• The new land or building can be purchased or constructed by withdrawing the amount from the said account within the specified time limit of 3 years.
• The exemption claimed by the assessee under Section 54Dcan be withdrawn in the following circumstances:

a) Where the new land or building is sold within a period of 3 years from the date of its purchase/construction, then at the time of computation of capital gain arising fromthe transfer of the new land or building, the amount of exemption claim under this section will be deducted from the cost of acquisition of such land or building.

b) Where the amount deposited in the Capital Gains Account Scheme in respect of which the taxpayer has claimed exemption is not utilised within the specified period for the purchase or construction of another land or building, then the unutilised amount will be taxed as income of the previous year in which the specified period of 3 years expires.

Exemption under Section 54EC

• Section 54ECallows an exemption from the capital gains arising from the transfer of a long-term capital asset, being land or buildings, or both.
• This exemption is available to all assesses.
• The exemption is allowed if the assessee makes an investment in the bonds issued by the following entities:

(a) National Highway Authority of India (NHAI Bonds)

(b) Rural Electrification Corporation Limited (REC Bonds)

(c) Any other bond notified by the Central Government

• The amount of exemption will be the lower of the following:

(a) The amount of capital gains;

(b) The amount invested in specified bonds; or

(c) Rs. 50,00,000.

• The investment should be made within six months from the date of the transfer of the land, building, or both.
• The exemption claimed by the assessee under Section 54ECcan be withdrawn in the following circumstances:

a) Where the bonds are transferred within five years, the previously exempted amount of capital gains from the transfer of the original asset will be subject to tax as a long-term capital gain in the previous year in which the bonds are transferred.

b) Where the bonds are converted into cash within five years of their acquisition, the previously exempted amount of capital gains will be subject to tax as a long-term capital gain in the previous year in which the bonds are converted into cash.

Note: The Central Board of Direct Taxes has notified the bonds redeemable after 5 years issued by Housing and Urban Development Corporation Limited (HUDCO) as a “long-term specified asset” for the purposes of Section 54EC. [Notification no. 31/2025, dated 07-04-2025]

Exemption under Section 54EE

• Section 54EEprovides an exemption from the capital gains arising from the transfer of any long-term capital asset if the assessee uses the proceeds to purchase long-term assets as specified by the government to fund start-ups.
• This exemption is available to all assesses.
• The amount of exemption will be the lower of the following:

(a) Amount of long-term capital gains;

(b) Amount invested in specified assets; or

(c) Rs. 50,00,000

• Investment in long-term specified assets during the financial year in which the original asset is transferred and in the subsequent financial year should not exceed Rs. 50 lakhs.
• The investment should be made within 6 months from the date of the transfer of the long-term capital asset.
• The exemption claimed by the assessee under Section 54EEcan be withdrawn in the following circumstances:

a) Where the long-term specified assets are transferred within 3 years, the exempted amount of capital gain arising from the transfer of the original asset is chargeable to tax as long-term capital gain in the previous year in which bonds are transferred.

b) If long-term specified assets are converted into money within 3 years from the date of its acquisition, the exempted amount of capital gain is chargeable to tax as long-term capital gain in the previous year in which such assets are converted into money.

Exemption under Section 54F

• Section 54Fprovides an exemption for the capital gains arising from the transfer of a long-term capital asset (other than a residential house property) if the net sale consideration is invested in one residential house property in India within the prescribed time limit.
• The exemption is available only to individuals and Hindu Undivided Families (HUFs).
• To claim an exemption under Section 54F, the taxpayer should purchase another house within 1 year before or 2 years after the date of transfer of the old house or construct another house within 3 years from the date of transfer.
• If the assessee could not utilise the sale consideration to purchase or construct a residential house by the due date of filing the return of income, he may deposit the amount in such account to claim the exemption from capital gains.
• The amount deposited in the Capital Gains Account Scheme has to be utilised within the specified period for the purchase/construction of the residential house.
• The exemption allowed under Section 54Fshall be calculated as follows:

A x B/C

A = Investment in the residential house plus the amount deposited in the capital gain account scheme. The total amount of investment cannot exceed Rs. 10 crores.

B = Long-term Capital Gains

C = Net consideration from the transfer of the original asset

• The exemption may be denied if the assessee already owns more than one residential house on the date of transfer of the original asset, other than the house acquired within one year before the date of transfer.
• The exemption claimed by the assessee under Section 54Fcan be withdrawn in the following circumstances:

a) Where the assessee purchases a residential house, other than the new house, within 2 years after the date of transfer of the original asset or constructs a residential house, other than the new house, within 3 years after the date of transfer of original asset and the income from such house is chargeable to tax under the head Income from House Property, the exempted long-term capital gain becomes taxable in such previous year.

b) Where the amount deposited in the capital gain account scheme is not utilised to purchase a residential house within 2 years after the date of transfer or to construct a residential house within 3 years of the date of transfer, the unutilised deposit shall be deemed to be a long-term capital gain of the relevant previous year in which the time-limit of 3 years expires.

c) Where the new house so purchased or constructed is transferred within 3 years of its purchase/construction, the exempted capital gain becomes chargeable to tax as long-term capital gain in the relevant previous year in which the transfer takes place.

Exemption under Section 54G

• Section 54Gprovides an exemption from long-term or short-term capital gains arising from the transfer of assets in the course of shifting an industrial undertaking from an urban area to a non-urban area.
• The exemption is available if a capital asset, such as plant, machinery, land, or building, or any right in land or building used for the purpose of an industrial undertaking situated in an urban area, is transferred as part of the shifting of the industrial undertaking to any area other than an urban area.
• To claim this exemption, the capital gain arising from the transfer of the original asset should be used to purchase a new plant or machinery, purchase or construct a building, shift the original asset and its establishment, or incur expenses for other purposes as specified in a scheme framed by the Central Government for this purpose.
• The exemption is available to all assesses.
• An “urban area” is any area within the limits of a municipal corporation or municipality that the Central Government declares as an urban area for the purposes of Section 54G.
• The capital gain must be used for the specified purposes within 1 year before or 3 years after the date of transfer. Capital gain that has not been utilised on or before the due date of furnishing the return of income for the specified purposes should be deposited in a bank under the capital gain account scheme on or before the due date of furnishing the return of income.
• The amount of exemption will be the lower of the following:

(a) Amount of capital gains; or

(b) Aggregate of the amount invested in new assets, expenses on transfer or establishment, and the amount deposited in the capital gain account scheme.

• The exemption claimed by the assessee under this provision can be withdrawn in the following circumstances:

a) Where the new asset or any rights in it are sold within 3 years of its purchase or construction, the cost of the new asset will be reduced by the amount of capital gain previously exempted. The classification of the capital gain from the sale of the new asset into a long-term or short-term will be determined based on the length of time it was held.

b) Where the funds deposited in a capital gains account scheme are not used for the specified purposes within 3 years after the date of transfer, the unspent deposit will be considered as capital gain in the relevant previous year in which the 3-year time period expires. The nature of capital gain will be the same as the original gain.

Exemption under Section 54GA

• Section 54GAprovides an exemption from the long-term or short-term capital gains arising from the transfer of assets in the course of shifting an industrial undertaking from an urban area to a Special Economic Zone (SEZ).
• The exemption is available if a capital asset, such as plant, machinery, land, or building, or any right in land or building used for the purpose of an industrial undertaking situated in an urban area, is transferred as part of the shifting of the industrial undertaking to a Special Economic Zone.
• To claim this exemption, the capital gain arising from the transfer of the original asset should be used to purchase a new plant or machinery, purchase or construct a building, shift the original asset and its establishment, or incur expenses for other purposes as specified in a scheme framed by the Central Government for this purpose.
• The exemption is available to all assesses.
• The capital gain must be used for the specified purposes within 1 year before or 3 years after the date of transfer. Any capital gain that has not been utilised before the due date of submitting the income tax return for the intended purposes should be deposited into a capital gains account at a bank before the due date for submitting the income tax return.
• The amount of exemption will be the lower of the following:

(a) Amount of capital gains; or

(b) Aggregate of the amount invested in new assets, expenses on transfer or establishment, and the amount deposited in a deposit scheme.

• The exemption claimed by the assessee under this provision can be withdrawn in the following circumstances:

(a) Where the new asset or any rights in it are sold within 3 years of its purchase or construction, the cost of the new asset will be reduced by the amount of capital gain previously exempted. The classification of the capital gain from the sale of the new asset into long-term or short-term will be determined based on the length of time it was held.

(b) Where the funds deposited in a capital gains account scheme are not used for the specified purposes within 3 years after the date of transfer, the unspent deposit will be considered as capital gain in the relevant previous year in which the 3-year time period expires. The nature of capital gain will be the same as the original gain.

Exemption under Section 54GB

• Section 54GBprovides an exemption from the capital gain earned from selling a long-term capital asset being residential property (a house or plot of land).
• This exemption can be availed if the assessee invests the net consideration in equity shares of an eligible company and such a company uses this investment to buy a new plant and machinery.
• This exemption is available only to an ‘Individual’ or a ‘Hindu Undivided Family’.
• The exemption is available only if the original asset is transferred between April 1, 2012, and March 31, 2017. However, if the investment is to be made in an eligible start-up, the original asset can be transferred up to March 31, 2022.
• An eligible company means a company incorporated in India on or after April 1 of the previous year in which capital gains arise and engaged in the business of manufacture of any article or thing or in an eligible business. Further, the transferor (assessee) of residential property has more than 25% share capital or voting right of such company, and the company is either an SME under the MSME Act, 2006, or an eligible start-up.
• ‘Eligible Start-up’ means a company engaged in eligible business and satisfies the following conditions:

(a) It is incorporated between April 1, 2016, and March 31, 2025;

(b) The total turnover of its business does not exceed Rs. 100 crores in the previous year relevant to the assessment year for which deduction under sub-section 80-IAC(1) is claimed; and

(c) It has been certified as a start-up by the Inter-Ministerial Board of Certification, notified by the Central Government.

• The assessee should utilise the amount of net consideration from the original asset for the purchase of equity shares of an eligible company or eligible start-up before the due date for furnishing of income-tax return.
• The eligible company should utilise the amount for the purchase of new assets within 1 year from the date of subscription of equity shares by the assessee.
• Where the company does not utilise the amount to purchase a new asset before the due date of furnishing of return of income by the transferor (assessee), it shall be deposited by the company in the capital gain account scheme.
• The exemption shall be calculated as follows:

A x B/C

A = Investment in the new asset by the eligible company

B = Capital gains

C = Net Sales Consideration

• The exemption claimed by the assessee under this provision can be withdrawn in the following circumstances:

a) Where the individual or HUF sells or otherwise disposes of the equity shares in the eligible company within 5 years from the date of purchase, the earlier granted exemption or proportionate exemption on the capital gain will be considered as long-term capital gain and will be subject to tax in the year of sale or transfer.

b) Where the new asset, such as plant or machinery, is sold or transferred by the eligible start-up company within 5 years (3 years in case of computer or computer software) from the date of acquisition, the previous exemption given on the capital gains invested in the company will be considered as a long-term capital gain and subject to taxation in the year in which the asset is sold or transferred.

c) Where the eligible company fails to use the funds deposited in the capital gains scheme account to acquire new assets within one year of subscribing to equity shares, the earlier granted exemption (or proportionate exemption) will be considered as a long-term capital gain of the assessee for the financial year in which the one-year time limit expires.

MCQs on Exemptions from capital gains

Q1. Exemption under Section 54 is allowed from _____________.

(a) Long-term capital gains

(b) Short-term capital gains

(c) Both (a) and (b)

(d) None of the above

Correct answer: (a)

Explanation: The exemption under Section 54 is allowed only if the capital gain arises from the transfer of a long-term capital asset being a residential house property or land appurtenant thereto whose income is taxable under the head of ‘income from house property’.

Q2. Exemption under Section 54 can be claimed by _____________.

(a) Individual or HUF

(b) Eligible Start-ups

(c) All assessees

(d) None of the above

Correct answer: (a)

Explanation: Exemption under Section 54 can be claimed only by an Individual or HUF.

Q3. Exemption under Section 54B is allowed from _____________ arising from the transfer of agricultural land.

(a) Long-term capital gains

(b) Short-term capital gains

(c) Both (a) and (b)

(d) None of the above

Correct answer: (c)

Explanation: Section 54B provides the exemption from short-term and long-term capital gains arising from the transfer of agricultural land.

Q4. Exemption under Section 54B is allowed only if the assessee purchases the agricultural land within _____________ after the date of transfer of the original asset.

(a) 1 year

(b) 2 years

(c) 3 years

(d) 5 years

Correct answer: (b)

Explanation: To claim the exemption under Section 54B, the assessee needs to purchase the agricultural land within 2 years after the date of transfer of the original asset.

Q5. Exemption under section 54D is allowed only if the assessee purchases ________ for the purposes of shifting or re-establishing the undertaking or setting up another industrial undertaking.

(a) Other land or building

(b) Right in any other land or building

(c) Constructs any other building

(d) All of the above

Correct answer: (d)

Explanation: Exemption under section 54D is allowed if the assessee purchases any other land or building or any right in any other land or building or constructs any other building for the purposes of shifting or re-establishing the undertaking or setting up another industrial undertaking.

Q6. Exemption under Section 54EC is limited to a maximum of ________.

(a) Rs. 10 crores

(b) Rs. 50 lakhs

(c) Rs. 2 Crores

(d) Rs. 5 crores

Correct answer: (b)

Explanation: Exemption under Section 54EC will be the lower of the following:

(a) The amount of capital gains;

(b) The amount invested in specified bonds; or

(c) Rs. 50,00,000.

Q7. Exemption under section 54GA can be withdrawn if ______.

(a) the new asset or any rights in it are sold within 3 years of its purchase or construction

(b) the funds deposited in a capital gains account scheme are not used for the specified purposes within 3 years after the date of transfer

(c) Either (a) or (b)

(d) None of the above

Correct answer: (c)

Explanation: The exemption claimed by the assessee under this provision can be withdrawn in the following circumstances:

(a) Where the new asset or any rights in it are sold within 3 years of its purchase or construction, the cost of the new asset will be reduced by the amount of capital gain previously exempted. The classification of the capital gain from the sale of the new asset into long-term or short-term will be determined based on the length of time it was held.

(b) Where the funds deposited in a capital gains account scheme are not used for the specified purposes within 3 years after the date of transfer, the unspent deposit will be considered as capital gain in the relevant previous year in which the 3-year time period expires. The nature of capital gain will be the same as the original gain.

Q8. Which of the following is true in relation to Section 54GB?

(a) The exemption is available only if the original asset is transferred between April 1, 2012, and March 31, 2019. However, if the investment is to be made in an eligible start-up, the original asset can be transferred up to March 31, 2022.

(b) This exemption can be availed if the assessee invests the capital gains in equity shares of an eligible company and such a company uses this investment to buy a new plant and machinery.

(c) This exemption is available only to an ‘Individual’ or a ‘Hindu Undivided Family’

(d) None of the above

Correct answer: (c)

Explanation: Exemption under section GB is available only to an ‘Individual’ or a ‘Hindu Undivided Family’. Further, this exemption is available only if the original asset is transferred between April 1, 2012, and March 31, 2017. However, if the investment is to be made in an eligible start-up, the original asset can be transferred up to March 31, 2022. This exemption can be availed if the assessee invests the net consideration in equity shares of an eligible company and such a company uses this investment to buy a new plant and machinery.

Tax on long-term capital gains​

Disclaimer: The contents of this document are for information purposes only. This aims to enable public to have a quick and an easy access to information and do not purport to be legal documents. Viewers are advised to verify the content from Government Acts/Rules/Notifications etc.

Introduction

Gain arising on transfer of capital asset is charged to tax under the head “Capital Gains”. Income from capital gains is classified as “Short Term Capital Gains” and “Long Term Capital Gains”. In this part you can gain knowledge about the provisions relating to tax on Long Term Capital Gains.

Meaning of Capital Gains

Profits or gains arising from transfer of a capital asset are called “Capital Gains” and are charged to tax under the head “Capital Gains”.

Meaning of Capital Asset

Capital asset is defined to include:

a) Property of any kind, held by an assessee, whether or not connected with his business or profession;

b) Any securities held by a FII which has invested in such securities in accordance with the SEBI Regulations;

c) Any securities held by a Category I or Category II AIF which has invested in such securities in accordance with the SEBI or IFSC Regulations;

d) Any unit linked insurance policy to which exemption under Section 10(10D)does not apply.

However, the following items are excluded from the definition of “capital asset”:

(i) any stock-in-trade (other than securities referred to in (b) above), consumable stores or raw materials held for the purposes of his business or profession ;

(ii) personal effects, that is, movable property (including wearing apparel and furniture) held for personal use by the taxpayer or any member of his family dependent on him, but excludes—

(a) jewellery;

(b) archaeological collections;

(c) drawings;

(d) paintings;

(e) sculptures; or

(f) any work of art.

“Jewellery” includes—

a. ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stones, and whether or not worked or sewn into any wearing apparel;

b. precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel;

(iii) Agricultural Land in India, not being a land situated:

a. Within jurisdiction of municipality, notified area committee, town area committee, cantonment board and which has a population of not less than 10,000;

b. Within range of following distance measured aerially from the local limits of any municipality or cantonment board:

i. not being more than 2 KMs, if population of such area is more than 10,000 but not exceeding 1 lakh;

ii. not being more than 6 KMs , if population of such area is more than 1 lakh but not exceeding 10 lakhs; or

iii. not being more than 8 KMs , if population of such area is more than 10 lakhs. Population is to be considered according to the figures of last preceding census of which relevant figures have been published before the first day of the year.

(iv) 61/2 per cent Gold Bonds, 1977 or 7 per cent Gold Bonds, 1980 or National Defence Gold Bonds, 1980 issued by the Central Government;

(v) Special Bearer Bonds, 1991;

(vi) Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 or deposit certificates issued under the Gold Monetisation Scheme, 2016.

Following points should be kept in mind:

The property being capital asset may or may not be connected with the business or profession of the taxpayer. E.g. Bus used to carry passenger by a person engaged in the business of passenger transport will be his capital asset.

Any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992 will always be treated as capital asset, hence, such securities cannot be treated as stock-in-trade.

Illustration

Mr. Kumar purchased a residential house in January, 2021 for Rs. 84,00,000. He sold the house in April, 2025 for Rs. 90,00,000. In this case residential house is a capital asset of Mr. Kumar and, hence, the gain of Rs. 6,00,000 arising on account of sale of residential house will be charged to tax under the head “Capital Gains”.

Illustration

Mr. Kapoor is a property dealer. He purchased a flat for resale. The flat was purchased in January, 2021 for Rs. 84,00,000 and sold in April, 2025 for Rs. 90,00,000. In this case Mr. Kapoor is dealing in properties in his normal business. Hence, flat purchased by him would form part of stock-in-trade of the business. In other words, for Mr. Kapoor flat is not a capital asset and, hence, gain of Rs. 6,00,000 arising on account of sale of flat will be charged to tax as business income and not as capital gain.

Meaning of long-term capital asset and short-term capital asset

For the purpose of taxation, capital assets are classified into two categories as given below :

Short-Term Capital Asset	Long-Term Capital Asset
Any capital asset held by the taxpayer for a period of not more than 24 months immediately preceding the date of its transfer will be treated as short-term capital asset. However, in respect of certain assets like shares (equity or preference) which are listed in a recognised stock exchange in India (listing of shares is not mandatory if transfer of such shares took place on or before July 10, 2014), units of equity oriented mutual funds, listed securities like debentures and Government securities, Units of UTI and Zero Coupon Bonds, the period of holding to be considered is 12 months instead of 24 months	Any capital asset held by the taxpayer for a period of more than 24 months immediately preceding the date of its transfer will be treated as long-term capital asset. However, in respect of certain assets like shares (equity or preference) which are listed in a recognised stock exchange in India (listing of shares is not mandatory if transfer of such shares took place on or before July 10, 2014), units of equity oriented mutual funds, listed securities like debentures and Government securities, Units of UTI and Zero Coupon Bonds, the period of holding to be considered is 12 months instead of 24 months
Notes: 1) The period of holding shall be considered as 36 months instead of 24 months in case transfer of capital asset takes place before 23-07-2024. 2) For capital assets being unlisted shares of a company or immovable property such as land or buildings, the holding period shall be 24 months to determine whether the asset is classified as short-term or long-term, regardless of whether the transfer occurs before or after 23-07-2024.

Illustration

Mr. Kumar is a salaried employee. In the month of April, 2016 he purchased a piece of land and sold the same in December, 2025. In this case, land is a capital asset for Mr. Kumar. He purchased land in April, 2016 and sold in December, 2025 i.e. after holding it for a period of more than 24 months. Hence, land will be treated as long-term capital asset.

Illustration

Mr. Raj is a salaried employee. In the month of April, 2024, he purchased a piece of land and sold the same in December, 2025. In this case land is a capital asset for Mr. Raj. He purchased land in April, 2024 and sold it in December, 2025, i.e., after holding it for a period of less than 24 months. Hence, land will be treated as short-term capital asset.

Illustration

Mr. Vipul is a salaried employee. In the month of July, 2018, he purchased a piece of land and sold the same in January 2025. In this case land is a capital asset for Mr. Vipul and it was sold in the Assessment Year 2025-26. He purchased land in July, 2018 and sold it in January 2025, i.e. after holding it for a period of more than 24 months. Hence land will be treated as long-term capital asset.

Illustration

Mr. Raj is a salaried employee. In the month of April, 2023 he purchased equity shares of SBI Ltd. (listed in BSE) and sold the same in December, 2024. In this case shares are capital assets for Mr. Raj. He purchased shares in April, 2023 and sold them in December, 2024, i.e., after holding them for a period of more than 12 months. Hence, shares will be treated as long-term capital assets.

Illustration

Mr. Kumar is a salaried employee. In the month of April, 2024 he purchased equity shares of SBI Ltd. (listed in BSE) and sold the same in January, 2025. In this case shares are capital assets for Mr. Kumar. He purchased shares in April, 2024 and sold them in January, 2025, i.e., after holding them for a period of less than 12 months. Hence, shares will be treated as short-term capital assets.

Illustration

Mr. Kumar is a salaried employee. In the month of April, 2023 he purchased un-listed shares of XYZ Ltd. and sold the same in January, 2025. In this case shares are capital assets for Mr. Raj and to determine nature of capital gain, period of holding would be considered as 24 months as shares are unlisted. He purchased shares in April, 2023 and sold them in January, 2025, i.e., after holding them for a period of less than 24 months. Hence, shares will be treated as Short Term Capital Assets.

Illustration

Mr. Raj is a salaried employee. In the month of April, 2014 he purchased un-listed shares of XYZ Ltd. and sold the same in December, 2024. In this case shares are capital assets for Mr. Raj and to determine nature of capital gain, period of holding would be considered as 24 month as shares are unlisted. He purchased shares in April, 2014 and sold them in December 2024, i.e., after holding them for a period of more than 24 months. Hence, shares will be treated as Long Term Capital Assets.

Mr. Vikas is a salaried employee. In the month of September, 2018 he purchased unlisted shares of ABC ltd. and sold the same in May 2024. In this case, shares are sold in assessment year 2025-26. Hence, period of holding for unlisted shares to be considered as 24 months.

Mr. Vikas purchased shares in September 2018 and sold them May 2024, i.e. after holding them for a period of more than 24 months. Hence, shares will be treated as Long Term Capital Assets.

Meaning of short-term capital gain and long-term capital gain

Gain arising on transfer of short-term capital asset is termed as short-term capital gain and gain arising on transfer of long-term capital asset is termed as long-term capital gain. However, there are few exceptions to this rule like gain on depreciable asset is always taxed as short-term capital gain.

Illustration

In April, 2024 Mr. Raja sold his residential house property which was purchased in May, 2003. Capital gain on such sale amounted to Rs. 8,40,000. In this case the house property is a long-term capital asset and, hence, gain of Rs. 8,40,000 will be charged to tax as long-term capital gain.

Illustration

In April, 2024 Mr. Rahul sold his residential house property which was purchased in May, 2022. Capital gain on such sale amounted to Rs. 8,40,000. In this case the house property is a short-term capital asset and, hence, gain of Rs. 8,40,000 will be charged to tax as short-term capital gain.

Reason for bifurcation of capital gains into long-term and short-term gains :–

The taxability of capital gains depends on the nature of gain, i.e., whether short-term or long-term. Hence, to determine the taxability, capital gains are classified into short-term capital gain and long-term capital gain. In other words, the tax rates for long-term capital gain and short-term capital gain are different.

Computation of long-term capital gains

Long-term capital gain arising on account of transfer of long-term capital asset will be computed as follows :

Particulars	Rs.
Full value of consideration (i.e., Sales consideration of asset)	XXXXX
Less: Expenditure incurred wholly and exclusively in connection with transfer of capital asset (E.g., brokerage, commission, advertisement expenses, etc.).	(XXXXX)
Net sale consideration	XXXXX
Less: Indexed cost of acquisition (*)	(XXXXX)
Less: Indexed cost of improvement if any (*)	(XXXXX)
Long-Term Capital Gains	XXXXX

(*) Indexation is a process by which the cost of acquisition is adjusted against inflationary rise in the value of asset. For this purpose, Central Government has notified cost inflation index. The benefit of indexation is available only to long-term capital assets. For computation of indexed cost of acquisition following factors are to be considered:

• Year of acquisition/improvement Year of transfer
• Cost inflation index of the year of acquisition/improvement Cost inflation index of the year of transfer

Note: The Finance (No. 2) Act, 2024 removed the indexation benefit and introduced a uniform tax rate of 12.5% on long-term capital gains. As per the amendment, no indexation benefit is allowed while computing capital gain from long-term capital assets transferred on or after 23-07-2024. However, the Government has introduced a grandfathering provision. This provision allows resident individuals and resident HUFs to still apply indexation on land or building acquired before 23-07-2024 and pay tax at the old rate of 20% if the tax under the new law (i.e., tax calculated at 12.5% without indexation benefit) results in a higher amount.

Indexed cost of acquisition is computed with the help of following formula :

Cost of acquisition × Cost inflation index of the year of transfer of capital asset

Cost inflation index of the year of acquisition

Indexed cost of improvement is computed with the help of following formula :

Cost of improvement × Cost inflation index of the year of transfer of capital asset

Cost inflation index of the year of improvement

The Central Government has notified the following Cost Inflation Indexes:-

Sl. No.	Financial Year	Cost Inflation Index
(1)	(2)	(3)
1	2001-02	100
2	2002-03	105
3	2003-04	109
4	2004-05	113
5	2005-06	117
6	2006-07	122
7	2007-08	129
8	2008-09	137
9	2009-10	148
10	2010-11	167
11	2011-12	184
12	2012-13	200
13	2013-14	220
14	2014-15	240
15	2015-16	254
16	2016-17	264
17	2017-18	272
18	2018-19	280
19	2019-20	289
20	2020-21	301
21	2021-22	317
22	2022-23	331
23.	2023-24	348
24.	2024-25	363
25.	2025-26	376

Illustration

Mr. Raja purchased a piece of land in May, 2006 for Rs. 84,000 and sold the same in April, 2024 for Rs. 10,10,000 (brokerage Rs. 10,000). What will be the taxable capital gain in the hands of Mr. Raja?

In this case, the capital asset is transferred before 23-07-2024, therefore, the long term capital gain will be computed as per the old provisions of the Act.

Computation of capital gain will be as follows :

Illustration

Mr. Raja purchased a piece of land in May, 2006 for Rs. 84,000 and sold the same in April, 2024 for Rs. 10,10,000 (brokerage Rs. 10,000). What will be the taxable capital gain in the hands of Mr. Raja?

In this case, the capital asset is transferred before 23-07-2024, therefore, the long term capital gain will be computed as per the old provisions of the Act.

Particulars	Rs.
Full value of consideration (i.e., Sales consideration of asset)	10,10,000
Less: Expenditure incurred wholly and exclusively in connection with transfer of capital asset (brokerage)	10,000
Net sale consideration	10,00,000
Less: Indexed cost of acquisition (*)	2,49,934
Less: Indexed cost of improvement, if any	Nil
Long-Term Capital Gains	7,50,066

(*) The cost inflation index notified for the year 2006-07 is 122 and for the year 2024-25 is 363. Hence, the indexed cost of acquisition, i.e., the inflated cost of acquisition will be computed as follows:

Cost of acquisition × Cost inflation index of the year of transfer of capital asset

Cost inflation index of the year of acquisition

Rs. 84,000 × 363 = Rs. 2,49,934

122

Illustration

Mr. Raja purchased a piece of land in May, 2006 for Rs. 84,000 and sold the same in August, 2024 for Rs. 10,10,000 (brokerage Rs. 10,000). What will be the taxable capital gain in the hands of Mr. Raja?

In the instant case, the capital asset is transferred after 23-07-2024, Mr. Raja has option to compute the capital gains as per both provisions [old and new as amended by the Finance (No. 2) Act, 2024]

Computation of Long term capital Gains as per the old provisions:

Particulars	Rs.
Full value of consideration (i.e., Sales consideration of asset)	10,10,000
Less: Expenditure incurred wholly and exclusively in connection with transfer of capital asset (brokerage)	10,000
Net sale consideration	10,00,000
Less: Indexed cost of acquisition (*)	2,49,934
Less: Indexed cost of improvement, if any	Nil
Long-Term Capital Gains	7,50,066

(*) The cost inflation index notified for the year 2006-07 is 122 and for the year 2024-25 is 363. Hence, the indexed cost of acquisition, i.e., the inflated cost of acquisition will be computed as follows:

Cost of acquisition × Cost inflation index of the year of transfer of capital asset

Cost inflation index of the year of acquisition

Rs. 84,000 × 363 = Rs. 2,49,934

122

Computation as per the amended provision

Particulars	Rs.
Full value of consideration (i.e., Sales consideration of asset)	10,10,000
Less: Expenditure incurred wholly and exclusively in connection with transfer of capital asset (brokerage)	10,000
Net sale consideration	10,00,000
Less: Cost of acquisition	84,000
Less: Cost of improvement, if any	Nil
Long-Term Capital Gains	9,16,000

Note: Mr. Raja has option to pay tax at the rate of 20% on Rs. 7,50,066 or at the rate of 12.5% on Rs. 9,16,000, whichever is less. [Tax rates on long-term capital gains are discussed in below paragraph]

Tax on long-term capital gain

General provision

The long-term capital gain is chargeable to tax at the rate of 12.5%. Further, the benefit of indexation shall not be available to the assessee while computing the amount of long-term capital gain.

Notes:

(1) The Finance (No. 2) Act, 2024 has provided a uniform tax rate of 12.5% on long-term capital gain arising from transfer of any capital asset on or after 23-07-2024. Where the long-term capital asset is transferred on or before 22-07-2024, the long-term capital gain shall be taxable at the rate of 20%.

(2) The Finance (No. 2) Act, 2024 has provided that no indexation benefit shall be available in respect of the long-term capital assets transferred on or after 23-07-2024. However, a grandfathering is allowed for land or building in case of resident individual/HUF.

(3) As per grandfathering provisions, if the amount of tax under the new law (i.e., the law as amended by the Finance (No. 2) Act, 2024) exceeds the amount of tax under the old law (i.e., the law as it stood immediately before the amendment by the Finance (No. 2) Act, 2024), the excess amount shall be ignored. However, this grandfathering provision applies only to resident individuals or Hindu Undivided Families (HUFs) and only for land or buildings acquired before July 23, 2024.

In case of Specified listed securities

If the long-term capital gain is arising from the transfer of equity shares, units of equity-oriented fund or units of business trust, it shall be chargeable to tax under Section 112A. The tax shall be levied at the rate of 12.5% (if specified securities are transferred on or before 22-07-2024, the long-term capital gain shall be taxable at the rate of 10%) on the capital gains in excess of Rs. 125,000.

This concessional tax rate applies if the Securities Transaction Tax (STT) is paid at the time of transfer of such securities. Further, in case of equity shares, STT should have been paid at the time of acquisition also, subject to certain exceptions.

Special provision related to cost of acquisition

The cost of acquisitions of a listed equity share acquired by the taxpayer before February 1, 2018, shall be deemed to be the higher of following:

a) The actual cost of acquisition of such asset; or

b) Lower of following:

(i) Fair market value of such shares as on January 31, 2018; or

(ii) Actual sales consideration accruing on its transfer.

The Fair market value of listed equity share shall mean its highest price quoted on the stock exchange as on January 31, 2018. However, if there is no trading in such shares on January 31, 2018, the highest price of such share on a date immediately preceding January 31, 2018 on which trading happens in that share shall be deemed as its fair market value.

In case of units which are not listed on recognized stock exchange, the net asset value of such units as on January 31, 2018 shall be deemed to be its FMV.

In a case where the capital asset is an equity share in a company which is not listed on a recognised stock exchange as on 31-1-2018 but listed on the date of transfer, the cost of unlisted shares as increased by cost inflation index for the financial year 2017-18 shall be deemed to be its FMV.

Further, the Finance (No. 2) Act, 2024 has also provided mechanism for computation of fair market value of unlisted shares transferred under an offer for sale to the public included in an initial public offer.

In cases where equity shares were not listed on a recognized stock exchange as of January 31, 2018, or where the shares became the property of the assessee in exchange for unlisted shares as of that date (through transactions not considered as transfers under Section 47), and are subsequently listed on such an exchange after the transfer (pertaining to the sale of unlisted equity shares through an offer for sale to the public as part of an initial public offering); the FMV shall be as follows:

Cost of acquisition ×	Cost Inflation Index of 2017-18 (i.e., 272)
	CII for the year in which shares were first held by the assessee or 2001-02, whichever is later

In case of FPIs or specified category-III AIFs

Long-term capital gain arising from transfer of securities held by foreign portfolio investor (FPI) or category-III AIF specified under Section 10(4D) is chargeable to tax at the rate of 12.5% (if securities are transferred on or before 22-07-2024, the long-term capital gain shall be taxable at the rate of 10%).

However, where the long-term capital gain arises from the transfer of specified securities, being equity shares, units of equity-oriented mutual fund or units of business trust, the tax shall be levied on the capital gains in excess of Rs. 1,25,000 if STT has been paid in respect of such transaction.

Here, it is to be noted that the benefit of foreign currency fluctuation shall not be allowed to FPIs or specified fund while computing capital gain.

Illustration

Mr. Janak is a salaried employee. In the month of January, 2016 he purchased 100 shares of X Ltd. @ Rs. 1,400 per share from Bombay Stock Exchange. These shares were sold through BSE in August, 2024 @ Rs. 2,600 per share. The highest price of X Ltd. share quoted on the stock exchange on January 31, 2018 was Rs. 1,800 per share. What will be the nature of capital gain in this case?

**

Shares were purchased in January, 2016 and were sold in August, 2024, i.e., sold after holding them for a period of more than 12 months and, hence, the gain will be long-term capital gain (LTCG).

In the given case, shares are sold after holding them for a period of more than 12 months, shares are sold through recognised stock exchange and the transaction is liable to STT. Therefore, section 112A is applicable in this case.

The cost of acquisition of X Ltd. shares shall be higher of:

a) Cost of acquisition i.e., 1,40,000 (1,400 × 100);

b) Lower of:

a. Highest price quoted as on 31-1-2018 i.e., 1,80,000 (1,800 × 100);

b. Sales consideration i.e., 2,60,000 (2,600 × 100)

Thus, the cost of acquisition of shares shall be Rs. 1,80,000.Accordingly, Long-term capital gains in hands of Mr. Janak would be Rs. 80,000 (i.e., 2,60,000 – 1,80,000). Since long-term capital gains doesn’t exceed Rs. 1,25,000, nothing is taxable in hands of Mr. Janak.

Illustration

Mr. Saurabh is a salaried employee. In the month of July, 2017 he purchased 100 shares of XYZ Ltd. @ Rs. 2,000 per share from Bombay Stock Exchange. These shares were sold through NSE in June, 2024 @ Rs. 5,200 per share. The highest price of XYZ Ltd. share quoted on the stock exchange on January 31, 2018 was Rs. 3,800 per share. What will be the nature of capital gain in this case?

**

Shares were purchased in July, 2017 and were sold in June, 2024, i.e., sold after holding them for a period of more than 12 months and, hence, the gain will be long-term capital gain (LTCG).

In the given case, shares are sold after holding them for a period of more than 12 months, shares are sold through a recognised stock exchange, and the transaction is liable to STT. Therefore, section 112A is applicable in this case.

The cost of acquisition of XYZ Ltd. shares shall be higher of:

a) Cost of acquisition i.e., 2,00,000 (2,000 × 100);

b) Lower of:

(i) Highest quoted price as on 31-1-2018 i.e., 3,80,000 (3,800 × 100);

(ii) Sales consideration i.e., 5,20,000 (5,200 × 100)

Thus from above, the cost of acquisition of shares shall be Rs. 3,80,000. Accordingly, Long-term capital gains taxable in hands of Mr. Saurabh would be Rs. 1,40,000 (i.e., 5,20,000 – 3,80,000). Since the long-term capital gains exceeds Rs. 1,25,000, hence it will be chargeable to tax under section 112A. In this case, the shares are transferred before 23-07-2024, Mr, Saurabh would be liable to pay tax at the rate of 10% on Rs. 15,000 i.e., gains exceeding Rs. 1,25,000. However, if the shares were transferred on or after 23-07-2024, Mr. Saurabh would be liable to pay tax at the rate of 12.5% on the capital gains exceeding Rs. 1,25,000.

Illustration

Mr. Kumar (a non-resident) purchased equity shares (listed) of Shyamal Ltd. in December 1995 for Rs. 28,100. These shares are sold (outside recognised stock exchange) in October, 2025 for Rs. 5,00,000. He does not have any other taxable income in India. What will be his tax liability.

**

In this situation, the shares are transferred after 23-07-2024, accordingly, the resultant capital gain will be chargeable to tax at the rate of 12.5%. The capital gain will be computed as follows:

Particulars		Rs.
Full value of consideration		5,00,000
Less: Cost of acquisition		28,100
Taxable Gain		4,71,900
		——
Exemption limit		1,25,000
Capital Gains liable to tax		3,46,900
Tax @ 12.5% on Rs. 4,71,900	——	43,362.50

From the above computation, it is clear that Mr. Kumar is liable to pay tax of 43,362.50. (excluding cess as applicable).

Illustration

Mr. Kumar (a non-resident) purchased a piece of land in December, 2006 for Rs. 28,100 and sold the same, in April, 2024 for Rs. 5,00,000. Can he claim the option of not availing of the indexation and paying tax @ 10% on the capital gain?

What if the land was sold in December 2024?

**

In this situation, the capital asset is transferred before 23-07-2024, therefore, the resulting capital gain will be computed after giving indexation benefit and chargeable to tax @ 20% (plus surcharge and cess as applicable). The computation in this case will be as follows:

Particulars	(Rs.)
Full value of consideration	5,00,000
Less: Indexed cost of acquisition (Rs. 28,100 × 363/122)	83,609
Less: Indexed cost of improvement	Nil
Long term capital gain	4,16,391
Tax @ 20% on Rs. 4,16,391	83,278
Add: Health & education cess @ 4%	3,331
Net tax payable	86,609

If Mr. Kumar sold the land in December 2024, the tax liability would be as follows:

Since the capital asset, being a land, is sold after 23-07-2024, the amended provisions by the Finance (No.2) Act, 2024 will be applicable to Mr. Kumar. Accordingly, indexation benefit will not be available to Mr. Kumar on such capital asset and tax at the rate of 12.5% will be applicable on the computed capital gains. The Computation of the long term capital gains will be as follows:

Particulars	(Rs.)
Full value of consideration	5,00,000
Less: Cost of acquisition	28,100
Less: Cost of improvement	Nil
Long term capital gain	4,71,900
Tax @ 12.5% on Rs. 4,71,900	58,988
Add: Health & education cess @ 4%	2,360
Net tax payable	61,348

In this case, the capital gain will be computed only as per the amended provisions introduced by the Finance (No.2) Act, 2024. Although the capital asset being sold is a piece of land which was acquired before July 23, 2024, grandfathering provisions are not be applicable as same are applicable only to a resident individuals or HUF.

Illustration

Mr. Kumar, resident in India, purchased a piece of land in December, 2006 for Rs. 28,100 and sold the same, in December, 2024 for Rs. 5,00,000. What will be the tax liability?

Since the capital asset, being a land, is sold after 23-07-2024, the amended provisions by the Finance (No.2) Act, 2024 will be applicable to Mr. Kumar. Accordingly, indexation benefit will not be available to Mr. Kumar on such capital asset and tax at the rate of 12.5% will be applicable on the computed capital gains. The computation of the long term capital gains will be as follows:

Particulars	(Rs.)
Full value of consideration	5,00,000
Less: Cost of acquisition	28,100
Less: Cost of improvement	Nil
Long term capital gain	4,71,900
Tax @ 12.5% on Rs. 4,71,900	58,988
Add: Health & education cess @ 4%	2,360
Net tax payable	61,348

In this case, the capital asset being sold is a piece of land which was acquired before July 23, 2024, and Mr. Kumar is a resident individual. Therefore, the grandfathering provisions apply.

If the tax computed under the new law (i.e., the law as amended by the Finance (No. 2) Act, 2024) exceeds the amount of tax under the old law (i.e., the law as it stood immediately before the amendment by the Finance (No. 2) Act, 2024), the excess amount shall be ignored.

The capital gains as per the old provisions will be computed as follows:

Particulars	(Rs.)
Full value of consideration	5,00,000
Less: Indexed cost of acquisition (Rs. 28,100 × 363/122)	83,609
Less: Indexed cost of improvement	Nil
Long term capital gain	4,16,391
Tax @ 20% on Rs. 4,16,391	83,278
Add: Health & education cess @ 4%	3,331
Net tax payable	86,609

In this case, the tax liability is lower under the old law. Therefore, Mr. Kumar can pay the tax calculated under the old law, and the additional tax computed under the new law shall be ignored.

Adjustment of LTCG against the basic exemption limit

Basic exemption limit means the level of income up to which a person is not required to pay any tax. The basic exemption limit applicable in case of an individual for the financial year 2025-26 will be Rs. 3,00,000. However, where an individual chooses to opt out from the default tax regime under section 115BAC is as follows :

• For resident individual of the age of 80 years or above, the exemption limit is Rs. 5,00,000.
• For resident individual of the age of 60 years or above but below 80 years, the exemption limit is Rs. 3,00,000.
• For resident individual of the age of below 60 years, the exemption limit is Rs. 2,50,000.
• For non-resident individual, irrespective of the age of the individual, the exemption limit is Rs. 2,50,000.
• For HUF, the exemption limit is Rs. 2,50,000.

Illustration: Basic exemption limit

Mr. Kapoor (resident and age 25 years) is a salaried employee earning a salary of Rs. 1,84,000 per annum. Apart from salary income, he has earned interest on fixed deposit of Rs. 6,000. He does not have any other income. What will be his tax liability for the year 2025-26?

**

The basic exemption limit for an individual is Rs. 3,00,000. However, For resident individual of age of below 60 years, the basic exemption limit is Rs. 2,50,000 if he chooses to opt out of the default tax regime under section 115BAC. In this case the taxable income of Mr. Kapoor is Rs. 1,90,000 (Rs. 1,84,000 + Rs. 6,000), which is below the basic exemption limit, hence, his tax liability will be nil.

Illustration: Basic exemption limit

Mr. Viren (resident and age 62 years) is a businessman. His taxable income for the year 2025-26 is Rs. 2,25,200. He does not have any other income. What will be his tax liability for the year 2025-26?

**

The basic exemption limit for an individual is Rs. 3,00,000 (Rs. 2,50,000 if he chooses to opt out of the default tax regime under section 115BAC). In this case, the taxable income of Mr. Viren is Rs. 2,25,200, which is below the basic exemption limit, hence, his tax liability will be nil.

Illustration: Basic exemption limit

Mrs. Raj (resident and age 82 years) is a doctor. Her taxable income for the year 2025-26 is Rs. 4,84,000. She does not have any other income. What will be her tax liability for the year 2025-26?

**

The basic exemption limit for an individual is Rs. 3,00,000. However, for resident individual of the age of 80 years and above, the basic exemption limit is Rs. 5,00,000, if he chooses to opt out of the default tax regime under section 115BAC. In this case, the taxable income of Mrs. Raj is Rs. 4,84,000, which is below the basic exemption limit of Rs. 5,00,000, hence, her tax liability will be nil.

Illustration: Basic exemption limit

Mr. Raj (a non-resident and age 82 years) is a retired person. He is residing in Canada. He owns a house in Mumbai which is given on rent. The taxable rental income for the year 2025-26 amounts to Rs. 1,84,000. What will be his tax liability for the year 2025-26?

**

For non-resident individual, irrespective of the age, the basic exemption limit is Rs. 3,00,000 (Rs. 2,50,000 if he chooses to opt out of the default tax regime under section 115BAC). In this case the taxable income of Mr. Raj is Rs. 1,84,000, which is below the basic exemption limit, hence, his tax liability will be nil.

Adjustment of LTCG against the basic exemption limit

In the preceding illustrations we observed that if the income is below the basic exemption limit, then there will be no tax liability. Now a question arises that can an individual adjust the basic exemption limit against long-term capital gain? The answer will depend on the residential status of the individual (i.e., resident or non-resident). The provisions in this regard are as follows :

Only a resident individual/HUF can adjust the exemption limit against LTCG. Thus, a non-resident individual and non-resident HUF cannot adjust the exemption limit against LTCG.

A resident individual can adjust the LTCG but such adjustment is possible only after making adjustment of other income. In other words, first income other than LTCG is to be adjusted against the exemption limit and then the remaining limit (if any) can be adjusted against LTCG.

Illustration

Mr. Kapoor (age 67 years and resident) is a retired person. He purchased a piece of land in December, 2014 and sold the same in April, 2025. Taxable long-term capital gain on such sale amounted to Rs. 1,84,000. Apart from gain on sale of land, he is not having any other income. What will be his tax liability for the year 2025-26?

*

For resident individual of the age of 60 years and above but below 80 years, the basic exemption limit is Rs. 3,00,000. Further, a resident individual can adjust the basic exemption limit against LTCG. In this case, LTCG of Rs. 1,84,000 can be adjusted against the basic exemption limit. In other words, Mr. Kapoor can adjust the LTCG on sale of land against the basic exemption limit.

Considering the above discussion, the tax liability of Mr. Kapoor for the year 2025-26 will be nil.

Illustration

Mr. Kapoor (age 67 years and non-resident) is a retired person. He purchased a piece of land (at Delhi) in December, 2014 and sold the same in April, 2025. Taxable long-term capital gain on such sale amounted to Rs. 1,84,000. Apart from gain on sale of land, he is not having any other income. What will be his tax liability for the year 2025-26?

*

For non-resident individual of any age, the basic exemption limit is Rs. 3,00,000 (Rs. 2,50,000 if opts out of the default tax regime). Further, a non-resident individual cannot adjust the basic exemption limit against LTCG. Hence, in this case the exemption limit cannot be adjusted against LTCG. In other words, Mr. Kapoor cannot adjust the LTCG on sale of land against the basic exemption limit. Thus, LTCG of Rs. 1,84,000 will be charged to tax @ 20% (plus health & education cess @ 4%). Thus, the tax liability will come to Rs. 38,272.

Illustration

Mr. Kapoor (age 67 years and resident) is a retired person earning a monthly pension of Rs. 5,000. He purchased gold in December, 2013 and sold the same in April, 2025. Taxable LTCG amounted to Rs. 3,70,000. Apart from pension income and gain on sale of gold he is not having any other income. What will be his tax liability for the year 2025- 26? Assume, Mr. Kapoor has opted out from default new tax regime (section 115BAC).

*

For resident individual of the age of 60 years and above but below 80 years, the basic exemption limit is Rs. 3,00,000. Further, a resident individual can adjust the basic exemption limit against LTCG. However, such adjustment is possible only after adjusting income other than LTCG. In this case, he is having pension income of Rs. 60,000 (Rs. 5,000 × 12) and LTCG on gold of Rs. 3,70,000. Thus, first we have to adjust the pension income against the exemption limit and the balance limit will be adjusted against LTCG. The basic exemption limit in this case is Rs. 3,00,000, after adjustment of pension income of Rs. 60,000 from the exemption limit of Rs. 3,00,000 the balance limit available will come to Rs. 2,40,000. The balance of Rs. 2,40,000 will be adjusted against LTCG.

Total LTCG on gold is Rs. 3,70,000 and the available limit is Rs. 2,40,000, hence, the balance LTCG left after adjustment of Rs. 2,40,000 will come to Rs. 1,30,000. The gain of Rs. 1,30,000 will be charged to tax @ 20% (plus health & education cess @ 4%). Thus, the tax liability before cess will come to Rs. 26,000 and after deducting rebate of Rs. 12,500 as per section 87A, he would be liable to pay tax of Rs. 14,040 (including health & education cess @ 4%).

Illustration

Mr. Gagan (age 67 years and non-resident) is a retired person earning a monthly pension of Rs. 5,000 from Indian employer. He purchased a piece of land in Delhi in December, 2013 and sold the same in April, 2025. Taxable LTCG amounted to Rs. 2,20,000. Apart from pension income and gain on sale of land he is not having any other income. What will be his tax liability for the year 2025-26?

*

For non-resident individuals, irrespective of age, the basic exemption limit is Rs. 3,00,000 (Rs. 2,50,000 if opts out from the default tax regime). Further, a non-resident individual cannot adjust the basic exemption limit against LTCG covered under section 112. In other words, Mr. Gagan can adjust the pension income against the basic exemption limit but the remaining exemption limit cannot be adjusted against LTCG on sale of land.

The basic exemption limit in this case will be adjusted against pension income of Rs. 60,000. The balance limit cannot be adjusted against LTCG. Hence, in this case Mr. Gagan has to pay tax @ 20% (plus health & education cess @ 4%) on LTCG of Rs. 2,20,000. Thus, the tax liability will come to Rs. 45,760.

Deductions under sections 80C to 80U and LTCG

No deduction under sections 80C to 80U is allowed from long-term capital gains.

Illustration

Mr. Kapoor (age 57 years and resident) is a retired person. He purchased a piece of land in December, 2013 and sold the same in April, 2025. Taxable LTCG on such sale amounted to Rs. 6,00,000. Apart from gain on sale of land he is not having any income. He deposited Rs. 1,00,000 in Public Provident Fund (PPF) and Rs. 50,000 in NSC. He wants to claim deduction under section 80C on account of Rs. 1,50,000 deposited in PPF and NSC. Can he do so?

**

Deduction under sections 80C to 80U cannot be claimed from long-term capital gains. Hence, Mr. Kapoor cannot claim deduction under section 80C of Rs. 1,50,000 from LTCG of Rs. 6,00,000. The taxable income of Mr. Kapoor will be computed as follows :

Particulars	Rs.
Long-Term Capital Gains	6,00,000
Gross Total Income	6,00,000
Less: Deduction under sections 80C to 80U	Nil
Total Income or Taxable Income	6,00,000

He can claim basic exemption of Rs. 2,50,000 (being resident individual) and has to pay LTCG on remaining Rs. 3,50,000 @ 20% (+HEC). Thus, his tax liability before cess will come to Rs. 70,000 and he would be liable to pay tax of Rs. 72,800 (including cess @ 4%).

MCQ ON TAX ON LONG-TERM CAPITAL GAINS

Q1. Any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992 will always be treated as capital asset, hence, such securities cannot be treated as stock-in-trade.

(a) True (b) False

Correct answer : (a)

Justification of correct answer :

Any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992 will always be treated as capital asset, hence, such securities cannot be treated as stock-in-trade.

Thus, the statement given in the question is true and hence, option (a) is the correct option.

Q2. Listed equity shares will be treated as long-term capital assets if they are held by the taxpayer for a period of more than ___________ months immediately preceding the date of its transfer.

(a) 12 (b) 24

(c) 36 (d) 48

Correct answer : (a)

Justification of correct answer :

Any capital asset held by the taxpayer for a period of more than 24 months immediately preceding the date of its transfer will be treated as long-term capital asset. However, in respect of certain capital assets like shares (equity or preference) which are listed in a recognised stock exchange in India, units of equity oriented mutual funds, listed debentures, zero coupon bonds and Government securities the period of holding will be 12 months instead of 24 months.

Thus, option (a) is the correct option.

Q3. In computing indexed cost of acquisition ___________ is not required.

(a) Cost of acquisition

(b) Cost inflation index of the year of improvement of capital asset

(c) Cost inflation index of the year of acquisition of capital asset

(d) Cost inflation index of the year of transfer of capital asset

Correct answer : (b)

Justification of correct answer :

Indexed cost of acquisition is computed with the help of following formula:

Cost of acquisition × Cost inflation index of the year of transfer of capital asset

Cost inflation index of the year of acquisition

Thus, option (b) is the correct option.

Q4. Indexed cost of improvement is computed with the help of following formula:

Cost of improvement × Cost inflation index of the year of transfer of capital asset

Cost inflation index of the year of improvement

(a) True (b) False

Correct answer : (a)

Justification of correct answer :

Indexed cost of improvement is computed with the help of following formula:

Cost of improvement × Cost inflation index of the year of transfer of capital asset

Cost inflation index of the year of improvement

Thus, the statement given in the question is true and hence, option (a) is the correct option.

Q5. As per section ___________, long-term capital gain arising in excess of Rs. 1,25,000 on transfer of equity shares or units of equity oriented mutual fund or units of business trust is chargeable to tax @ 12.5% in the hands of any person, if specific conditions are satisfied in this regard.

a) 10(38) b) 112

c) 112A d) 115

Correct answer : (c)

Justification of correct answer :

As per section 112A, long-term capital gain arising in excess of Rs. 1,25,000 on transfer of equity shares or units of equity oriented mutual fund or units of business trust is chargeable to tax @ 12.5% in the hands of any person, if specific conditions are satisfied in this regard.

Q6. Generally, long-term capital gain is charged to tax under section 112 @ (plus surcharge and cess as applicable) if the asset is transferred before 23-07-2024.

(a) 10% (b) 15%

(c) 20% (d) 30%

Correct answer : (c)

Justification of correct answer :

Generally, long-term capital gain is charged to tax @ 20% (plus surcharge and cess as applicable) under section 112, if the asset is transferred before 23-07-2024. However, if the asset is transferred on or after 23-07-2024, the long-term capital gains will be chargeable to tax at the rate of 12.5%.

Thus, option (c) is the correct option.

Q7. A resident as well as a non-resident individual and HUF can adjust the exemption limit against long-term capital gains.

(a) True (b) False

Correct answer : (b)

Justification of correct answer :

Only a resident individual and resident HUF can adjust the exemption limit against LTCG. Thus, a non-resident individual/HUF cannot adjust the exemption limit against LTCG.

Thus, the statement given in the question is false and hence, option (b) is the correct option.

Q8. No deduction under sections 80C to 80U is allowed from long-term capital gains.

(a) True (b) False

Correct answer : (a)

Justification of correct answer :

No deduction under sections 80C to 80U is allowed from long-term capital gains.

Thus, the statement given in the question is true and hence, option (a) is the correct option.

Section 54 Exemption to capital gains arising on transfer of residential house property

Disclaimer: The contents of this document are for information purposes only. This aims to enable public to have a quick and an easy access to information and do not purport to be legal documents. Viewers are advised to verify the content from Government Acts/Rules/Notifications etc.

SECTION 54 EXEMPTION FOR CAPITAL GAINS ARISING ON TRANSFER OF RESIDENTIAL HOUSE PROPERTY

Introduction

A person wanted to shift his residence due to certain reason, hence, he sold his old house and from the sale proceeds he purchased another house. In this case the objective of the seller was not to earn income by sale of old house but to acquire another suitable house. If in this case the seller was liable to pay income-tax on capital gains arising on sale of old house, then it would be a hardship on him. Section 54 gives relief from such a hardship. Section 54 gives relief to a taxpayer who sells his residential house and from the sale proceeds he acquires another residential house. The detailed provisions in this regard are discussed in this part.

Basic conditions

Following conditions should be satisfied to claim the benefit of section 54.

• The benefit of section 54is available only to an individual or HUF.
• The asset transferred should be a long-term capital asset, being a residential house property.
• Within a period of one year before or two years after the date of transfer of old house, the taxpayer should acquire another residential house or should construct a residential house within a period of three years from the date of transfer of the old house. In case of compulsory acquisition the period of acquisition or construction will be determined from the date of receipt of compensation (whether original or additional).

Exemption can be claimed only in respect of one residential house property purchased/constructed in India. If more than one house is purchased or constructed, then exemption under section 54 will be available in respect of one house only. No exemption can be claimed in respect of house purchased outside India.

With effect from Assessment Year 2021-22, the Finance Act, 2020 has amended Section 54 to extend the benefit of exemption in respect of investment made in two residential house properties. The exemption for investment made, by way of purchase or construction, in two residential house properties shall be available if the amount of long- term capital gains does not exceed Rs. 2 crores. If assessee exercises this option, he shall not be entitled to exercise this option again for the same or any other assessment year.

Further, with effect from Assessment Year 2024-25 the Finance Act 2023 has restricted the maximum exemption to be allowed under Section 54. In case the cost of the new asset exceeds Rs. 10 crores, the excess amount shall be ignored for computing the exemption under Section 54.

Illustration

Mr. Raja purchased a residential house in April, 2016 and sold the same in April 2025 for Rs. 8,40,000. Capital gain arising on sale of the house amounted to Rs. 1,00,000. Can he claim benefit of section 54 by purchasing/constructing another residential house from the capital gain of Rs. 1,00,000?

**

Exemption under section 54 can be claimed in respect of capital gains arising on transfer of capital asset, ‘being long-term residential house property. This benefit is available only to an individual or HUF. In this case, all the conditions as provided in section 54 are satisfied and hence, Mr. Raja can claim the benefit of section 54 by purchasing/constructing a residential house within the time-limit as provided under section 54.

Illustration

Mr. Raj purchased a residential house in April, 2024 and sold the same in April, 2025 for Rs. 8,40,000. Capital gain arising on sale of house amounted to Rs. 1,00,000. Can he claim benefit of section 54 by purchasing/constructing another residential house from the capital gain of Rs. 1,00,000?

**

Exemption under section 54 can be claimed in respect of capital gains arising on transfer of capital asset, being long-term residential house property. The period of holding in case of immovable property, being land or building or both, is 24 months, to qualify as long-term capital asset. In this case the house property is sold after holding it for a period of less than 24 months and, hence, it is a short-term capital asset. The benefit of section 54 is not available in respect of a short-term capital asset and, hence, in this case Mr. Raj cannot claim the benefit of section 54.

Illustration

Kumar HUF purchased a residential house in April, 2018 and sold the same in April, 2025 for Rs. 8,40,000. Capital gain arising on sale of house property amounted to Rs. 1,00,000. Can the HUF claim the benefit of section 54 by purchasing a new house from the capital gain of Rs. 1,00,000?

**

Exemption under section 54 can be claimed in respect of capital gains arising on transfer of capital asset, being long-term residential house property. This benefit is available only to an individual or HUF. In this case all the conditions as provided in section 54 are satisfied and, hence, Kumar HUF can claim the benefit of section 54 by purchasing/constructing a residential house within the time-limit as provided under section 54.

Illustration

Mr. Raja purchased a residential house in April, 2017 and sold the same in April, 2025 for Rs. 8,40,000. Capital gain arising on sale of house amounted to Rs. 1,00,000. Can he claim the benefit of section 54 by purchasing a plot of land and then constructing a new house from the capital gain of Rs. 1,00,000?

**

Exemption under section 54 can be claimed in respect of capital gains arising on transfer of capital asset, being long-term residential house property. This benefit is available only to an individual or HUF. The benefit can be claimed by purchasing or by constructing a residential house. In this case, all the conditions as provided in section 54 are satisfied and, hence, Mr. Raja can claim the benefit of section 54 by constructing a residential house on the plot purchased by him within the time-limit as provided under section 54.

Illustration

Mr. Kumar purchased gold in April, 2018 and sold the same in April, 2025 for Rs. 8,40,000. Capital gain arising on sale of gold amounted to Rs. 1,00,000. Can he claim the benefit of section 54 by purchasing/constructing a house from the capital gain of Rs. 1,00,000?

**

Exemption under section 54 can be claimed in respect of capital gains arising on transfer of a capital asset, being long-term residential house property. In this case, the capital asset is gold, i.e., other than residential house and, hence, the benefit of section 54 is not available. However, in this case benefit can be claimed under section 54F subject to certain conditions as defined in that provision.

Illustration

Mr. Raja purchased a residential house in April, 2018 and sold the same in April, 2025 for Rs. 8,40,000. Capital gain arising on sale of house amounted to Rs. 1,00,000. Can he claim the benefit of section 54 by purchasing a shop from the capital gain of Rs. 1,00,000?

**

Exemption under section 54 can be claimed in respect of capital gains arising on transfer of a capital asset, being long-term residential house property. This benefit is available if another residential house is purchased from the capital gains. In other words, the benefit of section 54 is available if the capital gain arising on transfer of residential house is invested in another residential house. The benefit of section 54 is not available if the capital gain arising on transfer of house is invested in capital asset other than a residential house. In this case Mr. Raja wants to purchase a shop (i.e., capital asset other than a residential house) and, hence, the benefit of section 54 is not available.

Illustration

Mr. Parekh purchased a residential house in April, 2018 and sold the same on 25th April, 2025, for Rs. 8,40,000. Capital gain arising on sale of house amounted to Rs. 1,00,000. He had purchased a residential house in December, 2024 for Rs. 5,00,000. Can he claim the benefit of section 54 in respect of the house purchased in December, 2024?

**

Exemption under section 54 can be claimed in respect of capital gains arising on transfer of capital asset, being long-term residential house property. To claim exemption under section 54, another house should be purchased within a period of one year before or two years after the date of transfer of house. In this case the old house was transferred in April, 2025, hence, any house purchased within a period of 1 year before 25th April, 2025 can qualify for exemption under section 54. Hence, house purchased in December, 2024 will qualify for exemption under section 54.

Illustration

Mr. Chopra purchased a residential house in the previous year 2008-09 for Rs. 2 crores. The house property is sold for Rs. 3 crores in the previous year 2025-26 and the capital gain is invested in two residential house properties worth Rs. 1 crores each in same previous year. Can he claim the benefit of section 54 in respect of both houses?

**

Exemption under section 54 can be claimed in respect of capital gains arising on transfer of capital asset, being long-term residential house property. With effect from Assessment Year 2020-21, a taxpayer has an option to make investment in two residential house properties in India to claim section 54 exemption. This option can be exercised by the taxpayer only once in his lifetime provided the amount of long-term capital gain does not exceed Rs. 2 crores.

Since, the gain arising in hands of Mr. Chopra is Rs. 1 crore, he can claim the benefit of section 54 by making investment in two house properties.

Illustration

Mr. Khan purchased a residential house in the previous year 2007-08 for Rs. 2 crores. The house property is sold for Rs. 10 crores in the previous year 2025-26 and the capital gain is invested in two residential house properties worth Rs. 4 crores each. Can he claim the benefit of section 54 in respect of both houses?

**

Exemption under section 54 can be claimed in respect of capital gains arising on transfer of capital asset, being long-term residential house property. With effect from Assessment Year 2020-21, a taxpayer has an option to make investment in two residential house properties in India to claim section 54 exemption. This option can be exercised by the taxpayer only once in his lifetime provided the amount of long-term capital gain does not exceed Rs. 2 crores.

Since, the gain arising in hands of Mr. Khan is more than Rs. 2 crore, he cannot claim the benefit of section 54 by making investment in two house properties.

Illustration

Mr. Anil sold his residential house on July 02, 2025 for Rs. 10 crores which was purchased by him 10 year ago for Rs. 8 crore. Mr. A bought a new residential house on October 01, 2025 and on March 01, 2027 worth Rs. 1 crore each.

**

Exemption under section 54 can be claimed in respect of capital gains arising on transfer of capital asset, being long-term residential house property. With effect from Assessment Year 2020-21, a taxpayer has an option to make investment in two residential house properties in India to claim section 54 exemption. This option can be exercised by the taxpayer only once in his lifetime provided the amount of long-term capital gain does not exceed Rs. 2 crores.

The option to claim capital gain exemption under Section 54, in respect of two houses, shall be available as the amount of capital gains does not exceed Rs. 2 crores.

As the original residential house is transferred on July 02, 2025, the new house should be purchased within one year before and two years after the date of transfer. In other words, the new asset purchased between July 3, 2025 and July 01, 2027 shall be eligible for exemption under Section 54.

As the first house is purchased on October 01, 2025, within 1 year before the date of transfer of original asset, and second house is purchased on March 01, 2027, within 2 years after the date of sale of original residential house, investment in both the new houses are eligible for section 54 exemption.

Illustration

Mr. Amir purchased a residential house in the previous year 2003-04 for Rs. 5 crores. The house property is sold for Rs. 18 crores in the previous year 2025-26 and the capital gain is invested in residential house property worth Rs. 14 crore. Can he claim the benefit of section 54 in available?

**

Exemption under section 54 can be claimed in respect of capital gains arising on transfer of capital asset, being long-term residential house property. In this case all the conditions as provided in section 54 are satisfied and, hence, Mr. Amir can claim the benefit of section 54 by purchasing/constructing a residential house within the time-limit as provided under section 54.

However, as the amendment made by the Finance Act 2023, if the cost of the new asset exceeds Rs. 10 crores, the excess amount shall be ignored for computing the exemption under Section 54.

Thus, the maximum exemption allowed shall be as follows:

Particulars	Rs. (in crores)
Long-term capital gain arising on transfer of old house [18 – 5]	13
Less: Exemption under section 54 (*)	10
Taxable long-term capital gains	3

* The cost of new asset exceeds is Rs. 14 crore, hence only Rs. 10 crore shall be taken into consideration for the purpose of exemption and Rs. 4 crore shall be ignored.

Amount of exemption

Exemption under section 54 will be lower of following:

• Amount of capital gains arising on transfer of residential house; or
• Amount invested in purchase/construction of new residential house property [including the amount deposited in Capital Gains Deposit Account Scheme (discussed later)].

Illustration

Mr. Raja purchased a residential house in April, 2017 and sold the same on 25th April, 2025 for Rs. 8,40,000. Capital gain arising on sale of house amounted to Rs. 1,00,000. Out of the sale proceeds of old house, he purchased another residential house for Rs. 80,000. This house was purchased in May, 2025. What will be the amount of exemption under section 54 which can be claimed by Mr. Raja?

**

Exemption under section 54 can be claimed in respect of capital gains arising on transfer of capital asset, being long-term residential house property. Exemption under section 54 will be lower of the following :

• Amount of capital gains arising on transfer of residential house; or
• Amount invested in purchase/construction of new residential house property

Considering the above provisions, the exemption in this case will be lower of the following amount :

• Amount of capital gain, i.e., Rs. 1,00,000.
• Amount of investment in new house, i.e., Rs. 80,000.

Thus, exemption will be Rs. 80,000. Taxable capital gain will come to Rs. 20,000 (Rs. 1,00,000 less exemption under section 54 of Rs. 80,000).

Illustration

Mr. Kapoor purchased a residential house in April, 2017 and sold the same on 25th April, 2025 for Rs. 8,40,000. Capital gain arising on sale of house amounted to Rs. 1,00,000. Out of the sale proceeds of old house, he purchased another residential house for Rs. 1,20,000. This house was purchased in May, 2025. What will be the amount of exemption under section 54 which can be claimed by Mr. Kapoor?

**

Exemption under section 54 can be claimed in respect of capital gains arising on transfer of capital asset, being long-term residential house property. Exemption under section 54 will be lower of following :

• Amount of capital gains arising on transfer of residential house; or
• Amount invested in new residential house property

Considering the above provisions, the exemption in this case will be lower of the following amount :

• Amount of capital gain, i.e., Rs. 1,00,000.
• Amount of investment in new house, i.e., Rs. 1,20,000 Thus, exemption will be Rs. 1,00,000.

Taxable capital gain will come to Nil (entire gain will be exempt).

Consequences if the new house is transferred

Exemption under section 54 is available in respect of rollover of capital gains arising on transfer of residential house into another residential house. However, to keep a check on misutilisation of this benefit, a restriction is inserted in section 54. The restriction is in the form of prohibition of sale of the new house.

If a taxpayer purchases/constructs a house and claims exemption under section 54 and then transfers the new house within a period of 3 years from the date of its acquisition/completion of construction, then the benefit granted under section 54 will be withdrawn. The ultimate impact of the restriction is as follows:

• The restriction will be attracted, if after claiming exemption under section 54, the new house is sold before a period of 3 years from the date of its purchase/completion of construction.
• If the new house is sold before a period of 3 years from the date of its purchase/completion of construction, then at the time of computation of capital gain arising on transfer of the new house, the amount of capital gain claimed as exempt under section 54will be deducted from the cost of acquisition of the new house.

Illustration

Mr. Rajat sold his old house in April, 2025 for Rs. 25,20,000. Long-term capital gain arising on transfer of old house amounted to Rs. 8,40,000. In December, 2025 he purchased another residential house worth Rs. 10,00,000. The new house was however, sold in April, 2026 for Rs. 12,00,000 (stamp duty value of the new house was Rs. 10,00,000). What will be amount of taxable capital gains in the hands of Mr. Rajat for the financial years 2025-26 and 2026-27?

**

Computation of capital gains for the financial year 2025-26

Particulars	Rs.
Long-term capital gain arising on transfer of old house	8,40,000
Less: Exemption under section 54 (*)	8,40,000
Taxable long-term capital gains	Nil

(*) Exemption under section 54 will be lower of following :

• Amount of capital gains arising on transfer of residential house; or
• Investment in new residential house property

Considering the above provisions, the exemption in this case will be lower of the following amount :

• Amount of capital gain, i.e., Rs. 8,40,000.
• Amount of investment in new house, i.e,. Rs. 10,00,000

Thus, exemption will be Rs. 8,40,000.

Computation of capital gains for the financial year 2026-27

If a taxpayer purchases/constructs a house and claims exemption under section 54 and then the new residential house property is transferred within a period of 3 years from the date of its acquisition/completion of construction, then the benefit granted under section 54 will be withdrawn. The computation in this case will be as follows :

Particulars	Rs.
Full value of consideration (i.e., Sales value)	12,00,000
Less: Expenditure incurred wholly and exclusively in connection with transfer of capital asset (E.g., brokerage, etc.).	Nil
Net sale consideration	12,00,000
Less: Cost of acquisition of the house (*)	1,60,000
Taxable short- term capital gains on sale of new house	10,40,000

(*) If the new house is sold before a period of 3 years from the date of its purchase/completion of construction, then at the time of computation of capital gain arising on transfer of the new house, the amount of capital gain claimed as exemption under section 54 will be deducted from the cost of acquisition of the new house. Applying this provision, the cost of acquisition of new house will be computed as follows:

Particulars	Rs.
Actual cost of acquisition of new house	10,00,000
Less: Exemption claimed earlier under section 54	8,40,000
Cost of new house to be used while computing capital gain	1,60,000

Illustration

Mr. Rajat sold his old house in April, 2025 for Rs. 25,20,000. Long- term capital gain arising on transfer of old house amounted to Rs. 8,40,000. In December, 2025 he purchased another residential house worth Rs. 5,00,000. The new house was however, sold in April, 2026 for Rs. 12,00,000 (stamp duty value of the new house was Rs. 10,00,000). What will be amount of taxable capital gains in the hands of Mr. Rajat for the financial years 2025-26 and 2026-27?

**

Computation of capital gains for the financial year 2025-26

Particulars	Rs.
Long- term capital gain arising on transfer of old house	8,40,000
Less: Exemption under section 54 (*)	5,00,000
Taxable long- term capital gains	3,40,000

(*) Exemption under section 54 will be lower of following :

• Amount of capital gains arising on transfer of residential house, or Investment in new residential house property

Considering the above provisions, the exemption in this case will be lower of the following amount :

• Amount of capital gain, i.e., Rs. 8,40,000.
• Amount of investment in new house, i.e., Rs. 5,00,000 Thus, exemption will be Rs. 5,00,000.

Computation of capital gains for the financial year 2026-27

If a taxpayer purchases/constructs a house and claims exemption under section 54 and then the new residential house property is transferred within a period of 3 years from the date of its acquisition/completion of construction, then the benefit granted under section 54 will be withdrawn. The computation in this case will be as follows :

Particulars	Rs.
Full value of consideration (i.e., Sales value)	12,00,000
Less: Expenditure incurred wholly and exclusively in connection with transfer of capital asset (E.g., brokerage, etc.).	Nil
Net sale consideration	12,00,000
Less: Cost of acquisition (*)	Nil
Taxable short- term capital gains on sale of new house	12,00,000

(*) If the new house is sold before a period of 3 years from the date of its purchase/completion of construction, then at the time of computation of capital gain arising on transfer of the new house, the amount of capital gain claimed as exemption under section 54 will be deducted from the cost of acquisition of the new house. Applying this provision, the cost of acquisition of new house will be computed as follows:

Particulars	Rs.
Actual cost of acquisition of new house *	5,00,000
Less: Exemption claimed earlier under section 54	5,00,000
Cost of new house to be used while computing capital gain	Nil

Capital Gain Deposit Account Scheme

To claim exemption under section 54, the taxpayer should purchase another house within a period of one year before or two years after the date of transfer of old house or should construct another house within a period of three years from the date of transfer. If till the date of filing the return of income, the capital gain arising on transfer of the house is not utilised (in whole or in part) to purchase or construct another house, then the benefit of exemption can be availed by depositing the unutilised amount in Capital Gains Deposit Account Scheme in any branch of public sector bank, in accordance with Capital Gains Deposit Accounts Scheme, 1988 (hereafter referred as Capital Gains Account Scheme). The new house can be purchased or constructed by withdrawing the amount from the said account within the specified time-limit of 2 years or 3 years, as the case may be.

However, with effect from Assessment Year 2024-25 if the capital gains deposited in the Capital Gains Scheme Account exceed Rs. 10 crores, the excess amount shall not be taken into account while computing capital gain exemption

Illustration

Mr. Raj is a salaried employee. He had purchased a residential house in April, 2017 and sold the same on 25th April, 2025 for Rs. 8,40,000. Capital gain arising on sale of house amounted to Rs. 2,00,000. He wants to claim exemption under section 54 by purchasing another residential house. By what time he should purchase or construct another residential house?

**

To claim exemption under section 54, the taxpayer should purchase another house within a period of one year before or two years after the date of transfer of old house. In this case, the old house is transferred on 25th April, 2025, hence, he has to purchase another house within a period of 2 years from 25th April, 2025; alternatively he can construct another house within a period of 3 years from 25th April, 2025.

The old house is transferred in the year 2025-26 and the due date of filing the return of income of the year 2025-26 is 31st July, 2026. If Mr. Raj cannot purchase/construct another house by 31st July, 2026, then he has to deposit Rs. 2,00,000 in Capital Gains Account Scheme. By depositing Rs. 2,00,000 in the Capital Gains Account Scheme he can claim exemption of Rs. 2,00,000 under section 54. However, merely depositing the sum in the Capital Gains Account Scheme would not be sufficient; after deposit in the scheme he has to utilise this fund to purchase/construct the house within the specified period of 2 years/3 years, as the case may be.

Illustration

Mr. Rajan is a salaried employee. He had purchased a residential house in April, 2017 and sold the same on 25th, April, 2025 for Rs. 18,40,000. Capital gain arising on sale of house amounted to Rs. 4,00,000. He could not purchase/construct another house by 31^st July, 2026, however, in July, 2026 he deposited Rs. 4,00,000 in Capital Gains Account Scheme. Will he be entitled to claim any exemption under section 54?

**

To claim exemption under section 54, the taxpayer should purchase a residential house within a period of one year before or two years after the date of transfer of old house or can construct a house within a period of three years from the date of transfer. In this case, the old house was transferred on 25th April, 2025, hence, he has to purchase another house within a period of 2 years from 25th April, 2025. Alternatively, he can construct another house within a period of 3 years from 25th April, 2025.

The old house is transferred in the year 2025-26 and the due date of filing the return of income of the year 2025-26 is 31st July, 2026. If Mr. Rajan can not purchase/construct another house by 31st July, 2026, then he has to deposit Rs. 4,00,000 in Capital Gains Account Scheme. By depositing Rs. 4,00,000 in the Capital Gains Account Scheme he can claim exemption of Rs. 4,00,000 under section 54. In this case, he has deposited Rs. 4,00,000 in the Capital Gains Account Scheme and, hence, he can claim exemption of Rs. 4,00,000 under section 54. To continue the exemption he has to utilize the funds deposited in the scheme to purchased/construct the house within the specified period of 2 years/3 years, as the case may be.

Illustration

Mr. Vipul is a salaried employee. He had purchased a residential house in April, 2016 and sold the same on 25th April, 2025 for Rs. 18,40,000. Capital gain arising on sale of house amounted to Rs. 4,00,000. He could not purchase/construct another house by 31st July, 2026, however, in October, 2026 he deposited Rs. 4,00,000 in Capital Gains Account Scheme. Will he be entitled to claim any exemption under section 54?

**

To claim exemption under section 54 the taxpayer should purchase a residential house within a period of one year before or two years after the date of transfer of old house or can construct a house within a period of three years from the date of transfer. In this case, the old house was transferred on 25th April, 2025, hence, he has to purchase another house within a period of 2 years from 25th April, 2025. Alternatively he can construct another house within a period of 3 years from 25th April, 2025.

The old house was transferred in the year 2025-26 and the due date of filing the return of income of the year 2025-26 is 31st July 2026. If Mr. Vipul cannot purchase/construct another house by 31st July, 2026, then he has to deposit Rs. 4,00,000 in Capital Gains Account Scheme by 31st July, 2026 (i.e., by the due date of filing the return of income). The amount deposited in the Capital Gains Account Scheme till 31st July, 2026 will be taken into account to ascertain the exemption under section 54.

In this case, Mr. Vipul has deposited Rs. 4,00,000 in Capital Gains Account Scheme, but has deposited in October, 2026 (i.e., after 31st July) and, hence, he cannot claim exemption in respect of the amount deposited in the scheme. Thus, exemption under section 54 will be Nil.

Illustration

Mr. Rahul is a self-employed person. He had purchased a residential house in April, 2017 and sold the same on 25th April, 2025 for Rs. 15 crores. Capital gain arising on sale of house amounted to Rs. 12 crores. He could not purchase/construct another house by 31st July, 2026, however, he deposited Rs. 12 crores in Capital Gains Account Scheme. Will he be entitled to claim any exemption under section 54?

***

To claim exemption under section 54 the taxpayer should purchase a residential house within a period of one year before or two years after the date of transfer of old house or can construct a house within a period of three years from the date of transfer. In this case, the old house was transferred on 25th April, 2025, hence, he has to purchase another house within a period of 2 years from 25th April, 2025. Alternatively he can construct another house within a period of 3 years from 25th April, 2025.

The old house was transferred in the year 2025-26 and the due date of filing the return of income of the year 2025-26 is 31st July 2026. If Mr. Rahul cannot purchase/construct another house by 31st July, 2026, then he has to deposit capital gains in the Capital Gains Account Scheme by 31st July, 2026 (i.e., by the due date of filing the return of income).

Since Mr. Rahul has deposited Rs. 12 crore in the capital gain account scheme, he will be entitled to claim section 54 exemption, However, only 10 crores shall be taken into consideration while computing capital gain exemption under section 54.

Non-utilisation of amount deposited in Capital Gain Deposit Account Scheme

If the amount deposited in the Capital Gains Account Scheme in respect of which the taxpayer has claimed exemption under section 54 is not utilised within the specified period for purchase/construction of the residential house, then the unutilised amount (for which exemption is claimed) will be taxed as income by way of long- term capital gains of the year in which the specified period of 2 years/3 years gets over.

Illustration

Mr. Ramlal is a salaried employee. He had purchased a residential house in April, 2016 and sold the same on 25th April, 2025 for Rs. 25,20,000. Capital gain arising on sale of house amounted to Rs. 5,00,000. He could not purchase/construct another house by 31st July, 2026, however, in July, 2026 he deposited Rs. 5,00,000 in Capital Gains Account Scheme. He did not purchase any residential house nor constructed any house till 24th April, 2028. Will he be entitled to claim any exemption under section 54? If yes, will the exemption granted be revoked subsequently?

**

To claim exemption under section 54, the taxpayer should purchase a residential house within a period of one year before or two years after the date of transfer of old house or can construct a house within a period of three years from the date of transfer. In this case, the old house was transferred on 25th April, 2025, hence, he has to purchase another house within a period of 2 years from 25th April, 2025. Alternatively, he can construct another house within a period of 3 years from 25th April, 2025.

The old house was transferred in the year 2025-26 and the due date of filing the return of income of the year 2025-26 is 31st July, 2026. If Mr. Ranmal cannot purchase/construct another house by 31st July 2026, then he has to deposit Rs. 5,00,000 in Capital Gains Account Scheme. By depositing Rs. 5,00,000 in the Capital Gains Account Scheme he can claim exemption of Rs. 5,00,000 under section 54. In this case, he has deposited Rs. 5,00,000 in the Capital Gains Account Scheme and, hence, he can claim exemption of Rs. 5,00,000 under section 54. In other words, exemption under section 54 for the year 2025-26 will come to Rs. 5,00,000.

He has to utilise the funds deposited in the scheme to purchase/construct the house within the specified period of 2 years/3 years. If he does not purchase/construct the house within a period of 2 years/3 years, then the amount (for which exemption is claimed) will be taxed as income by way of long-term capital gains of the year in which the specified period gets over.

In this case the period of 2 years gets over on 24th April, 2027 and the period of 3 years gets over on 24th April, 2028 Mr. Ranmal has not purchased any house till 24th April, 2027 nor constructed any house till 24th April, 2028, hence, the exemption of Rs. 5,00,000 allowed in the year 2024-25 will be revoked and will be taxed as income by way of long- term capital gains for the financial year 2028-29.

Illustration

Mr. Khush is a salaried employee. He had purchased a residential house in April, 2014 and sold the same on 25th April, 2025 for Rs. 25,20,000. Capital gain arising on sale of house amounted to Rs. 5,00,000. He could not purchase/construct another house by 31st July, 2026, however, in July, 2026 he deposited Rs. 5,00,000 in Capital Gains Account Scheme. In January, 2027, he withdrew Rs. 4,00,000 from the Capital Gains Account Scheme and purchased a residential house. Thereafter, he did not purchase any residential house nor constructed any house till 24th April, 2027. Will he be entitled to claim any exemption under section 54? If yes, will the exemption granted be revoked subsequently?

**

To claim exemption under section 54, the taxpayer should purchase a residential house within a period of one year before or two years from the date of transfer of old house or can construct a house within a period of three years from the date of transfer. In this case, the old house was transferred on 25th April, 2025, hence, he has to purchase another house within a period of 2 years from 25th April, 2025. Alternatively, he can construct another house within a period of 3 years from 25th April, 2025.

The old house was transferred in the year 2025-26 and the due date of filing the return of income of the year 2025-26 is 31st July 2026. If Mr. Khush cannot purchase/construct another house by 31st July 2026, then he has to deposit Rs. 5,00,000 in Capital Gains Account Scheme. By depositing Rs. 5,00,000 in the Capital Gains Account Scheme he can claim exemption of Rs. 5,00,000 under section 54. In this case, he has deposited Rs. 5,00,000 in the Capital Gains Account Scheme and, hence, he can claim exemption of Rs. 5,00,000 under section 54. In other words, exemption under section 54 for the year 2025-26 will come to Rs. 5,00,000.

He has to utilise the amount deposited in the scheme (i.e., Rs. 5,00,000) to purchase/construct the house within the specified period of 2 years/3 years. If he does not purchase/construct the house within a period of 2 years/3 years, then the unutilised amount (for which exemption is claimed) will be taxed as income by way of long- term capital gains of the year in which the specified period gets over.

In this case the period of 2 years gets over on 24th April, 2027 and the period of 3 years gets over on 24th April, 2028. Hence, Mr. Khush has to purchase a residential house of Rs. 5,00,000 upto 24th April, 2027. Since he has utilized only Rs. 4,00,000 for purchase of a house property in January, 2027 and Section 54 allows exemptions for investment in one house only. The unutilised amount of Rs. 1,00,000 will be taxed as income by way of long- term capital gains in the year of expiry of the specified period.

In other words, the exemption of Rs. 1,00,000 (representing unutilised amount) allowed in the year 2025-26 will be revoked and will be taxed as income by way of long-term capital gains for the year 2027-28.

Illustration

Mr. Raju is a salaried employee. He had purchased a residential house in April, 2016 and sold the same on 25th April, 2025 for Rs. 18,40,000. Capital gain arising on sale of house amounted to Rs. 3,00,000. He could not purchase/construct another house by 31st July, 2026, however, in July, 2026 he deposited Rs. 5,00,000 in Capital Gains Account Scheme. He did not purchase any residential house nor constructed any house till 24th April, 2027. Will he be entitled to claim any exemption under section 54? If yes, will the exemption granted be revoked subsequently?

**

To claim exemption under section 54, the taxpayer should purchase a residential house within a period of one year before or two years after the date of transfer of old house or can construct a house within a period of three years from the date of transfer. In this case the old house was transferred on 25th April, 2025, hence, he has to purchase another house within a period of 2 years from 25th April, 2025. Alternatively, he can construct another house within a period of 3 years from 25th April, 2025.

The old house was transferred in the year 2025-26 and the due date of filing the return of income of the year 2025-26 is 31st July 2026. If Mr. Raju cannot purchase/construct another house by 31st July 2026, then he has to deposit Rs. 3,00,000 in Capital Gains Account Scheme. By depositing Rs. 3,00,000 in the Capital Gains Account Scheme he can claim exemption of Rs. 3,00,000 under section 54. In this case he has deposited more amount, i.e., Rs. 5,00,000 in the Capital Gains Account Scheme, however, he will be entitled to claim exemption only on Rs. 3,00,000. In other words, exemption under section 54 for the financial year 2025-26 will be Rs. 3,00,000.

He has to utilise the funds deposited in the scheme to purchase/construct the house within the specified period of 2 years/3 years. If he does not purchase/construct the house within a period of 2 years/3 years, then the amount (for which exemption is claimed) will be taxed as income by way of long-term capital gains of the year in which the specified period gets over.

In this case the period of 2 years gets over on 24th April, 2027 and the period of 3 years gets over on 24th April, 2028. Mr. Raju has not purchased any house till 24th April, 2027 nor constructed any house till 24th April, 2028. Hence, the exemption of Rs. 3,00,000 allowed in the year 2025-26 will be revoked and will be taxed as income by way of long – term capital gains for the financial year 2028-29.

Illustration

Mr. Vipul is a salaried employee. He had purchased a residential house in April, 2016 and sold the same on 25th April, 2025 for Rs. 28,40,000. Capital gain arising on sale of house amounted to Rs. 6,00,000. He could not purchase/construct another house by 31st July, 2026, however, in July, 2026 he deposited Rs. 6,00,000 in Capital Gains Account Scheme. In April, 2027 he withdrew Rs. 6,00,000 from the scheme and purchased a car from the said amount. Will he be entitled to claim any exemption under section 54? If yes, will the exemption granted be revoked subsequently?

**

To claim exemption under section 54, the taxpayer should purchase a residential house within a period of one year before or two years after the date of transfer of old house or can construct a house within a period of three years from the date of transfer. In this case the old house was transferred on 25th April, 2025, hence, he has to purchase another house within a period of 2 years from 25th April, 2025. Alternatively, he can construct another house within a period of 3 years from 25th April, 2025.

The old house was transferred in the year 2025-26 and the due date of filing the return of income of the year 2025-26 is 31st July 2026. If Mr. Vipul cannot purchase/construct another house by 31st July 2026, then he has to deposit Rs. 6,00,000 in Capital Gains Account Scheme. By depositing Rs. 6,00,000 in the Capital Gains Account Scheme he can claim exemption of Rs. 6,00,000 under section 54. In this case he has deposited Rs. 6,00,000 in the Capital Gains Account Scheme and, hence, will be entitled to claim exemption only of Rs. 6,00,000. In other words, exemption under section 54 for the year 2025-26 will come to Rs. 6,00,000.

He has to utilise the funds deposited in the scheme to purchase/construct the house within the specified period of 2 years/3 years. The amount withdrawn from the scheme should be used to purchase/construct residential house. If the amount withdrawn from the scheme is used for any other purpose then it will be charged to tax as income by way of long-term capital gain of the year of withdrawal.

In this case Mr. Vipul has withdrawn Rs. 6,00,000 from the scheme. Thus, he should purchase/construct a residential house worth Rs. 6,00,000 in the year of withdrawal. However, he had utilised the said amount to purchase a car and, hence, Rs. 6,00,000 will be charged to tax as income by way of long-term capital gains of the year of withdrawal, i.e., financial year 2027-28.

 

MCQ ON EXEMPTION TO CAPITAL GAINS ON TRANSFER OF RESIDENTIAL PROPERTY

Q1. The benefit of section 54 is available only to an individual or a HUF.

(a) True (b) False

Correct answer : (a)

Justification of correct answer :

The benefit of section 54 is available only to an individual or a HUF.

Thus, the statement given in the question is true and hence, option (a) is the correct option.

Q2. To avail the benefit of section 54, the asset transferred should be __________, being a residential house property.

(a) Short-term capital asset

(b) Long-term capital asset

(c) Short-term or long-term capital asset as per the choice of the assessee

(d) Short-term or long-term capital asset as per the choice of the Assessing Officer

Correct answer : (b)

Justification of correct answer :

To avail the benefit of section 54, the asset transferred should be a long-term capital asset, being a residential house property.

Thus, option (b) is the correct option.

Q3. To avail the benefit of section 54, the taxpayer should purchase a new residential house in India within a period of __________or __________ after the date of transfer of the old house.

(a) 1 year before, 3 years (b) 2 years before, 2 years

(c) 1 year before, 2 years (d) 3 years before, 1 year

Correct answer : (c)

Justification of correct answer :

To avail the benefit of section 54, within a period of one year before or two years after the date of transfer of old house, the taxpayer should acquire another residential house in India. Thus, option (c) is the correct option.

Q4. To avail the benefit of section 54, within a period of 3 years from the date of transfer of the old house, the taxpayer should construct a new residential house in India.

(a) True (b) False

Correct answer : (a)

Justification of correct answer :

To avail the benefit of section 54, within a period of one year before or two years after the date of transfer of old house, the taxpayer should acquire a residential house in India or should construct a residential house in India within a period of three years from the date of transfer of the old house.

Thus, the statement given in the question is true and hence, option (a) is the correct option.

Q5. In case of compulsory acquisition the period of acquisition or construction will be determined from the date of receipt of compensation (whether original or additional).

(a) True (b) False

Correct answer : (a)

Justification of correct answer :

To avail the benefit of section 54, within a period of one year before or two years after the date of transfer of old house, the taxpayer should acquire a residential house in India or should construct a residential house in India within a period of three years from the date of transfer of the old house. In case of compulsory acquisition the period of acquisition or construction will be determined from the date of receipt of compensation (whether original or additional).

Thus, the statement given in the question is true and hence, option (a) is the correct option.

Q6. Exemption under section 54 can be claimed in respect of any number of residential house properties purchased/constructed in India as well as outside India.

(a) True (b) False

Correct answer : (b)

Justification of correct answer:

Exemption under section 54 can be claimed only in respect of one residential house property purchased/constructed in India. If more than one house is purchased/constructed, then exemption under section 54 will be available in respect of one house only. No exemption can be claimed in respect of house purchased outside India.

However, with effect from Assessment Year 2021-22, a taxpayer has an option to make investment in two residential house properties in India. This option can be exercised by the taxpayer only once in his lifetime provided the amount of long-term capital gain does not exceed Rs. 2 crores.

Thus, the statement given in the question is false and hence, option (b) is the correct option.

Q7. Exemption under section 54 will be __________ the amount of capital gains arising on transfer of residential house or amount invested in purchase/construction of new residential house property [including the amount deposited in Capital Gains Deposit Account Scheme].

(a) Lower of (b) Higher of

(c) Equal to (d) Average of

Correct answer : (a)

Justification of correct answer :

Exemption under section 54 will be lower of following :

• Amount of capital gains arising on transfer of residential house; or
• Amount invested in purchase/construction of new residential house property [including the amount deposited in Capital Gains Deposit Account Scheme].

Thus, option (a) is the correct option.

Q8. After claiming benefit under section 54, if new house is transferred within a period of __________ from the date of its acquisition/completion of construction, then the benefit granted under section 54 will be withdrawn.

(a) 1 year (b) 3 years

(c) 5 years (d) 7 years

Correct answer : (b)

Justification of correct answer :

After claiming benefit under section 54, if new house is transferred within a period of 3 years from the date of its acquisition/completion of construction, then the benefit granted under section 54 will be withdrawn.

Thus, option (b) is the correct option.

Q9. If till the date of filing the return of income, the capital gain arising on transfer of the house is not utilised (in whole or in part) to purchase or construct another house, then the benefit of exemption available under section 54 cannot be availed by the taxpayer.

(a) True (b) False

Correct answer : (b)

Justification of correct answer :

If till the date of filing the return of income, the capital gain arising on transfer of the house is not utilised (in whole or in part) to purchase or construct another house, then the benefit of exemption can be availed by depositing the unutilised amount in Capital Gains Deposit Account Scheme in any branch of public sector bank, in accordance with Capital Gains Deposit Accounts Scheme, 1988.

Thus, the statement given in the question is false and hence, option (b) is the correct option.

Q10. After the expiry of specified period of 2 years/3 years, the unutilized amount remained in the Capital Gains Account Scheme will be taxed as income by way of __________ in the year in which the specified period of 2 years/3 years gets over.

(a) Short-term capital gains (b) Long-term capital gains

(c) Profits and gains of business or profession (d) Income from other sources

Correct answer : (b)

Justification of correct answer :

After the expiry of specified period of 2 years/3 years, the unutilized amount remained in the Capital Gains Account Scheme will be taxed as income by way of long-term capital gains of the year in which the specified period of 2 years/3 years gets over.

Thus, option (b) is the correct option.

Exemption to capital gains arising on transfer of agricultural land

Disclaimer: The contents of this document are for information purposes only. This aims to enable public to have a quick and an easy access to information and do not purport to be legal documents. Viewers are advised to verify the content from Government Acts/Rules/Notifications etc.

Introduction

A farmer wants to shift his agricultural land for certain reason and hence he sold his old agricultural land and from the sale proceeds he purchased another agricultural land. In this case the objective of the seller was not to earn income by sale of old land but was to shift to another land. If in this case, the seller was liable to pay income-tax on capital gains arising on sale of old land, then it would be a hardship on him.

Section 54B gives relief from such a hardship. Section 54B gives relief to a taxpayer who sells his agricultural land and from the sale proceeds he acquires another agricultural land. The detailed provisions in this regard are discussed in this part.

Basic conditions

Following conditions should be satisfied to claim the benefit of section 54B.

• The benefit of section 54Bis available only to an individual or a HUF
• The asset transferred should be agricultural land. The land may be a long-term capital asset or short-term capital asset.
• The agricultural land should be used by the individual or his parents for agricultural purpose at least for a period of two years immediately preceding the date of transfer. In case of HUF the land should be used by any member of HUF.
• Within a period of two years from the date of transfer of old land the taxpayer should acquire another agricultural land. In case of compulsory acquisition the period of acquisition of new agricultural land will be determined from the date of receipt of compensation. However, as per section 10(37), no capital gain would be chargeable to tax in case of an individual or HUF if agricultural land is compulsorily acquired under any law and the consideration of which is approved by the Central Government or RBI and received on or after 01-04-2004.

Illustration

Mr. Raja purchased an agricultural land in April, 2018. Since the date of purchase, the land was being used for agricultural purpose. The land was sold in July, 2025 for Rs. 8,40,000. Capital gain arising on sale of land amounted to Rs. 1,00,000. Can he claim the benefit of section 54B by purchasing another agricultural land?

**

Exemption under section 54B can be claimed in respect of capital gains arising on transfer of capital asset, being agricultural land (may be long-term or short-term).

This benefit is available only to an individual or a HUF. The land should be used for agricultural purpose at least for two years. In this case, all the conditions of section 54B were satisfied and, hence, Mr. Raja can claim the benefit of section 54B by purchasing another agricultural land within the time-limit specified under section 54B.

Illustration

Mr. Kamal purchased an agricultural land in April, 2020. Since the date of purchase, the land was being used for agricultural purpose. The land was sold in May, 2025 for Rs. 18,40,000. Capital gain arising on sale of land amounted to Rs. 2,00,000. Can he claim the benefit of section 54B by purchasing another agricultural land?

**

Exemption under section 54B can be claimed in respect of capital gains arising on transfer of capital asset, being agricultural land (may be long-term or short-term). This benefit is available only to an individual or HUF.

The land should be used for agricultural purpose for at least two years. In this case, all the conditions of section 54B are satisfied and, hence, Mr. Kamal can claim the benefit of section 54B by purchasing another agricultural land within the time-limit specified under section 54B.

Illustration

Raja HUF purchased an agricultural land in June, 2020. Since the date of purchase, the land was being used for agricultural purpose. The land was sold in July, 2025 for Rs. 28,40,000. Capital gain arising on sale of land amounted to Rs. 8,00,000. Can the HUF claim the benefit of section 54B by purchasing another agricultural land?

**

Exemption under section 54B can be claimed in respect of capital gains arising on transfer of capital asset, being agricultural land (may be long-term or short-term). This benefit is available only to an individual or HUF. The land should be used for agricultural purpose for at least two years. In this case all the conditions of section 54B are satisfied and, hence, Raja HUF can claim the benefit of section 54B by purchasing another agricultural land within the time-limit specified under section 54B.

Illustration

Mr. Kumar purchased gold in April, 2018 and sold the same in July, 2025 for Rs. 8,40,000. Capital gain arising on sale of gold amounted to Rs. 1,00,000. Can he claim the benefit of section 54B by purchasing agricultural land from the capital gain of Rs. 1,00,000?

**

Exemption under section 54B can be claimed in respect of capital gains arising on transfer of a capital asset, being agricultural land (may be long-term or short-term). In this case the capital asset is gold, i.e., other than agricultural land and, hence, the benefit of section 54B is not available.

Amount of exemption

Exemption under section 54B will be lower of the following:

• Amount of capital gains arising on transfer of agricultural land; or
• Investment in new agricultural land [including the amount deposited in Capital Gains Deposit Account Scheme (discussed later)].

Illustration

Mr. Raja purchased an agricultural land in April, 2018. Since the date of purchase, the land was being used for agricultural purpose.

The land was sold in July, 2025 for Rs. 8,40,000. Capital gain arising on sale of land amounted to Rs. 1,00,000. Out of the sale proceeds of old land, he purchased another agricultural land for Rs. 3,00,000 (purchased in August, 2025). What will be the amount of exemption under section 54B which can be claimed by Mr. Raja?

**

Exemption under section 54B can be claimed in respect of capital gains arising on transfer of capital asset, being agricultural land. Exemption under section 54B will be lower of following :

• Amount of capital gains arising on transfer of agricultural land; or
• Investment in new agricultural land

Considering the above provisions, the exemption in this case will be lower of the following amount :

• Amount of capital gain arising on transfer of agricultural land, i.e., Rs. 1,00,000 or
• Amount of investment in new agricultural land, i.e., Rs. 3,00,000

Thus, exemption will be Rs. 1,00,000. Taxable capital gain will come to Nil (entire gain will be exempt).

Illustration

Mr. Kaushal purchased an agricultural land in April, 2018. Since the date of purchase, the land was being used for agricultural purpose. The land was sold in July, 2025 for Rs. 18,40,000. Capital gain arising on sale of land amounted to Rs. 4,00,000. Out of the sale proceeds of old land, he purchased another agricultural land for Rs. 3,00,000 (in August, 2025). What will be the amount of exemption under section 54B which can be claimed by Mr. Kaushal?

**

Exemption under section 54B can be claimed in respect of capital gains arising on transfer of capital asset, being agricultural land. Exemption under section 54B will be lower of following :

• Amount of capital gains arising on transfer of agricultural land, or
• Investment in new agricultural land

Considering the above provisions, the exemption in this case will be lower of the following amount :

• Amount of capital gain arising on transfer of agricultural land, i.e., Rs. 4,00,000 or
• Amount of investment in new agricultural land, i.e., Rs. 3,00,000

Thus, exemption will be Rs. 3,00,000. Taxable capital gain will come to Rs. 1,00,000 (i.e., Rs. 4,00,000 less Rs. 3,00,000).

Consequences if the new land is transferred

Exemption under section 54B is available in respect of rollover of capital gains arising on transfer of agricultural land into another agricultural land. However, to keep a check on misutilisation of this benefit a restriction is inserted in section 54B. The restriction is in the form of prohibition of sale of the new agricultural land.

If a taxpayer purchases new agricultural land to claim exemption under section 54B and subsequently he transfers the new agricultural land within a period of 3 years from the date of its acquisition, then the benefit granted under section 54B will be withdrawn. The ultimate impact of the restriction is as follows:

• The restriction will be attracted if, after claiming exemption under section 54B, the new agricultural land is sold within a period of 3 years from the date of its purchase.
• If the agricultural land is sold within a period of 3 years from the date of its purchase, then at the time of computation of capital gain arising on transfer of the new land, the amount of capital gain claimed as exemption under section 54Bwill be deducted from the cost of acquisition of the new agricultural land.

Illustration

Mr. Rajat sold his agricultural land in April, 2025 for Rs. 25,20,000. Since past 10 years the land was used for agricultural purpose. Long-term capital gain arising on transfer of the land amounted to Rs. 8,40,000. In December, 2025 he purchased another agricultural land worth Rs. 10,00,000. The new land was, however, sold in April, 2026 for Rs. 12,00,000. What will be amount of taxable capital gains in the hands of Mr. Rajat for the financial years 2025-26 and 2026-27?

**

Computation of capital gains for the financial year 2025-26

Particulars	Rs.
Long-term capital gain arising on transfer of old land	8,40,000
Less: Exemption under section 54B (*)	8,40,000
Taxable Long-Term Capital Gains	Nil

(*) Exemption under section 54B will be lower of following :

• Amount of capital gains arising on transfer of agricultural land, or
• Investment in new agricultural land

Considering the above provisions, the exemption in this case will be lower of the following amount :

• Amount of capital gain arising on transfer of agricultural land, i.e., Rs. 8,40,000 or
• Amount of investment in new agricultural land, i.e., Rs. 10,00,000 Thus, exemption will be Rs. 8,40,000.

Computation of capital gains for the year 2026-27

If a taxpayer purchases another agricultural land and claims exemption under section 54B and subsequently he transfers the new agricultural land within a period of 3 years from the date of its acquisition, than the benefit granted earlier under section 54B will be withdrawn. The computation in this case will be as follows :

Particulars	Rs.
Full value of consideration (i.e., Sales value of new agricultural land)	12,00,000
Less: Expenditure incurred wholly and exclusively in connection with transfer of capital asset (e.g., brokerage, etc.).	Nil
Net sale consideration	12,00,000
Less: Cost of acquisition (*)	1,60,000
Short- term capital gains on sale of new agricultural land	10,40,000

(*) If the agricultural land is sold before a period of 3 years from the date of its purchase, then at the time of computation of capital gain arising on transfer of the new agricultural land, the amount of capital gain claimed as exempt under section 54B will be deducted from the cost of acquisition of the new agricultural land. Applying these provisions the cost of acquisition of new land will be computed as follows:

Particulars	Rs.
Cost of acquisition of new land	10,00,000
Less: Exemption claimed earlier under section 54B	8,40,000
Cost of new land to be used while computing capital gain	1,60,000

Illustration

Mr. Aakash sold his agricultural land in April, 2025 for Rs. 25,20,000. Since past 10 years the land was used for agricultural purpose. Long-term capital gain arising on transfer of the land amounted to Rs. 8,40,000. In December, 2025 he purchased another agricultural land worth Rs. 5,00,000.

The new land was sold in April, 2026 for Rs. 12,00,000. What will be amount of taxable capital gains in the hands of Mr. Aakash for the financial years 2025-26 and 2026-27?

Computation of capital gains for the financial year 2025-26

Particulars	Rs.
Long-term capital gain arising on transfer of old land	8,40,000
Less: Exemption under section 54B (*)	5,00,000
Taxable Long-Term Capital Gains	3,40,000

(*) Exemption under section 54B will be lower of following :

• Amount of capital gains arising on transfer of agricultural land; or
• Investment in new agricultural land

Considering the above provisions, the exemption in this case will be lower of the following amount :

• Amount of capital gain arising on transfer of agricultural land, i.e., Rs. 8,40,000 or
• Amount of investment in new agricultural land, i.e., Rs. 5,00,000 Thus, exemption will be Rs. 5,00,000.

Computation of capital gains for the financial year 2026-27

If a taxpayer purchases agricultural land and claims exemption under section 54B and subsequently transfers the new agricultural land within a period of 3 years from the date of its acquisition, than the benefit granted earlier under section 54B will be withdrawn. The computation in this case will be as follows :

Particulars	Rs.
Full value of consideration (i.e., Sales value of new land)	12,00,000
Less: Expenditure incurred wholly and exclusively in connection with transfer of capital asset (e.g., brokerage, etc.).	Nil
Net sale consideration	12,00,000
Less: Cost of acquisition (*)	Nil
Short-term capital gains on sale of new agricultural land	12,00,000

(*) If the new land is sold before a period of 3 years from the date of its purchase, then at the time of computation of capital gain arising on transfer of the new land, the amount of capital gain claimed as exempt under section 54B will be deducted from the cost of acquisition of the new land. Applying this provision, the cost of acquisition of new land will be computed as follows :

Particulars	Rs.
Cost of acquisition of new land	5,00,000
Less: Exemption claimed earlier under section 54B	5,00,000
Cost of new land to be used while computing capital gain	Nil

Capital Gain Deposit Account Scheme

To claim exemption under section 54B, the taxpayer should purchase another agricultural land within a period of two years from the date of transfer of old land.

If till the date of filing the return of income the capital gain arising on transfer of the old land is not utilised (in whole or in part) for purchase of another agricultural land, then the benefit of exemption can be availed by depositing the unutilised amount in Capital Gains Deposit Account Scheme in any branch of public sector bank, in accordance with Capital Gains Deposit Accounts Scheme, 1988 (hereafter referred as Capital Gains Account Scheme). The new land can be purchased by withdrawing the amount from the said account within the specified time-limit of 2 years.

Illustration

Mr. Raj had purchased an agricultural land in April, 2018. Since the day of its purchase, the land was being used for agricultural purpose. This land was sold on 25th August, 2025 for Rs. 8,40,000. Capital gain arising on sale of land amounted to Rs. 2,00,000. He wants to claim exemption under section 54B. By what time he should purchase another agricultural land?

**

To claim exemption under section 54B, the taxpayer should purchase another agricultural land within a period of two years from the date of transfer of old land. In this case the old land was transferred on 25th August, 2025, hence, he has to purchase another land within a period of 2 years from 25th August, 2025 i.e. on or before 24th August, 2027.

The old land was transferred in the year 2025-26 and the due date of filing the return of income of the year 2025-26 is 31st July 2026. If Mr. Raj cannot purchase another land by 31st July, 2026, then he has to deposit Rs. 2,00,000 in Capital Gains Account Scheme. By depositing Rs. 2,00,000 in the Capital Gains Account Scheme he can claim exemption of Rs. 2,00,000 under section 54B. However, merely depositing in the Capital Gains Account Scheme would not be sufficient. After deposit in the scheme he has to utilise this fund to purchase new agricultural land within the specified period of 2 years i.e. on or before 24th August, 2027.

Illustration

Mr. Raj had purchased an agricultural land in April, 2018. Since the day of its purchase, the land was being used for agricultural purpose. This land was sold on 25th August, 2025 for Rs. 18,40,000. Capital gain arising on sale of land amounted to Rs. 4,00,000. He could not purchase another agricultural land by 31st July, 2026, however, in July, 2026 he deposited Rs. 4,00,000 in Capital Gains Account Scheme. Will he be entitled to claim any exemption under section 54B?

**

To claim exemption under section 54B, the taxpayer should purchase another agricultural land within a period of two years from the date of transfer of old land. In this case the old land was transferred on 25th August, 2025, hence, he has to purchase another land within a period of 2 years from 25th August, 2025, i.e., on or before 24th August, 2027.

The old land was transferred in the year 2025-26 and the due date of filing the return of income of the year 2025-26 is 31st July, 2026. If Mr. Raj cannot purchase another land by 31st July, 2026, then he has to deposit Rs. 4,00,000 in Capital Gains Account Scheme. By depositing Rs. 4,00,000 in the Capital Gains Account Scheme he can claim exemption of Rs. 4,00,000 under section 54B. In this case he has deposited Rs. 4,00,000 in the Capital Gains Account Scheme and, hence, he can claim exemption of Rs. 4,00,000 under section 54B.

However, merely depositing in the Capital Gains Account Scheme would not be sufficient. After deposit in the scheme he has to utilise this fund to purchased new agricultural land within the specified period of 2 years, i.e., on or before 24th August, 2027.

Illustration

Mr. Kamal had purchased an agricultural land in April, 2018. Since the day of its purchase, the land was being used for agricultural purpose. This land was sold on 25th August, 2025 for Rs. 18,40,000. Capital gain arising on sale of land amounted to Rs. 4,00,000. He could not purchase another agricultural land by 31st July, 2026, however, in July, 2026 he deposited Rs. 3,00,000 in Capital Gains Account Scheme. Will he be entitled to claim any exemption under section 54B?

**

To claim exemption under section 54B, the taxpayer should purchase another agricultural land within a period of two years from the date of transfer of old land. In this case the old land was transferred on 25th August, 2025, hence, he has to purchase another land within a period of 2 years from the date of transfer.

The old land was transferred in the year 2025-26 and the due date of filing the return of income of the year 2025-26 is 31st July 2026. If Mr. Kamal cannot purchase another land by 31st July 2026, then he has to deposit Rs. 4,00,000 in Capital Gains Account Scheme.

By depositing Rs. 4,00,000 in the Capital Gains Account Scheme he can claim exemption of Rs. 4,00,000 under section 54B. In this case, he has deposited Rs. 3,00,000 in the Capital Gains Account Scheme and, hence, he can claim exemption of Rs. 3,00,000 under section 54B.

However, merely depositing in the Capital Gains Account Scheme would not be sufficient. After deposit in the scheme he has to utilise this fund to purchased new agricultural land within the specified period of 2 years.

Non-utilisation of amount deposited in Capital Gain Deposit Account Scheme

If the amount deposited in the Capital Gains Account Scheme in respect of which the taxpayer has claimed exemption is not utilised within the specified period for purchase of another agricultural land, then the unutilised amount (for which exemption is claimed) will be taxed as income by way of long-term capital gains or short-term capital gain (depending upon the nature of original capital gain) for the previous year in which the specified period of 2 years gets over.

Illustration

Mr. Ramlal had purchased an agricultural land in April, 2018. Since the day of purchase the land was used for agricultural purpose. The land was sold on 25th August, 2025 for Rs. 25,20,000. Capital gain arising on sale of land amounted to Rs. 5,00,000.

He could not purchase another agricultural land by 31st July, 2026, however, in July, 2026 he deposited Rs. 5,00,000 in Capital Gains Account Scheme. He did not purchase any agricultural land till 24th August, 2027. Will he be entitled to claim any exemption under section 54B? If yes, can the exemption granted be revoked subsequently?

**

To claim exemption under section 54B, the taxpayer should purchase another agricultural land within a period of two years from the date of transfer of old land. In this case, the old land was transferred on 25th August, 2025, hence, he has to purchase another land within a period of 2 years from 25th August, 2025, i.e., on or before 24th August, 2027.

The old land was transferred in the year 2025-26 and the due date of filing the return of income of the year 2025-26 is 31st July 2026. If Mr. Ramlal cannot purchase another agricultural land by 31st July 2026, then he has to deposit Rs. 5,00,000 in Capital Gains Account Scheme.

By depositing Rs. 5,00,000 in the Capital Gains Account Scheme he can claim exemption of Rs. 5,00,000 under section 54B. In this case he has deposited Rs. 5,00,000 in the Capital Gains Account Scheme and, hence, he can claim exemption of Rs. 5,00,000 under section 54B. In other words, exemption under section 54B for the year 2025-26will be Rs. 5,00,000.

He has to utilise the funds deposited in the scheme to purchase another agricultural land within the specified period of 2 years. If he does not purchase the land within a period of 2 years, then the amount (for which exemption is claimed) will be taxed as income by way of long-term capital gains or short-term capital gain (depending upon the nature of the original capital gain) for the previous year in which the specified period of 2 years gets over.

In this case the period of 2 years gets over on 24th August, 2027, Mr. Ramlal has not purchased any agricultural land till 24th August, 2027, hence, the exemption of Rs. 5,00,000 allowed in the year 2025-26 will be revoked and will be taxed as income by way of long-term capital gains for the financial year 2027-28.

Illustration

Mr. Khushal had purchased an agricultural land in April, 2018. Since the day of purchase the land was used for agricultural purpose. The land was sold on 25th August, 2025 for Rs. 25,20,000. Capital gain arising on sale of land amounted to Rs. 5,00,000.

He could not purchase another agricultural land by 31st July, 2026, however, in July, 2026 he deposited Rs. 5,00,000 in Capital Gains Account Scheme. In January, 2027 he withdrew Rs. 4,00,000 from the Capital Gains Account Scheme and purchased agricultural land. Thereafter, he did not purchase any agricultural land till 24th August, 2027. Will he be entitled to claim any exemption under section 54B? If yes, will the exemption granted be revoked subsequently?

**

To claim exemption under section 54B, the taxpayer should purchase another agricultural land within a period of two years from the date of transfer of old land. In this case the old land was transferred on 25th August, 2025, hence, he has to purchase another land within a period of 2 years from the date of transfer, i.e., on or before 24th August, 2027.

The old land was transferred in the year 2025-26 and the due date of filing the return of income of the year 2025-26 is 31st July 2026. If Mr. Kuhshal cannot purchase another agricultural land by 31st July, 2026, then he has to deposit Rs. 5,00,000 in Capital Gains Account Scheme. By depositing Rs. 5,00,000 in the Capital Gains Account Scheme he can claim exemption of Rs. 5,00,000 under section 54B.

In this case he has deposited Rs. 5,00,000 in the Capital Gains Account Scheme and, hence, he can claim exemption of Rs. 5,00,000 under section 54B. In other words, exemption under section 54B for the year 2025-26 will be Rs. 5,00,000.

He has to utilise the amount deposited in the scheme (i.e., Rs. 5,00,000) to purchase agricultural land within the specified period of 2 years. If he does not purchase the agricultural land within a period of 2 years, then the unutilised amount will be taxed as income by way of long-term capital gains or short-term capital gain (depending upon the nature of original capital gain) for the previous year in which the specified period of 2 years expires.

In this case the period of 2 years expires on 24th August, 2027. Hence, Mr. Khushal has to purchase a land for Rs. 5,00,000 upto 24th August, 2027, He has purchased agricultural land worth Rs. 4,00,000 in January, 2027 and he has not utilized the remaining portion to purchase any agricultural land till 24thAugust, 2027.Thus, the unutilised amount of Rs. 1,00,000 will be taxed as income by way of long-term capital gains of the year of expiry of the specified period, i.e., 2027-28.

Illustration

Mr. Raju had purchased an agricultural land in April, 2018. Since the day of purchase the land was used for agricultural purpose. This land was sold on 25th August, 2025 for Rs. 18,40,000. Capital gain arising on sale of land amounted to Rs. 3,00,000. He could not purchase another agricultural land by 31st July, 2026, however, in July, 2026 he deposited Rs. 5,00,000 in Capital Gains Account Scheme. He did not purchase any agricultural land till 24th August, 2027. Will he be entitled to claim any exemption under section 54B? If yes, will the exemption granted be revoked?

**

To claim exemption under section 54B, the taxpayer should purchase another agricultural land within a period of two years from the date of transfer of old land. In this case the old land was transferred on 25th August, 2025, hence, he has to purchase another land within a period of 2 years from the date of transfer , i.e., on or before 24th August, 2027.

The old land was transferred in the year 2025-26 and the due date of filing the return of income of the year 2025-26 is 31st July, 2026. If Mr. Raju cannot purchase another agricultural land by 31st July, 2026, then he has to deposit Rs. 3,00,000 in Capital Gains Account Scheme. By depositing Rs. 3,00,000 in the Capital Gains Account Scheme he can claim exemption of Rs. 3,00,000 under section 54B. In this case, he has deposited more amount, i.e., Rs. 5,00,000 in the Capital Gains Account Scheme, however, he will be entitled to claim exemption only of Rs. 3,00,000. In other words, exemption under section 54B for the year 2025-26 will be Rs. 3,00,000.

He has to utilise the funds deposited in the scheme to purchase another agricultural land within the specified period of 2 years. If he does not purchase another agricultural land within a period of 2 years, then the amount (for which exemption is claimed) will be taxed as income by way of long-term capital gains or short-term capital gain (depending upon the nature of original capital gain) for the previous year in which the specified period of 2 years gets over.

In this case, the period of 2 years gets over on 24th August, 2027. Mr. Raju has not purchased any agricultural land till 24th August, 2027, hence, the exemption of Rs. 3,00,000 allowed in the year 2025-26 will be revoked and will be taxed as income by way of long-term capital gains for the year 2027-28.

Illustration

Mr. Vipul had purchased an agricultural land in April, 2018. Since the day of purchase the land was used for agricultural purpose. This land was sold on 25th August, 2025 for Rs. 28,40,000. Capital gain arising on sale of land amounted to Rs. 6,00,000. He could not purchase another agricultural land by 31st July, 2026, however, in July, 2026 he deposited Rs. 6,00,000 in Capital Gains Account Scheme. In March, 2027 he withdrew Rs. 6,00,000 from the scheme and purchased a car from the said amount. Will he be entitled to claim any exemption under section 54B? If yes, will the exemption granted be revoked subsequently?

**

To claim exemption under section 54B, the taxpayer should purchase another agricultural land within a period of two years from the date of transfer of old land. In this case the old land was transferred on 25th August, 2025, hence, he has to purchase another land within a period of 2 years from the date of transfer, i.e., on or before 24th August, 2025.

The old land was transferred in the year 2025-26 and the due date of filing the return of income of the year 2025-26 is 31st July, 2026. If Mr. Vipul cannot purchase another agricultural land by 31st July, 2026, then he has to deposit Rs. 6,00,000 in Capital Gains Account Scheme. By depositing Rs. 6,00,000 in the Capital Gains Account Scheme he can claim exemption of Rs. 6,00,000 under section 54B. In this case he has deposited Rs. 6,00,000 in the Capital Gains Account Scheme and, hence, will be entitled to claim exemption only of Rs. 6,00,000. In other words, exemption under section 54B for the year 2025-26 will be Rs. 6,00,000.

He has to utilise the funds deposited in the scheme to purchase another agricultural land within the specified period of 2 years. The amount withdrawn from the scheme should be used to purchase of agricultural land. If the amount withdrawn from the scheme is used for any other purpose then it will be charged to tax as income by way of long-term capital gain or short-term capital gain (depending upon the nature of original capital gain) of the year of withdrawal.

In this case Mr. Vipul has withdrawn Rs. 6,00,000 from the scheme. Thus, he should purchase agricultural land worth Rs. 6,00,000 in the year of withdrawal. However, he had utilised the said amount to purchase a car and, hence, Rs. 6,00,000 will be charged to tax as income by way of long-term capital gains of the year of withdrawal.

MCQ ON EXEMPTION TO CAPITAL GAINS ON TRANSFER OF AGRICULTURAL LAND

Q1. Section _____________ gives relief to a taxpayer who sells his agricultural land and from the sale proceeds he acquires another agricultural land.

(a) 54 (b) 54B

(c) 54EC (d) 54F

Correct answer : (b)

Justification of correct answer :

Section 54B gives relief to a taxpayer who sells his agricultural land and acquires another agricultural land from the sale proceeds.

Thus, option (b) is the correct option.

Q2. The benefit of section 54B is available to all the persons except to an individual and a HUF.

(a) True (b) False

Correct answer : (b)

Justification of correct answer :

The benefit of section 54B is available only to an individual or a HUF.

Thus, the statement given in the question is false and hence, option (b) is the correct option.

Q3. To avail the benefit of section 54B, the assets transferred should be _____________.

(a) A residential house property (b) A non-agricultural land

(c) An agricultural land (d) Bonds of National Highways Authority of India

Correct answer : (c)

Justification of correct answer :

To avail the benefit of section 54B, the assets transferred should be an agricultural land.

Thus, option (c) is the correct option.

Q4. The agricultural land should be used by the individual or his parents for agricultural purpose at least for a period of _____________ immediately preceding the date of transfer.

(a) 2 years (b) 5 years

(c) 7 years (d) 10 years

Correct answer : (a)

Justification of correct answer :

The agricultural land should be used by the individual or his parents for agricultural purpose at least for a period of two years immediately preceding the date of transfer.

Thus, option (a) is the correct option.

Q5. To avail the benefit of section 54B, the taxpayer should acquire another agricultural land within a period of 3 years from the date of transfer of old agricultural land.

(a) True (b) False

Correct answer : (b)

Justification of correct answer :

To avail the benefit of section 54B, the taxpayer should acquire another agricultural land within a period of two years from the date of transfer of old agricultural land.

Thus, the statement given in the question is false and hence, option (b) is the correct option.

Q6. Exemption under section 54B will be lower of the following :

• Amount of capital gains arising on transfer of agricultural land; or
• Investment in new agricultural land [including the amount deposited in Capital Gains Deposit Account Scheme]

(a) True (b) False

Correct answer : (a)

Justification of correct answer :

Exemption under section 54B will be lower of the following :

• Amount of capital gains arising on transfer of agricultural land; or
• Investment in new agricultural land [including the amount deposited in Capital Gains Deposit Account Scheme]

Thus, the statement given in the question is true and hence, option (a) is the correct option.

Q7. If a taxpayer purchases new agricultural land to claim exemption under section 54B and subsequently he transfers the new agricultural land within a period of from the date of its acquisition, than the benefit granted under section 54B will be withdrawn.

(a) 3 years (b) 5 years

(c) 10 years (d) 12 years

Correct answer : (a)

Justification of correct answer :

If a taxpayer purchases new agricultural land to claim exemption under section 54B and subsequently he transfers the new agricultural land within a period of 3 years from the date of its acquisition, then the benefit granted under section 54B will be withdrawn.

Thus, option (a) is the correct option.

Q8. If till the date of filing the return of income, the capital gain arising on transfer of the old land is not utilised (in whole or in part) for purchase of another agricultural land, then the benefit of exemption can be availed by depositing the unutilised amount in _____________ in any branch of public sector bank.

(a) Current account (b) Saving account

(c) Capital Gains Deposit Account Scheme (d) Loan account

Correct answer : (c)

Justification of correct answer :

If till the date of filing the return of income, the capital gain arising on transfer of the old

land is not utilised (in whole or in part) for purchase of another agricultural land, then the benefit of exemption can be availed by depositing the unutilised amount in Capital Gains Deposit Account Scheme in any branch of public sector bank, in accordance with Capital Gains Deposit Accounts Scheme, 1988 (hereafter referred as Capital Gains Account Scheme).

Thus, option (c) is the correct option.

Q9. After the expiry of specified period of 2 years, the unutilised amount remained in the Capital Gains Account Scheme will be taxed as income by way of long-term capital gains or short-term capital gains (depending upon the nature of original capital gain) for the previous year in which the specified period of 2 years gets over.

(a) True (b) False

Correct answer : (a)

Justification of correct answer :

After the expiry of specified period of 2 years, the unutilised amount remained in the

Capital Gains Account Scheme will be taxed as income by way of long-term capital gains or short-term capital gains (depending upon the nature of original capital gain) for the previous year in which the specified period of 2 years gets over.

Thus, the statement given in the question is true and hence, option (a) is the correct option.

Tax on short-term capital gains​

Disclaimer: The contents of this document are for information purposes only. This aims to enable public to have a quick and an easy access to information and do not purport to be legal documents. Viewers are advised to verify the content from Government Acts/Rules/Notifications etc.

Introduction

Gain arising on transfer of capital asset is charged to tax under the head “Capital Gains”. Income from capital gains is classified as “Short Term Capital Gains” and “Long Term Capital Gains”. In this part you can gain knowledge about the provisions relating to tax on Short Term Capital Gains.

Meaning of Capital Gains

Profits or gains arising from transfer of a capital asset are called “Capital Gains” and are charged to tax under the head “Capital Gains”.

Meaning of Capital Asset

Capital asset is defined to include:

1. a) Property of any kind, held by an assessee, whether or not connected with his business or profession;
2. b) Any securities held by a FII which has invested in such securities in accordance with the SEBI Regulations;
3. c) Any securities held by a Category I or Category II AIF which has invested in such securities in accordance with the SEBI or IFSC Regulations;
4. d) Any unit linked insurance policy to which exemption under Section 10(10D)does not apply.

However, the following items are excluded from the definition of “capital asset”:

1. any stock-in-trade (other than securities referred to in (b) above), consumable stores or raw materials held for the purposes of his business or profession ;
2. personal effects, that is, movable property (including wearing apparel and furniture) held for personal use by the taxpayer or any member of his family dependent on him, but excludes—

(a) jewellery;

(b) archaeological collections;

(c) drawings;

(d) paintings;

(e) sculptures; or

(f) any work of art.

“Jewellery” includes—

(a) ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stones, and whether or not worked or sewn into any wearing apparel;

(b) precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel;

iii. Agricultural Land in India, not being a land situated:

1. Within jurisdiction of municipality, notified area committee, town area committee, cantonment board and which has a population of not less than 10,000;
2. Within range of following distance measured aerially from the local limits of any municipality or cantonment board:
3. not being more than 2 KMs, if population of such area is more than 10,000 but not exceeding 1 lakh;
4. not being more than 6 KMs , if population of such area is more than 1 lakh but not exceeding 10 lakhs; or

iii. not being more than 8 KMs , if population of such area is more than 10 lakhs.

Population is to be considered according to the figures of last preceding census of which relevant figures have been published before the first day of the year.

6. 6.5 per cent Gold Bonds, 1977 or 7 per cent Gold Bonds, 1980 or National Defence Gold Bonds, 1980 issued by the Central Government;
7. Special Bearer Bonds, 1991;
8. Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 or deposit certificates issued under the Gold Monetisation Scheme, 2015.

Following points should be kept in mind:

• The property being capital asset may or may not be connected with the business or profession of the taxpayer. E.g. Bus used to carry passenger by a person engaged in the business of passenger transport will be his capital asset.
• Any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992 will always be treated as capital asset, hence, such securities cannot be treated as stock-in-trade.

Illustration

Mr. Kumar purchased a residential house in January, 2024 for Rs. 84,00,000. He sold the house in April, 2025 for Rs. 90,00,000. In this case residential house is a capital asset for Mr. Kumar and, hence, the gain of Rs. 6,00,000 arising on account of sale of residential house will be treated as capital gains and will be charged to tax under the head “Capital Gains”.

Illustration

Mr. Kapoor is a property dealer. He purchased a flat for resale. The flat was purchased in January, 2024 for Rs. 84,00,000 and sold in August, 2025 for Rs. 90,00,000. In this case, Mr. Kapoor is dealing in properties is his ordinary business. Hence, flat so purchased by him would form part of stock-in-trade of the business. In other words, for Mr. Kapoor flat is not a capital asset and, hence, gain of Rs. 6,00,000 arising on account of sale of flat will be charged to tax as business income and not as capital gains.

Meaning of short-term capital asset and long-term capital asset

For the purpose of taxation, capital assets are classified into two categories as given below:

Short-Term Capital Asset	Long-Term Capital Asset
Any capital asset held by the taxpayer for a period of not more than 24 months immediately preceding the date of its transfer will be treated as short-term capital asset. However, in respect of certain assets like shares (equity or preference) which are listed in a recognised stock exchange in India (listing of shares is not mandatory if transfer of such shares took place on or before July 10, 2014), units of equity oriented mutual funds, listed securities like debentures and Government securities, Units of UTI and Zero Coupon Bonds, the period of holding to be considered is 12 months instead of 24 months	Any capital asset held by the taxpayer for a period of more than 24 months immediately preceding the date of its transfer will be treated as long-term capital asset. However, in respect of certain assets like shares (equity or preference) which are listed in a recognised stock exchange in India (listing of shares is not mandatory if transfer of such shares took place on or before July 10, 2014), units of equity oriented mutual funds, listed securities like debentures and Government securities, Units of UTI and Zero Coupon Bonds, the period of holding to be considered is 12 months instead of 24 months
Notes: 1) The period of holding shall be considered as 36 months instead of 24 months in case transfer of capital asset takes place before 23-07-2024. 2) For capital assets being unlisted shares of a company or immovable property such as land or buildings, the holding period shall be 24 months to determine whether the asset is classified as short-term or long-term, regardless of whether the transfer occurs before or after 23-07-2024.

Illustration

(1) Mr. Kumar is a salaried employee. In the month of April, 2024 he purchased gold and sold the same in December, 2025. In this case gold is capital asset for Mr. Kumar. He purchased gold in April, 2024 and sold it in December, 2025, i.e., after holding it for a period of less than 24 months. Hence, gold will be treated as Short Term Capital Asset.

Illustration

(2) Mr. Raj is a salaried employee. In the month of April, 2021 he purchased gold and sold the same in August, 2025. In this case gold is capital asset for Mr. Raj. He purchased gold in April, 2021 and sold it in August, 2025, i.e., after holding it for a period of more than 24 months. Hence, gold will be treated as Long Term Capital Asset.

Illustration

(3) Mr. Kumar is a salaried employee. In the month of April, 2025 he purchased equity shares of SBI Ltd. (listed in BSE) and sold the same in January, 2026. In this case share are capital assets for Mr. Kumar. He purchased shares in April, 2025 and sold them in January, 2026, i.e., after holding them for a period of less than 12 months. Hence, shares will be treated as Short Term Capital Assets.

Illustration

(4) Mr. Raj is a salaried employee. In the month of April, 2025 he purchased equity shares of SBI Ltd. (listed in BSE) and sold the same in December, 2026. In this case shares are capital assets for Mr. Raj. He purchased shares in April, 2025 and sold them in December 2026, i.e., after holding them for a period of more than 12 months. Hence, shares will be treated as Long Term Capital Assets.

Illustration

(5) Mr. Vikas is a salaried employee. In the month September, 2022 he purchased unlisted shares of ABC ltd. and sold the same in May 2025.

In this case, Mr. Vikas purchased shares in September 2022 and sold them in May 2025, i.e. after holding them for a period of less than 24 months. Hence, shares will be treated as Short Term Capital Assets.

Illustration

(6) Mr. Kumar is a salaried employee. In the month September, 2022 he purchased a house and sold the same in May 2025.

Mr. Vikas sold house after holding them for a period of less than 24 months. Hence, house will be treated as Short Term Capital Assets.

Meaning of short-term capital gain and long-term capital gain

Capital gain arising on sale of short-term capital asset is termed as short-term capital gain and capital gain arising on transfer of long-term capital asset is termed as long-term capital gain. However, there are a few exceptions to this rule, like gain on depreciable asset is always taxed as short-term capital gain.

Illustration

In January, 2025 Mr. Raja sold his residential house property which was purchased in May, 2005. Capital gain on such sale amounted to Rs. 8,40,000. In this case the house is sold after holding it for a period of more than 24 months and, hence, capital gain of Rs. 8,40,000 will be charged to tax as Long Term Capital Gain.

Illustration

In April, 2025 Mr. Rahul sold his residential house property which was purchased in May, 2023. Capital gain on such sale amounted to Rs. 8,40,000. In this case the house property is sold after holding for a period of less than 24 months and, hence, gain of Rs. 8,40,000 will be charged to tax as Short Term Capital Gain.

Reason for bifurcation of capital gains into long-term and short-term

The taxability of capital gains depends on the nature of gain, i.e., whether short-term or long-term. Hence, to determine the taxability, capital gains are to be classified into short- term and long-term. In other words, the tax rates for long-term capital gain and short-term capital gain are different.

Computation of Short-Term Capital Gains

Short-term capital gain arising on account of transfer of short-term capital asset is computed as follows :

Particulars	Rs.
Full value of consideration (i.e., Sales value of the asset)	XXXXX
Less: Expenditure incurred wholly and exclusively in connection with transfer of capital asset (E.g., brokerage, commission, etc.).	(XXXXX)
Net Sale Consideration	XXXXX
Less: Cost of acquisition (i.e., the purchase price of the capital asset)	(XXXXX)
Less: Cost of improvement (i.e., post purchases capital expenses on improvement of capital asset )	(XXXXX)
Short-Term Capital Gains	XXXXX

Illustration

Mr. Kaushal is a salaried employee. In the month of December, 2024 he purchased gold worth Rs. 8,40,000 and sold the same in August, 2025 for Rs. 9,00,000. At the time of sale of gold, he paid brokerage of Rs. 10,000. What is the amount of taxable capital gain?

**

Gold was purchased in December, 2024 and sold in August, 2025, i.e., sold after holding it for a period of less than 24 months and, hence, the gain will be short-term capital gain. The gain will be computed as follows :

Particulars	Rs.
Full value of consideration (i.e., Sales consideration)	9,00,000
Less: Expenditure incurred wholly and exclusively in connection with transfer of capital asset (i.e., brokerage)	(10,000)
Net sale consideration	8,90,000
Less: Cost of acquisition (i.e., the purchase price of the capital asset)	(8,40,000)
Less: Cost of improvement (i.e., post purchases capital expenses on improvement of capital asset )	Nil
Short-Term Capital Gains	50,000

Short-Term Capital Gains (STCG) arising on account of sale of equity shares listed in a recognised stock exchange, units of equity oriented mutual fund and units of business trust i.e., STCG covered under section 111A

Section 111A is applicable in case of STCG arising on transfer of equity shares or units of equity oriented mutual-funds (*) or units of business trust, which are transferred on or after 1-10-2004 through a recognised stock exchange and such transaction is liable to securities transaction tax (STT).

(*) Equity oriented mutual fund means a mutual fund specified under section 10(23D) and 65% of its investible funds, out of total proceeds are invested in equity shares of domestic companies.

If the conditions of section 111A as given above are satisfied, then the STCG is termed as STCG covered under section 111A. Such gain is charged to tax at 20%.

Note 1: STCG covered under section 111A is charged to tax at 15% for any transfer which takes place before 23-07-2024.

Note 2: The benefit of concessional tax rate of 20 % shall be available even where STT is not paid, provided that

– transaction is undertaken on a recognised stock exchange located in any International Financial Service Centre, and

– consideration is paid or payable in foreign currency

Illustration

Mr. Janak is a salaried employee. In the month of December, 2024 he purchased 100 equity shares of X Ltd. @ Rs. 1,400 per share from Bombay Stock Exchange. These shares were sold in BSE in August, 2025 @ Rs. 2,000 per share (securities transaction tax was paid at the time of sale). What will be the nature of capital gain in this case?

**

Shares were purchased in December, 2024 and were sold in August, 2025, i.e., sold after holding them for a period of less than 12 months and, hence, the gain will be short term capital gain. Section 111A is applicable in case of STCG arising on transfer of equity shares or units of equity oriented mutual-funds or units of business trust which are transferred on or after 1-10-2004 through a recognised stock exchange and such transaction is liable to securities transaction tax.

If the conditions of section 111A are satisfied then the STCG is termed as STCG covered under section 111A. Such gain is charged to tax at 20% (plus surcharge and cess as applicable).

In the given case shares were sold after holding them for less than 12 months, shares were sold through a recognised stock exchange and the transaction was liable to STT, hence, the STCG can be termed as STCG covered under section 111A. Further, the transfer is made in August 2025, thus, STCG will be charged to tax at 20% (plus surcharge and cess as applicable).

Illustration

Mr. Saurabh is a salaried employee. In the month of December, 2024 he purchased 100 units of ABC Mutual fund @ Rs. 100 per unit. The mutual fund is an equity oriented mutual fund. These units were sold in BSE in August, 2025 @ Rs. 125 per unit (securities transaction tax was paid at the time of sale). What will be the nature of capital gain in this case?

**

Units were purchased in December, 2024 and were sold in August, 2025, i.e., sold after holding them for a period of less than 12 months and, hence, the gain will be short-term capital gain. Section 111A is applicable in case of STCG arising on transfer of equity shares or units of equity oriented mutual-fund or units of business trust which were transferred on or after 1-10-2004 through a recognised stock exchange and such transaction was liable to securities transaction tax.

If the conditions of section 111A are satisfied then the STCG is termed as STCG covered under section 111A. Such a gain is charged to tax @ 20% (plus surcharge and cess as applicable).

In the given case, mutual fund is an equity oriented mutual fund, the units are sold after holding them for less than 12 months, units are sold through recognised stock exchange and the transaction is liable to STT, hence, the STCG can be termed as STCG covered under section 111A. Further, the transfer is made in August 2025, such STCG will be charged to tax at 20% (plus surcharge and cess as applicable).

Illustration

Mr. Poddar is a salaried employee. In the month of December 2024 he purchased 100 equity share of ABC ltd. @ 70 USD per share. These shares were sold in August 2025 @ 85 USD per share. No security transaction tax (STT) was payable on transfer of shares as same were listed in recognised stock exchange located in an International Financial Services Centre.

**

Section 111A is applicable in case of STCG arising on transfer of equity shares through recognised stock exchange and such transaction is liable to securities transaction tax. STCG covered under section 111A is charged to tax @ 20% (plus surcharge and cess as applicable).

The benefit of concessional tax rate of 20% shall be available even where STT is not paid, provided that

– transaction is undertaken on a recognised stock exchange located in any International Financial Service Centre, and

– consideration is paid or payable in foreign currency

In the given case, Mr. Poddar sold shares of ABC Ltd. which were listed in recognised stock exchange located in an International Financial Services Centre (IFSC). Further, consideration is paid in foreign currency.

Shares were purchased in December 2024 and sold in August 2025, i.e. sold after holding them for a period of less than 12 months. Hence, the gain will be short-term capital gain.

Since the shares were sold through recognised stock exchange located in an IFSC and consideration was paid in foreign currency (i.e., USD). Hence, the STCG can be termed as STCG covered under section 111A even if transaction of sale wasn’t chargeable to STT. Such STCG will be charged to tax @ 20% (plus surcharge and cess as applicable).

Illustration

Mr. Raja is a salaried employee. In the month of December, 2024 he purchased 100 preference shares of ABC Ltd. @ Rs. 100 per share. These shares were sold in August, 2025 @ Rs. 125 per share. Can the capital gain be termed as STCG covered under section 111A?

**

Section 111A is applicable in case of STCG arising on transfer of equity shares or units of equity oriented mutual-funds or units of business trust, which were transferred on or after 1-10-2004 through a recognised stock exchange and such transaction is liable to securities transaction tax.

In the given case the shares are preference shares and, hence, the provisions of section 111A are not applicable and such gain will be treated as normal STCG. In other words, STCG on sale of preference shares cannot be termed as STCG covered under section 111A.

In this case, the STCG is normal and, hence, will be charged to normal tax rate depending on the total income of Mr. Raja.

Illustration

Mr. Rahul is a salaried employee. In the month of December, 2024 he purchased 100 units of debt oriented mutual fund @ Rs. 100 per unit. These units were sold in August, 2025 @ Rs. 125 per unit. Can the capital gain be termed as STCG covered under section 111A?

**

Section 111A is applicable in case of STCG arising on transfer of equity shares or units of equity oriented mutual-funds or units of business trust, which were transferred on or after 1-10-2004 through a recognised stock exchange and such transaction is liable to securities transaction tax.

In the given case the mutual fund is a debt oriented mutual fund (i.e., not equity oriented mutual fund) and, hence, the provisions of section 111A are not applicable and such gain will be treated as normal STCG. In other words, STCG on sale of units of non-equity oriented mutual funds cannot be termed as STCG covered under section 111A.

In this case, the STCG is normal and, hence, will be charged to normal tax rate depending on the total income of Mr. Rahul.

Illustration

Mr. Jay is a salaried employee. In the month of August, 2024 he purchased 100 shares of ABC Ltd. @ Rs. 100 per share. These shares were sold in August, 2025 @ Rs. 125 per share to his friend. The shares are not listed in any recognised stock exchange. Can the capital gain be termed as STCG covered under section 111A?

**

Section 111A is applicable in case of STCG arising on transfer of equity shares or units of equity oriented mutual-funds or units of business trust, which were transferred on or after 1-10-2004 through a recognised stock exchange and such transaction is liable to securities transaction tax.

In the given case the shares are not listed in a recognised stock exchange and, hence, the provisions of section 111A are not applicable and such gain will be treated as normal STCG. In other words, STCG on sale of unlisted shares cannot be termed as STCG covered under section 111A.

In this case, the STCG is normal and, hence, will be charged to normal tax rate depending on the total income of Mr. Jay.

Tax on short-term capital gain

For the purpose of determination of tax rate, short-term capital gains are classified as follows :

• Short-term capital gains covered under section 111A.
• Short-term capital gains other than covered under section 111A.

Illustration : STCG covered under section 111A

Examples of STCG covered under section 111A :

• STCG arising on sale of equity shares listed in a recognised stock exchange, which is chargeable to STT.
• STCG arising on sale of units of equity oriented mutual fund sold through a recognised stock exchange which is chargeable to STT.
• STCG arising on sale of units of a business trust.
• STCG arising on sale of equity shares, units of equity oriented mutual fund or units of a business trust through a recognised stock exchange located in any International Financial Services Centre and consideration is paid or payable in foreign currency even if transaction of sale is not chargeable to securities transaction tax (STT).

Illustration : STCG other than covered under section 111A

Examples of STCG not covered under section 111A :

• STCG arising on sale of equity shares other than through a recognised stock exchange.
• STCG arising on sale of shares other than equity shares.
• STCG arising on sale of units of non-equity oriented mutual fund (debt oriented mutual funds).
• STCG on debentures, bonds and Government securities.
• STCG on sale of assets other than shares/units like STCG on sale of immovable property, gold, silver, etc.

Tax rates of STCG

STCG covered under section 111A is charged to tax at the rate of 20%.

Note : It was charged to tax at 15% for any transfer which takes place before 23-07-2024.

Normal STCG, i.e., STCG other than covered under section 111A is charged to tax at normal rate of tax which is determined on the basis of the total taxable income of the taxpayer.

Illustration : Tax rate of STCG covered under section 111A

Mr. Kumar sold equity shares of SBI Ltd. Through Bombay Stock Exchange after holding them for a period of 8 months. What will be the tax rate applicable on the STCG?

**

The STCG in this case is covered under section 111A and, hence, will be charged to tax at the rate of 15% (if capital asset is transferred before 23-07-2024) or 20% (if capital asset is transferred on or after 23-07-2024).

Illustration : Tax rate of STCG covered under section 111A

Mr. Kumar sold units of an equity oriented mutual fund in Bombay Stock Exchange after holding them for a period of 8 months. What will be the tax rate applicable on the STCG?

**

The STCG in this case is covered under section 111A and, hence, will be charged to tax at the rate of 15% (if capital asset is transferred before 23-07-2024) or 20% (if capital asset is transferred on or after 23-07-2024).

Illustration : Tax rate of STCG other than STCG covered under section 111A

Mr. Kumar sold units of debt fund after holding them for a period of 8 months. What will be the tax rate applicable on the STCG?

**

The gain in this case is not covered under section 111A and is normal STCG and, hence, will be charged to tax at normal rate applicable to Mr. Kumar. The normal rate applicable to Mr. Kumar will be determined on the basis of his total income.

Illustration : Tax rate of STCG other than STCG covered under section 111A

Mr. Kamal sold his residential house after holding it for a period of 18 months. What will be the tax rate applicable on the STCG?

**

The gain in this case is not covered under section 111A and, hence, will be charged to tax at normal rate applicable to Mr. Kamal. The normal rate applicable to Mr. Kamal will be determined on the basis of his total income.

Illustration : Tax on STCG

Mr. Ramesh (resident and age 56 years) is a salaried employee working in SM Ltd. at an annual salary of Rs. 8,40,000 (after standard deduction). In December 2024, he purchased 10,000 equity shares of A Ltd. at Rs. 100 per share and sold the same in October 2025 at Rs. 125 per share (brokerage Re. 1 per share). The shares were sold through Bombay Stock Exchange and securities transaction tax was paid.

What will be the tax liability of Mr. Ramesh (assuming he chooses to opt out from the default tax regime under section 115BAC)?

**

First we have to compute the taxable income of Mr. Ramesh and then we will compute the tax liability. The computation of taxable income will be as follows :

Particulars	Rs.
Salary income	8,40,000
Short-Term Capital Gains (*)	2,40,000
Gross Total Income	10,80,000
Less: Deduction under section 80C to 80U	Nil
Total Income or Taxable Income	10,80,000
Tax on total income **	1,28,500
Add: Health & education cess @ 4%	5,140
Total tax liability for the year	1,33,640

(*) Computation of STCG :

Particulars	Rs.
Full value of consideration (i.e., Sales consideration ,i.e., Rs. 125 × 10,000 shares)	12,50,000
Less: Expenditure incurred wholly and exclusively in connection with transfer of capital asset (i.e., brokerage)	(10,000)
Net sale consideration	12,40,000
Less: Cost of acquisition (i.e., purchase price, i.e., Rs. 100 × 10,000 shares)	(10,00,000)
Less: Cost of improvement (i.e., post purchases capital expenses on improvement of capital asset )	Nil
Short-Term Capital Gains	2,40,000

** STCG is covered under section 111A, thus the resultant capital gain will be charged to tax at the rate of 20%. Salary income being normal income will be charged to tax at normal rate. The normal tax rates for the financial year 2025-26 applicable to a resident individual below the age of 60 years are as follows :

• Nil up to income of Rs. 2,50,000
• 5% for income above Rs. 2,50,000 but up to Rs. 5,00,000
• 20% for income above Rs. 5,00,000 but up to Rs. 10,00,000
• 30% for income above Rs. 10,00,000.

Apart from above, health & education cess @ 4% will be levied on the amount of tax.

Applying the above normal tax rates, tax on salary income will come to Rs. 80,500 and tax on STCG @ 20% will come to Rs. 48,000 (i.e. 20% of Rs. 2,40,000). Total tax will be Rs. 1,28,500. Health and education cess will apply @ 4% on the total amount of tax.

Illustration : Tax on STCG

Mr. Kumar (resident and age 40 years) is a salaried employee working in SM Ltd. at an annual salary of Rs. 8,40,000 (after standard deduction). In December, 2024 he purchased a plot of land for Rs. 10,00,000 and sold the same in August, 2025 for Rs. 12,10,000 (brokerage Rs. 10,000). What will be the tax liability of Mr. Kumar (assuming Mr. Kumar chooses to opt out of the default tax regime under section 115BAC)?

**

First we have to compute the taxable income of Mr. Kumar and then we will compute the tax liability. The computation of taxable income will be as follows :

Particulars	Rs.
Salary income	8,40,000
Short-Term Capital Gains (*)	2,00,000
Gross Total Income	10,40,000
Less: Deduction under section 80C to 80U	Nil
Total Income or Taxable Income	10,40,000
Tax on total income **	1,24,500
Add: Health and Education cess @ 4%	4,980
Total tax liability for the year	1,29,480

(*) Computation of STCG :

Particulars	Rs.
Full value of consideration (i.e., Sales consideration)	12,10,000
Less: Expenditure incurred wholly and exclusively in connection with transfer of capital asset (i.e., brokerage)	(10,000)
Net sale consideration	12,00,000
Less: Cost of acquisition (i.e., purchase price)	(10,00,000)
Less: Cost of improvement (i.e., post purchases capital expenses on improvement of capital asset )	Nil
Short-Term Capital Gains	2,00,000

** The STCG is normal, i.e., not covered under section 111A, hence, STCG of Rs. 2,00,000 will be added to the salary income and will be charged to tax at normal rates. The normal tax rates for the financial year 2025-26 applicable to a resident individual below the age of 60 years are as follows :

• Nil up to income of Rs. 2,50,000
• 5% for income above Rs. 2,50,000 but up to Rs. 5,00,000 20% for income above Rs. 5,00,000 but up to Rs. 10,00,000
• 30% for income above Rs. 10,00,000. Apart from above, health & education cess @ 4% will be levied on the amount of tax.

Applying the above normal rates, tax on total income of Rs. 10,40,000 will come to Rs. 1,24,500 plus health & education cess @ 4% on the amount of tax will be levied and the total tax liability will come to Rs. 1,29,480.

Adjustment of STCG against the basic exemption limit

Basic exemption limit means the level of income up to which a person is not required to pay any tax. The basic exemption limit applicable in case of an individual is Rs. 4,00,000. However, in case where such individual chooses to opt out from the default tax regime, the basic exemption limit for the financial year 2025-26 is as follows :

• For resident individual of the age of 80 years or above, the exemption limit is Rs. 5,00,000.
• For resident individual of the age of 60 years or above but below 80 years, the exemption limit is Rs. 3,00,000.
• For resident individual of the age below 60 years, the exemption limit is Rs. 2,50,000.
• For non-resident individual irrespective of the age of the individual, the exemption limit is Rs. 2,50,000.
• For HUF, the exemption limit is Rs. 2,50,000.

Illustration:

Mr. Kapoor (resident, age 25 years) is a salaried employee earning taxable salary of Rs. 1,84,000 per annum. Apart from salary income he has earned interest on fixed deposit of Rs. 6,000. He does not have any other income. What will be his tax liability for the year 2025-26?

**

For resident individual of the age below 60 years, the basic exemption limit is Rs. 2,50,000. In this case, the taxable income of Mr. Kapoor is Rs. 1,90,000 (Rs. 1,84,000 + Rs. 6,000), which is below the basic exemption limit of Rs. 2,50,000, hence, his tax liability will be NIL. However, if Mr. Kapoor chooses for default tax regime under section 115BAC, the basic exemption limit will be Rs. 4,00,000.

Illustration:

Mr. Viren (resident and age 62 years) is a businessman. His taxable income for the financial year 2025-26 is Rs. 2,75,200. He does not have any other income. What will be his tax liability for the financial year 2025-26?

**

For resident individual of the age of 60 years and above but below 80 years, the basic exemption limit is Rs. 3,00,000. In this case, the taxable income of Mr. Viren is Rs. 2,75,200, which is below the basic exemption limit of Rs. 3,00,000, hence, his tax liability will be NIL.

Illustration:

Mrs. Raj (resident and age 82 years) is a doctor. Her taxable income for the financial year 2025- 26 is Rs. 4,84,000. She does not have any other income. What will be her tax liability for the year 2025-26?

**

For resident individual of the age of 80 years and above, the basic exemption limit is Rs. 5,00,000. In this case, the taxable income of Mrs. Raj is Rs. 4,84,000, which is below the basic exemption limit of Rs. 5,00,000, hence, her tax liability will be NIL. However, if Mrs. Raj chooses for default tax regime under section 115BAC, the basic exemption limit will be Rs. 4,00,000.

Illustration:

Mr. Raj (a non-resident and age 82 years) is a retired person. He is residing in Canada. He owns a house in Mumbai which is given on rent and the taxable rental income for the year amounts to Rs. 1,84,000. What will be his tax liability for the financial year 2025-26?

**

For non-resident individual, irrespective of the age, the basic exemption limit is Rs. 2,50,000. In this case, the taxable income of Mr. Raj is Rs. 1,84,000, which is below the basic exemption limit of Rs. 2,50,000, hence, his tax liability will be NIL. However, if Mr. Raj chooses for default tax regime under section 115BAC, the basic exemption limit will be Rs. 4,00,000.

Adjustment of STCG against the basic exemption limit

In the preceding illustrations we observed that if the income of the taxpayer is below the basic exemption limit then there will be no tax liability. Now a question arises, can taxpayer adjust the basic exemption limit against short-term capital gain? The provisions in this regard are as follows :

STCG covered under section 111A

Only a resident individual and resident HUF can adjust the exemption limit against STCG covered under section 111A. Thus, a non-resident individual/HUF cannot adjust the exemption limit against STCG covered under section 111A. A resident individual/HUF can adjust the STCG covered under section 111A against the basic exemption limit but such adjustment is possible only after making adjustment of other income. In other words, first income other than STCG covered under section 111A is to be adjusted against the exemption limit and then the remaining limit (if any) can be adjusted against STCG covered under section 111A.

Illustration

Mr. Kapoor (age 67 years and resident) is a retired person. He purchased equity shares of SBI Ltd. in March, 2025 and sold the same in May, 2025 (sold in Bombay Stock Exchange and STT is levied). Taxable STCG amounted to Rs. 1,20,000. Apart from gain on sale of shares he is not having any income. What will be his tax liability for the financial year 2025-26?

*

For resident individual of the age of 60 years and above but below 80 years, the basic exemption limit is Rs. 3,00,000. Further, a resident individual can adjust the basic exemption limit against STCG covered under section 111A. In this case, STCG of Rs. 1,20,000 is covered under section 111A, hence, the adjustment of such gain against the exemption limit is allowed only to a resident. In this case, Mr. Kapoor is a resident and, hence, he can adjust the STCG of Rs. 1,20,000 against the exemption limit.

Considering the above discussion, the tax liability of Mr. Kapoor for the financial year 2025-26 will be NIL.

Illustration

Mr. Krunal (age 59 years and resident) is a retired person earning a monthly pension of Rs. 5,000. He purchased shares of SBI Ltd. in December, 2024 and sold the same in April, 2025 (sold in Bombay Stock Exchange and STT is levied). Taxable STCG amounted to Rs. 2,20,000. Apart from pension income and gain on sale of shares he is not having any other income. What will be his tax liability for the financial year 2025-26 assuming Mr. Krunal chooses to opt out from the default tax regime under section 115BAC?

*

The basic exemption limit in this case is Rs. 2,50,000, after adjustment of pension income of Rs. 60,000 from the exemption limit of Rs. 2,50,000 the balance will come to Rs. 1,90,000. The balance of Rs. 1,90,000 will be adjusted against STCG.

Total STCG on sale of shares is Rs. 2,20,000 and the available exemption limit (after adjustment of pension income) is Rs. 1,90,000, hence, the balance STCG left after adjustment of Rs. 1,90,000 will come to Rs. 30,000. The gain of Rs. 30,000 will be charged to tax @ 20% (plus cess @ 4%). Thus, the tax liability before cess will come to Rs. 6,000. Since the total income of Mr Krunal is up to Rs. 5,00,000, he shall be eligible for rebate available under section 87A. Rebate shall be limited to tax payable or Rs. 12,500, whichever is less.

Illustration

Mr. Gagan (age 59 years and non-resident) is a retired person earning a monthly pension of Rs. 5,000 from Indian employer. He purchased shares of SBI Ltd. in December, 2024 and sold the same in April, 2025 (sold in Bombay Stock Exchange and STT was levied). Taxable STCG amounted to Rs. 2,20,000. Apart from pension income and gain on sale of shares he is not having any other income. What will be his tax liability for the financial year 2025- 26?

*

For non-resident individual irrespective of the age, the basic exemption limit is Rs. 2,50,000. Further, a non-resident individual cannot adjust the basic exemption limit against STCG covered under section 111A. In other words, Mr. Gagan can adjust the pension income against the basic exemption limit but the remaining exemption limit cannot be adjusted against STCG on sale of shares.

The basic exemption limit in this case is Rs. 2,50,000, and the same will be adjusted against pension income of Rs. 60,000. The balance limit of Rs. 1,90,000 (i.e., Rs. 2,50,000 less Rs. 60,000) cannot be adjusted against STCG covered under section 111A. In the instant case, the shares are transferred in April 2025, therefore, Mr. Gagan has to pay tax @ 20% (plus cess 4%) on STCG of Rs. 2,20,000. Thus, the tax liability will come to Rs. 45,760.

Deductions under section 80C to 80U and STCG

No deduction under sections 80C to 80U is allowed on short-term capital gains referred to in section 111A. However, such deductions can be claimed from STCG other than covered under section 111A.

Illustration

Mr. Kapoor (age 57 years and resident) is a retired person. He purchased a piece of land worth Rs. 8,84,000 in March, 2024 and sold the same in April, 2025 for Rs. 12,84,000. Apart from gain on sale of land he is not having any other income. He deposited Rs. 1,00,000 in Public Provident Fund (PPF) and Rs. 50,000 in NSC . He wants to claim deduction under section 80C on account of Rs. 1,50,000 deposited in PPF and NSC. Can he do so?

**

Deduction under section 80C to 80U can be claimed on short-term capital gains other than STCG covered under section 111A. In this case, the gain is on sale of land and, hence, is not covered under section 111A. Hence, Mr. Kapoor can claim deduction of Rs. 1,50,000 under section 80C from STCG of Rs. 4,00,000. The taxable income of Mr. Kapoor will be computed as follows :

Particulars	Rs.
Short-Term Capital Gains (Rs. 12,84,000 less Rs. 8,84,000)	4,00,000
Gross Total Income	4,00,000
Less: Deduction under sections 80C to 80U	(1,50,000)
Total Income or Taxable Income	2,50,000

Illustration

Mr. Kapoor (age 57 years and resident) is a retired person. He purchased equity shares of SBI Ltd. in March, 2025 and sold the same in April, 2025 (sold in Bombay Stock Exchange and STT is levied). Taxable STCG amounted to Rs. 2,20,000. Apart from gain on sale of shares he is not having any other income. He deposited Rs. 1,50,000 in Public Provident Fund (PPF). He wants to claim deduction under section 80C on account of Rs. 1,50,000 deposited in PPF. Can he do so?

**

No deduction under sections 80C to 80U is allowed on short-term capital gains referred to in section 111A. In this case, the STCG of Rs. 2,20,000 arising on account of sale of shares is STCG covered under section 111A and, hence, Mr. Kapoor cannot claim any deduction under section 80C to 80U from such gain.

Considering the above provisions, Mr. Kapoor cannot claim deduction of Rs. 1,50,000 under section 80C from the STCG of Rs. 2,20,000. The taxable income of Mr. Kapoor will be computed as follows :

Particulars	Rs.
Short-Term Capital Gains	2,20,000
Gross Total Income	2,20,000
Less: Deduction under sections 80C to 80U	Nil
Total Income or Taxable Income	2,20,000

MCQ ON TAX ON SHORT-TERM CAPITAL GAINS

Q1. “Capital asset” includes stock-in-trade held for the purposes of business or profession.

(a) True (b) False

Correct answer:(b)

Justification of correct answer:

Capital asset is defined to include:

(a) Any kind of property held by an assesse, whether or not connected with business or profession of the assesse.

(b) Any securities held by a FII which has invested in such securities in accordance with the regulations made under the SEBI Act, 1992.

However, the following items are excluded from the definition of “capital asset”:

(i) anystock-in-trade, consumable stores or raw materials held for the purposes of his business or profession;

(ii) personal effects, that is, (including wearing apparel and furniture) held for personal use by the tax payer or any member of his family dependent on him, but excludes—

a) jewellery;

b) archaeological collections;

c) drawings;

d) paintings;

e) sculptures; or

f) any work of art

(ii) agricultural land in India situated in rural area;

(iv) 6.5 percent Gold Bonds, 1977 or 7 percent Gold Bonds, 1980 or National Defence Gold Bonds, 1980 issued by the Central Government;

(v) Special Bearer Bonds, 1991;

(vi) Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 or deposit certificates issued under the Gold Monetisation Scheme, 2015.

Thus, the statement given in the question is false and hence, option (b) is the correct option.

Q2. Capital assets like equity shares which are listed in a recognised stock exchange in India will be treated as short-term capital assets if they are held by the taxpayer for a period of not more than ____________ months immediately preceding the date of its transfer.

(a) 12 (b) 24

(c) 36 (d) 48

Correct answer:(a)

Justification of correct answer:

Any capital asset held by the taxpayer for a period of not more than 24 months immediately preceding the date of its transfer will be treated as short-term capital asset. However, in respect of certain assets like shares (equity or preference) which are listed in a recognised stock exchange in India (listing of shares is not mandatory if transfer of such shares took place on or before July 10, 2014), units of equity oriented mutual funds, listed securities like debentures and Government securities, Units of UTI and Zero Coupon Bonds, the period of holding to be considered is 12 months instead of 24 months. Thus, option (a) is the correct option.

Q3. Section 111A is applicable in case of STCG arising on transfer of which security that are transferred on or after 1-10-2004 in a recognised stock exchange and such transaction is liable to securities transaction tax(STT).

(a) Preference shares (b) Units of debt oriented mutual fund

(c) Units of business trust (d) Zero coupon bonds

Correct answer:(c)

Justification of correct answer:

Section 111A is applicable in case of STCG arising on transfer of equity shares or units of equity oriented mutual-funds or units of business trust which are transferred on or after 1- 10-2004 in a recognised stock exchange and such transaction is liable to securities transaction tax(STT).

With effect from Assessment Year 2018-18, benefit of concessional tax rate of 15% or 20%, as the case may be, shall be available even where STT is not paid, provided that

– transaction is undertaken on a recognised stock exchange located in any International Financial Service Centre, and

– consideration is paid or payable in foreign currency

Thus, option(c) is the correct option.

Q4. Short-term capital gain covered under section 111A is charged to tax at ____________.

(a) 10%

(b) 15%

(c) 15% or 20%

(d) Normal rate of tax which is determined on the basis of the total taxable income of the taxpayer

Correct answer:(c)

Justification of correct answer:

Short-term capital gains covered under section 111A is charged to tax @15% (plus surcharge and cess as applicable) if the capital asset is transferred before 23-07-2024. In case capital asset is transferred on or after 23-07-2024, the capital gains shall be chargeable to tax at the rate of 20%.

Thus, the statement given in the question is true and hence, option (c) is the correct option.

Q5. Short-term capital gain arising on sale of equity shares outside recognised stock exchange is covered under section111A.

(a) True (b) False

Correct answer:(b)

Justification of correct answer:

Section 111A is applicable in case of STCG arising on transfer of equity shares or units of equity oriented mutual-funds or units of business trust which are transferred on or after 1-10-2004 in a recognized stock exchange and such transaction is liable to securities transaction tax (STT). In other words, short-term capital gain arising on sale of equity shares outside recognised stock exchange is treated as STCG other than STCG covered under section 111A.

With effect from Assessment Year 2018-19, benefit of concessional tax rate shall be available even where STT is not paid, provided that

– transaction is undertaken on a recognised stock exchange located in any International Financial Service Centre, and

– consideration is paid or payable in foreign currency

Thus, the statement given in the question is false and hence, option (b) is the correct option.

Q6. Short-term capital gain other than covered under section 111A is charged to tax at _.

(a) 10%

(b) 15%

(c) 20%

(e) Normal rate of tax which is determined on the basis of the total taxable income of the taxpayer

Correct answer:(d)

Justification of correct answer:

Normal short-term capital gain, i.e., short-term capital gain other than covered under section 111A is charged to tax at normal rate of tax which is determined on the basis of the total taxable income of the taxpayer.

Thus, option(d) is the correct option.

Q7. A resident as well as a non-resident individual and HUF can adjust the exemption limit against short-term capital gain other than covered under section 111A.

(a) True (b) False

Correct answer:(a)

Justification of correct answer:

A resident as well as non-resident individual and HUF can adjust the exemption limit against STCG other than covered under section 111A.

Thus, the statement given in the question is true and hence, option(a) is the correct option.

Q8. A resident as well as a non-resident individual and HUF can adjust the exemption limit against short-term capital gain covered under section 111A.

(a) True (b) False

Correct answer:(b)

Justification of correct answer:

Only a resident individual and resident HUF can adjust the exemption limit against STCG covered under section 111A. Thus, a non-resident individual/HUF cannot adjust the exemption limit against STCG covered under section 111A.

Thus, the statement given in the question is false and hence, option(b) is the correct option.

Q9. Deduction under sections 80C to 80U is allowed from short-term capital gains referred to in section 111A.

(a) True (b) False

Correct answer:(b)

Justification of correct answer:

No deduction under sections 80C to 80U is allowed from short-term capital gains referred to in section 111A.

Thus, the statement given in the question is false and hence, option (b) is the correct option.

Q10. Deduction under sections 80C to 80U is allowed from short-term capital gains other than short-term capital gains covered under section 111A.

(a) True (b) False

Correct answer:(a)

Justification of correct answer:

No deduction under sections 80C to 80U is allowed from short-term capital gains referred to in section 111A. However, such deductions can be claimed from STCG other than covered under section 111A.

Thus, the statement given in the question is true and hence, option (a) is the correct option.

[As amended by Finance Act, 2025]