Section 70 — Transactions Not Regarded as Transfer | ITA 2025

Section 70 — TRANSACTIONS NOT REGARDED AS TRANSFER

Section 70 is the substantive equivalent of 1961 s. 47 — the foundational tax-neutrality provision for restructurings, family-property division, capital-market mechanics, statutory bond regimes, and offshore-fund relocations. It is the longest section in Part E (20,000+ characters) and operates through 38 enumerated carve-outs in sub-clauses (a) to (zl) of sub-section (1), supported by a 10-row definitions Table in sub-section (2). The provision does NOT create a deduction or exemption — it makes the transaction OUTSIDE the s. 67 charging-net altogether at the point of transfer. Cost-of-acquisition continuity (s. 73 Table Sl. No. 1), holding-period continuity (s. 2 / s. 198 Explanation interaction), and depreciation continuity (s. 33 / s. 39 Sl. Nos. 1-2) work in tandem to preserve the tax-base across the restructuring. Withdrawal of exemption (s. 71) clawing back the benefit on subsequent breach of conditions completes the architecture. For practitioners, this section is the touchstone for every M&A, family settlement, IFSC fund-relocation, and group restructuring proposal — every clause is litigation-rich and condition-strict.

Statutory text — Income-tax Act, 2025

Marginal note — Transactions not regarded as transfer

(1) The provisions of section 67 shall not apply to transfer—

(a) by way of distribution of capital assets on the total or partial partition of a Hindu undivided family;

(b) of a capital asset by an individual or a Hindu undivided family, under a will or a gift or an irrevocable trust;

(c) of a capital asset, not being stock-in-trade, by a company to its subsidiary company, if—

(i) the parent company or its nominees hold the whole of the share capital of the subsidiary company; and

(ii) the subsidiary company is an Indian company;

(d) of a capital asset, not being stock-in-trade, by a subsidiary company to the holding company, if—

(i) the whole of the share capital of the subsidiary company is held by the holding company; and

(ii) the holding company is an Indian company;

(e) 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;

(f) 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—

(i) the transfer is made in consideration of allotment to him of any share or shares in the amalgamated company except when the shareholder itself is the amalgamated company; and

(ii) the amalgamated company is an Indian company;

(g) in a scheme of amalgamation, to him 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—

(i) at least 25% of the shareholders of the amalgamating foreign com- pany continue to remain shareholders of the amalgamated foreign company; and

(ii) such transfer does not attract tax on capital gains in the country, in which the amalgamating company is incorporated;

(h) in a scheme of amalgamation, of a capital asset, being a share of a for- eign company, referred to in section 9(10)(a), 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—

(i) at least 25% of the shareholders of the amalgamating foreign com- pany continue to remain shareholders of the amalgamated foreign company; and

(ii) such transfer does not attract tax on capital gains in the country in which the amalgamating company is incorporated;

(i) of a capital asset by a banking company to a banking institution under a scheme of amalgamation of a banking company with a banking insti- tution sanctioned and brought into force by the Central Government under section 45(7) of the Banking Regulation Act, 1949 (10 of 1949);

(j) in a demerger, of a capital asset by the demerged company to the resulting company, if the resulting company is an Indian company;

(k) of shares by the resulting company or issue of shares by such com- pany, 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;

(l) of a capital asset in a demerger, being a share or shares held in an Indi- an company, by the demerged foreign company to the resulting foreign company, if—

(i) the shareholders holding not less than 75% in value of the shares of the demerged foreign company continue to remain shareholders of the resulting foreign company; and

(ii) such transfer does not attract tax on capital gains in the country, in which the demerged foreign company is incorporated, and in such a case the provisions of sections 230 to 232 of the Companies Act, 2013 (18 of 2013) shall not apply;

(m) of a capital asset in a demerger, being a share of a foreign company, referred to in section 9(10)(a), 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—

(i) the shareholders, holding not less than 75% in value of the shares of the demerged foreign company, continue to remain shareholders of the resulting foreign company; and

(ii) such transfer does not attract tax on capital gains in the country in which the demerged foreign company is incorporated, and in such a case the provisions of sections 230 to 232 of the Companies Act, 2013 (18 of 2013) shall not apply;

(n) in a business reorganisation, of a capital asset by the predecessor co-oper- ative bank to the successor co-operative bank or to the converted banking company;

(o) by a shareholder, in a business reorganisation, of capital asset being 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 the converted banking company;

(p) of a capital asset, being bonds or Global Depository Receipts as referred to in section 209(1), made outside India by a non-resident to another non-resident;

(q) 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;

(r) of a capital asset made by a non-resident on a recognised stock exchange located in any International Financial Services Centre, where the con- sideration for such transaction is paid or payable in foreign currency, and such capital asset is—

(i) bond or Global Depository Receipt referred to in section 209(1); or

(ii) rupee denominated bond of an Indian company; or

(iii) derivative; or

(iv) such other securities as may be notified by the Central Government;

(s) of a capital asset, being a Government security carrying a periodic pay- ment of interest, made outside India through an intermediary dealing in settlement of securities, by a non-resident to another non-resident;

(t) in a relocation, of a capital asset by the original fund to the resulting fund;

(u) by a shareholder or unit holder or interest holder, in a relocation, of a capital asset being 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;

(v) of a 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;

(w) of a capital asset, under a plan approved by the Central Government, by a public sector company, to—

(i) another public sector company notified by the Central Government for the purposes of this clause; or

(ii) the Central Government; or

(iii) a State Government; 10a[(x) by way of redemption, of Sovereign Gold Bond issued by the Reserve Bank of India under the Sovereign Gold Bond Scheme, 2015 or any subsequent Sovereign Gold Bond Scheme, if held by an individual from the date of original issue till maturity;] 10a. Substituted by the Finance Act, 2026, w.e.f. 1-4-2026. Prior to its substitution, clause (x) read as under : “(x) of Sovereign Gold Bond issued by the Reserve Bank of India under the Sovereign Gold Bond Scheme, 2015, by way of redemption, by an individual;”

(y) 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;

(z) 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; (za) by way of conversion of bonds referred to in section 209(1) (Table: Sl. No. 1) into shares or debentures of any company; (zb) by way of conversion of preference shares of a company into equity shares of that company; (zc) of a capital asset, being any work of art, archaeological, scientific or art collection, book, manuscript, drawing, painting, photograph or print, to—

(i) the Government; or

(ii) a University; or

(iii) the National Museum, National Art Gallery or National Archives; or

(iv) such other public museum or institution as may be notified by the Central Government to be of national importance or of renown throughout any State; (zd) 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, if—

(i) all the assets and liabilities of the firm relating to the business immediately before the succession become the assets and liabilities of the company;

(ii) 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;

(iii) 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

(iv) the aggregate of the shareholding of the partners in the company is not less than 50% of the total voting power and such sharehold- ing continues to not less than 50% for five years from the date of succession; (ze) of a capital asset or intangible asset by a private company or unlisted public company (herein referred to as the company) to a limited liability partnership or transfer of a share or shares held in the company by a shareholder as a result of conversion of the company into a limited lia- bility partnership under the provisions of section 56 or 57 of the Limited Liability Partnership Act, 2008 (6 of 2009), if—

(i) all the assets and liabilities of the company, immediately before the conversion, become the assets and liabilities of the limited liability partnership;

(ii) all the shareholders of the company, immediately before the con- version, 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;

(iii) the shareholders of the company do not receive any consideration or benefit, directly or indirectly, other than by way of share in profit and capital contribution in the limited liability partnership;

(iv) the aggregate of the profit sharing ratio of the shareholders of the company in the limited liability partnership shall not be less than 50% at any time during five years from the date of conversion;

(v) the total sales, turnover or gross receipts in the business of the company in any of the three tax years preceding the tax year in which the conversion takes place does not exceed sixty lakh rupees;

(vi) the total value of the assets, as appearing in the books of account of the company in any of the three tax years preceding the tax year in which the conversion takes place does not exceed five crore rupees; and

(vii) 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 three years from the date of conversion; (zf) of a capital asset or intangible asset (by way of sale or otherwise) by a sole proprietorship concern to a company in case of succession of the sole proprietorship concern by the company in the business carried on by it, if—

(i) all the assets and liabilities related to the business of the sole pro- prietary concern, immediately before the succession, become the assets and liabilities of the company;

(ii) the shareholding of the sole proprietor in the company is not less than 50% of the total voting power and such shareholding continues to be not less than 50% for five years from the date of the succession; and

(iii) the sole proprietor does not receive any consideration or benefit, directly or indirectly, except through allotment of shares in the company; (zg) in a scheme for lending of any securities under an agreement or arrange- ment, entered into by the assessee with the borrower of such securities and which is subject to the guidelines issued by the Securities and Exchange Board of India or the Reserve Bank of India; (zh) of a capital asset in a transaction of reverse mortgage under a scheme notified by the Central Government; (zi) of a capital asset, being share or shares of a special purpose vehicle to a business trust in exchange of units allotted by that trust to the transferor; (zj) of a capital asset by a unit holder, being a unit or units, held by him in the consolidating scheme of a mutual fund, in consideration of the allotment to the unit holder of a capital asset, being a unit or units, in the consolidated scheme of the mutual fund subject to the condition that the consolidation is of two or more schemes—

(i) of an equity-oriented fund; or

(ii) of a fund other than equity-oriented fund; (zk) of a capital asset by a unit holder, being a unit or units, held by him in the consolidating plan of a mutual fund scheme, in consideration of the allotment to the unit holder of a capital asset, being a unit or units, in the consolidated plan of that scheme of the mutual fund; (zl) of a capital asset, being an interest in a joint venture, held by a public sector company, in exchange for shares of a company incorporated out- side India by the government of a foreign State, as per the laws of that foreign State.

(2) In sub-section (1), the definitions mentioned in column C of the Table below shall apply to the corresponding clauses of the said sub-section mentioned in col- umn B of the said Table:

TABLE Sl. Clause Definitions No.

A B C 1. (i) The expressions,—

(a) “banking company” shall have the same meaning as assigned to it in section 5(c) of the Banking Regulation Act, 1949 (10 of 1949);

(b) “banking institution” shall have the same meaning as assigned to it in section 45(15) of the Banking Regulation Act, 1949 (10 of 1949). 2. (n) “business reorganisation”, “converted banking company”, and “predecessor co-operative bank” and “successor co-operative

(o) bank” shall have the meanings respectively assigned to them in section 65. 3. (r) (a) “derivative” shall have the same meaning as assigned to it in section 2(ac) of the Securities Contracts (Regulation) Act, 1956 (42 of 1956);

(b) “securities” shall have the same meaning as assigned to it in section 2(h) of the Securities Contracts (Regulation) Act, 1956 (42 of 1956). Sl. Clause Definitions No.

A B C 4. (s) “Government Security” shall have the same meaning as assigned to it in section 2(b) of the Securities Contracts (Regulation) Act, 1956 (42 of 1956). 5. (t) and (a) “original fund” means— (u)

(A) a fund established or incorporated or registered out- side India, which collects funds from its members for investing it for their benefit and fulfils the following conditions:—

(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 section 159(1) or (2) has been en- tered into; or is established or incorporated or registered in a country or a specified territory as may be notified by the Central Government;

(iii) the fund and its activities are subject to appli- cable investor protection regulations in the country or specified territory where it is estab- lished or incorporated or is a resident; and

(iv) fulfils 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 subject to conditions as 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 March, 2030, where consideration for such transfer is discharged in the form of share or unit or interest in the resulting fund to—

(i) a 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 sharehold- er or unit holder or interest holder in such original fund, in lieu of their shares or units or interests in the original fund; or Sl. Clause Definitions No.

A B C

(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 is located in an International Financial Services Centre as referred to in section 147 and has been granted—

(i) a certificate of registration as a Category I or Category II or Category III Alternative Investment Fund; or

(ii) a certificate as a retail scheme or an Exchange Traded Fund as per Schedule VI (Note 1) and which fulfils the conditions specified in Schedule VI (Table: Sl. No. 1), 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). 6. (y) “Electronic Gold Receipt”and “Vault Manager” shall have the same meanings as respectively assigned to them in regulation 2(1)(h) and (l) 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). 7. (zc) “University” means a University established or incorporated by or under a Central Act or State Act 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. 8. (ze) “private company” and “unlisted public company” shall have the same meanings as respectively assigned to them in the Limited Liability Partnership Act, 2008 (6 of 2009). 9. (zi) “special purpose vehicle” shall have the meaning assigned to it in Schedule V (Note 2). 10. (zj) (a) “consolidated scheme” means the scheme with which the consolidating scheme merges or which is formed as a result of such merger; Sl. Clause Definitions No.

A B C

(b) “consolidating scheme” means the scheme of a mutual fund which merges under the process of consolidation of the schemes of mutual fund as per the Securities and Ex- change 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” means a fund—

(i) where the investible funds are invested by way of equity shares in domestic companies to the extent of more than 65% of the total proceeds of such fund, for which the percentage of equity shareholding shall be computed with reference to the annual average of the monthly averages of the opening and closing figures; and

(ii) which has been set up under a scheme of Mutual Fund specified in Schedule VII (Table: Sl. No. 20 or 21);

(d) “mutual fund” means a mutual fund specified in Schedule VII (Table: Sl. No. 20 or 21). 11. (zk) (a) “consolidating plan” means the plan within a scheme of a mutual fund which merges under the process of con- solidation of the plans within a scheme of mutual fund as per 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 consoli- dating plan merges or which is formed as a result of such merger;

(c) “mutual fund” means a mutual fund specified in Schedule VII (Table: Sl. No. 20 or 21). 12. (zl) “joint venture” means a business entity, as may be notified by the Central Government.

Corresponding provision — 1961 regime

INCOME-TAX ACT, 2025	INCOME-TAX ACT, 1961
INCOME-TAX ACT, 2025 — s. 70	INCOME-TAX ACT, 1961 — s. 47
s. 70(1)(a) — HUF total/partial partition	1961 s. 47(i)
s. 70(1)(b) — Will / gift / irrevocable trust by individual or HUF	1961 s. 47(iii)
s. 70(1)(c) — Holding to 100% Indian subsidiary	1961 s. 47(iv)
s. 70(1)(d) — 100% Indian subsidiary to holding	1961 s. 47(v)
s. 70(1)(e) — Indian amalgamation: amalgamating co. → amalgamated Indian co.	1961 s. 47(vi)
s. 70(1)(f) — Shareholder share-swap in amalgamation	1961 s. 47(vii)
s. 70(1)(g) — Foreign amalgamation: foreign co. holding Indian shares (25% / no-tax in home country)	1961 s. 47(via)
s. 70(1)(h) — Foreign amalgamation re s. 9(10)(a) deemed-Indian shares	1961 s. 47(viab) [FA 2015]
s. 70(1)(i) — Banking-company amalgamation u/s 45(7) BR Act	1961 s. 47(viaa)
s. 70(1)(j) — Demerger: demerged Indian co. → resulting Indian co.	1961 s. 47(vib)
s. 70(1)(k) — Resulting-co share issue/swap on demerger	1961 s. 47(vid)
s. 70(1)(l)-(m) — Cross-border demerger (75%-shareholder continuity / no home-country tax)	1961 s. 47(vic) / (vicc)
s. 70(1)(n)-(o) — Co-operative bank business reorganisation	1961 s. 47(vica)/(vicb)
s. 70(1)(p)-(s) — Bonds / GDR / RDB / IFSC-listed-securities / G-Sec — non-resident transfers offshore	1961 s. 47(viia)/(viiaa)/(viiab)/(viiac)
s. 70(1)(t)-(u) — Original-fund to resultant-fund relocation to IFSC (sunset 31-Mar-2030)	1961 s. 47(viiac)/(viiad) [FA 2021]
s. 70(1)(v) — IIFCL to notified infrastructure financing institution	1961 s. 47(viiae)
s. 70(1)(w) — Public-sector co. plan-approved transfers	1961 s. 47(viiaf)
s. 70(1)(x) — Sovereign Gold Bond redemption by individual [FA 2026 amended]	1961 s. 47(viic)
s. 70(1)(y) — Electronic Gold Receipt — gold ↔ EGR conversion [FA 2023]	1961 s. 47(viid)
s. 70(1)(z)-(za) — Bond/debenture/RDB conversion to shares/debentures	1961 s. 47(x)/(xa)
s. 70(1)(zb) — Preference share → equity conversion	1961 s. 47(xb) [FA 2017]
s. 70(1)(zc) — Art/manuscript donation to Govt/University/National Museum	1961 s. 47(ix)
s. 70(1)(zd) — Firm → company succession (50%-share continuity 5 yrs)	1961 s. 47(xiii)
s. 70(1)(ze) — Pvt./unlisted public co. → LLP conversion (7 conditions)	1961 s. 47(xiiib) [FA 2010]
s. 70(1)(zf) — Sole proprietorship → company (50% voting power 5 yrs)	1961 s. 47(xiv)
s. 70(1)(zg) — SEBI/RBI securities lending scheme	1961 s. 47(xv)
s. 70(1)(zh) — Reverse mortgage notified scheme	1961 s. 47(xvi) [FA 2008]
s. 70(1)(zi) — SPV-share to business trust for unit allotment (REIT/InvIT)	1961 s. 47(xvii) [FA 2014]
s. 70(1)(zj)/(zk) — MF scheme/plan consolidation	1961 s. 47(xviii)/(xix) [FA 2016]
s. 70(1)(zl) — PSU JV interest swap for foreign-state-Govt shares	1961 s. 47(xx)
s. 70(2) Table — Definitions (10 rows: banking, derivative, securities, original fund, vault manager, University, SPV, MF, equity-oriented fund, joint venture)	1961 s. 47 Explanations 1-7

STATUTORY ARCHITECTURE — TAX-NEUTRALITY THROUGH FIVE PILLARS

Five architectural pillars sustain s. 70 tax-neutrality: (a) NON-CHARGING — sub-s. (1) opening words deactivate s. 67 entirely for the listed transactions; (b) COST-CONTINUITY — s. 73 Table Sl. No. 1 imports the previous-owner cost into the transferee, with the original acquisition date preserved (relevant for indexation start-year and short-vs-long-term); (c) DEPRECIATION CONTINUITY — for depreciable assets, ss. 33 / 39 carry forward block-of-assets WDV from transferor to transferee; (d) HOLDING-PERIOD CONTINUITY — s. 2 / s. 198 Explanation deems the transferee to have held the asset from the transferor's acquisition date; (e) WITHDRAWAL — s. 71 reverses the benefit when conditions fail (typically: stock-conversion within 8 years; minority introduction in 100%-subsidiary; PSR breach in LLP; turnover/asset cap breach). Practitioners must satisfy ALL five to claim genuine tax-neutrality — defective documentation on any pillar invites s. 71 cascade exposure.

CATEGORY I — FAMILY / PERSONAL TRANSFERS [Clauses (a), (b)]

Clause (a) — HUF PARTITION (total or partial). Distribution of capital assets on partition is not a 'transfer'. Constitutional underpinning: HUF members are co-owners by birth; partition merely demarcates their pre-existing rights, not a fresh transfer (Kalloomal Tapeshwari Prasad SC ratio). 'Total partition' means all coparceners' shares demarcated; 'partial partition' means only some assets / some members. Note: 1961 s. 171 deemed partial-partition non-recognised post-1979, but s. 70(1)(a) re-permits both. Clause (b) — WILL / GIFT / IRREVOCABLE TRUST by individual or HUF. Gratuitous transfers escape the CG net at the donor's end. Critical interaction: s. 92(2)(j) (gifts received exceeding INR 50,000) brings the SAME transaction into the net at the DONEE's end UNLESS donor-donee qualifies as 'relative' under s. 92(3) defined list. Practitioner trap: a gift between cousins (not 'relative') escapes donor-CG but attracts donee-IFOS taxation. 'Irrevocable trust' must satisfy s. 8 of Indian Trusts Act, 1882 and not have any reverter / power-of-revocation in settlor — Karta Hassan Estate (Bom HC) trap.

CATEGORY II — INTRA-GROUP HOLDING-SUBSIDIARY TRANSFERS [Clauses (c), (d)]

Clauses (c) and (d) cover the workhorse provisions for intra-group asset transfers between holding and 100%-Indian-subsidiary. Conditions: (i) parent or its nominees hold WHOLE share capital of subsidiary (NIL minority) at the date of transfer; (ii) Indian-company transferee. The asset must NOT be stock-in-trade (stock-conversion is anti-abuse focus). Two-way coverage: (c) holding → 100% subsidiary; (d) 100% subsidiary → holding. Cost-of-acquisition continuity per s. 73 Table Sl. No. 1. Critical: s. 71 withdraws the exemption if WITHIN 8 YEARS from the date of transfer (a) the transferred asset is converted into / treated as stock-in-trade, OR (b) the holding ceases to hold the WHOLE of the subsidiary's share capital. The withdrawal is 'cured' (i.e., the original transferor is taxed in the year of breach, NOT in the year of original transfer) by adding the unrealized CG to the income of that year. Practitioner alert: minority share allotment to ESOP-trust or strategic investor within 8 years collapses the structure. Document holding-percentage continuity through the 8-year cure period; obtain board minutes confirming.

CATEGORY III — AMALGAMATION (DOMESTIC AND CROSS-BORDER) [Clauses (e), (f), (g), (h), (i)]

Clause (e) — INDIAN AMALGAMATION at company level: amalgamating-co transferring assets to amalgamated-Indian-co. Definition of 'amalgamation' must satisfy s. 2-related defining provisions: shareholder-property continuity, 75%-shareholder-continuity, scheme sanctioned under Companies Act, 2013 sections 230-232 / NCLT order. Clause (f) — SHAREHOLDER share-swap in amalgamation: shareholder of amalgamating-co gets shares of amalgamated-Indian-co. Conditions: (i) consideration solely in shares of amalgamated co. (any cash component disqualifies — Marshall Sons SC ratio); (ii) amalgamated co. is Indian. Excludes the shareholder being the amalgamated-co itself (anti-circular). Clauses (g) and (h) — CROSS-BORDER AMALGAMATION involving foreign-co holding shares of Indian co.: (g) direct holdings; (h) indirect holdings via s. 9(10)(a) deemed-Indian shares. Twin tests: (i) at least 25% shareholders of amalgamating-foreign-co continue as shareholders of amalgamated-foreign-co; (ii) NO CG TAX in the home country of amalgamating co. The 25% threshold is a soft anti-abuse — original Vodafone International Holdings BV (SC 2012) led to FA 2015 retro insertion of 47(viab) [now 70(1)(h)]. Home-country no-tax test often fails (e.g., Mauritius cap-gains tax post-2017 protocol). Clause (i) — BANKING-COMPANY AMALGAMATION sanctioned under s. 45(7) of BR Act, 1949 (CG-sanctioned distress merger). Specific to banking — not generally invokable. Yes Bank reconstruction in March 2020 used this pathway.

CATEGORY IV — DEMERGER (DOMESTIC AND CROSS-BORDER) [Clauses (j), (k), (l), (m)]

Clause (j) — INDIAN DEMERGER: demerged-co transferring assets of an undertaking to resulting-Indian-co. Clause (k) — Demerged-co shareholders receiving resulting-co shares (or resulting-co issuing shares to demerged-co shareholders) IN CONSIDERATION of demerger. Clauses (l) and (m) — CROSS-BORDER DEMERGER involving foreign-co holding shares of Indian co.: (l) direct holdings; (m) indirect via s. 9(10)(a) deemed-Indian shares. Twin tests: (i) 75%-by-VALUE shareholder continuity in resulting-foreign-co; (ii) no home-country CG tax. Closing words for (l) and (m): 'in such case, ss. 230-232 of Companies Act, 2013 SHALL NOT APPLY' — this disapplies NCLT scheme-sanction route for cross-border demergers, which is critical. The 75%-by-VALUE test (cf 25%-by-NUMBER for amalgamation) is intentionally stricter for demergers to prevent abuse. Practitioner pinch-point: where the foreign-demerged-co has multiple share classes, calculating 'value' becomes contentious; obtain valuation report basis fair market value at the appointed date.

CATEGORY V — CO-OPERATIVE BANK REORGANISATION [Clauses (n), (o)]

Specifically for co-op banks. Clause (n) — predecessor co-op bank transferring assets to successor co-op bank or 'converted banking company' (where co-op bank converts to banking-company under specified statute). Clause (o) — co-op bank shareholder receiving shares of successor entity. Definitions in s. 65 (referenced in Table Sl. 2): 'business reorganisation', 'converted banking company', 'predecessor co-operative bank', 'successor co-operative bank' — all carry meaning consistent with multi-state co-op bank conversion regime. The architecture mirrors corporate amalgamation but is tailored for the co-operative banking sector — became important post 2020 RBI multi-state co-op bank consolidation drive.

CATEGORY VI — NON-RESIDENT OFFSHORE TRANSFERS [Clauses (p)-(s)]

These clauses address the SOURCE-RULE problem: when a non-resident transfers a security offshore to another non-resident, India should not assert source-jurisdiction. Clause (p) — BONDS / GDR (per s. 209(1)) made OUTSIDE INDIA by non-resident to non-resident. Clause (q) — RUPEE-DENOMINATED BONDS (RDBs) of Indian co. issued OUTSIDE INDIA, transferred non-resident to non-resident outside India. Clause (r) — IFSC-LISTED SECURITIES traded by non-resident on a recognised stock exchange in IFSC, with consideration paid in foreign currency. Eligible securities: bond / GDR per s. 209(1) / RDB / DERIVATIVE / other notified securities. This is the IFSC tax-neutrality cornerstone — encouraging GIFT City listing. Clause (s) — GOVERNMENT SECURITY (per SCRA s. 2(b)) carrying periodic interest, transferred outside India through securities-settlement intermediary, non-resident to non-resident. Common element: TRANSFEROR AND TRANSFEREE BOTH NON-RESIDENT, transaction OUTSIDE India (or on IFSC exchange), foreign-currency consideration. Practitioner relevance: facilitates secondary market for India-related debt held offshore, particularly LRS-routed Indian debt and IFSC GIFT-City fund-of-funds.

CATEGORY VII — IFSC FUND RELOCATION [Clauses (t)-(u)]

Inserted by FA 2021 to attract offshore fund relocations to GIFT IFSC. Clause (t) — TRANSFER from ORIGINAL FUND to RESULTANT FUND in a relocation. Clause (u) — TRANSFER by SHAREHOLDER / UNIT HOLDER / INTEREST HOLDER of his interest in original fund, in consideration of getting share/unit/interest in the resultant fund. Definitions (s. 70(2) Table Sl. 5): ORIGINAL FUND = (A) fund established outside India collecting funds from members for investment, NOT a person resident in India, resident of treaty-territory or notified-territory, subject to investor-protection regulations; OR (B) special carve-out for ABU DHABI INVESTMENT AUTHORITY-controlled investment vehicle; OR (C) any CG-notified fund with conditions. RELOCATION = transfer of assets of original fund OR of its wholly-owned SPV, to a resultant fund, ON OR BEFORE 31-MARCH-2030 (sunset extended by FA 2025/2026), where consideration is in shares/units/interests of resultant fund issued to original-fund-holders in same proportion. RESULTANT FUND = trust/company/LLP located in IFSC (per s. 147), with registration as Cat I/II/III AIF or retail/ETF scheme per Schedule VI Table Sl. 1, regulated under SEBI AIF Regulations 2012 OR IFSCA Fund Management Regulations 2022. Practitioner architecture: this is the SOLE statutory mechanism for tax-neutral migration of offshore feeder/master funds (e.g., Mauritius / Singapore / Cayman / Delaware structures) to GIFT IFSC. Sunset 31-Mar-2030 — strategic window. Combine with corresponding stamp-duty exemption and SEBI registration migration.

CATEGORY VIII — STATUTORY ENTITY / PUBLIC-SECTOR TRANSFERS [Clauses (v), (w)]

Clause (v) — IIFCL (India Infrastructure Finance Company Limited) transferring capital assets to a CG-notified institution established under an Act of Parliament for infrastructure financing. Inserted to facilitate IIFCL's 2021-22 reorganisation into NaBFID (National Bank for Financing Infrastructure and Development) created by NaBFID Act 2021. Clause (w) — PUBLIC SECTOR COMPANY transferring capital asset under a CG-approved plan to: (i) another notified PSU; or (ii) the Central Government; or (iii) a State Government. Used for inter-PSU restructuring (e.g., HPCL-BPCL-IOCL refinery swaps; railway PSU consolidations). The 'plan-approval' requirement allows CG to vet each transaction before tax-neutrality is conferred — bespoke regime.

CATEGORY IX — STATUTORY GOLD INSTRUMENTS [Clauses (x), (y)]

Clause (x) — SOVEREIGN GOLD BOND REDEMPTION. As substituted by FA 2026 w.e.f. 1-4-2026: redemption of SGB issued by RBI under SGB Scheme 2015 OR ANY SUBSEQUENT SGB SCHEME, IF held by an INDIVIDUAL from date of original issue till maturity. The FA 2026 substitution broadened the previous text (which only referred to '2015 Scheme') to cover later SGB tranches and clarified the 'held till maturity' requirement. Pre-maturity exit (secondary-market sale before redemption) does NOT qualify — the holder pays CG on secondary-market disposal. Clause (y) — ELECTRONIC GOLD RECEIPT (EGR) CONVERSIONS: gold-into-EGR; EGR-into-gold. Inserted by FA 2023 with the SEBI Vault Managers Regulations 2021 framework. EGRs allow gold to be 'dematerialised' and traded on stock exchanges (NSE / BSE 'gold cash market'). 'Vault Manager' and 'Electronic Gold Receipt' — definitions in Table Sl. 6 cross-reference SEBI Vault Managers Regulations 2021 reg. 2(1)(h) and (l). Practitioner relevance: jewellers / bullion dealers can move physical gold inventory to EGR exchange-traded form without triggering CG; brings physical-gold market into demat exchange ecosystem.

CATEGORY X — CONVERSION PROVISIONS [Clauses (z), (za), (zb)]

Clause (z) — CONVERSION of bonds / debentures / debenture-stock / deposit certificates of a company INTO shares or debentures of THAT company. Tax-neutral at conversion; cost-base of original instrument carries into new instrument (s. 73 Table Sl. No. 16 cost-trace). Clause (za) — CONVERSION of bonds in s. 209(1) Table Sl. No. 1 (Foreign Currency Convertible Bonds (FCCBs) / Foreign Currency Exchangeable Bonds (FCEBs)) into shares / debentures of any company. Clause (zb) — CONVERSION of PREFERENCE SHARES of a company into EQUITY SHARES of that company [inserted FA 2017]. This is critical for VC-backed structuring: typical Series-A preference shares often have conversion-into-equity rights at exit; clause (zb) makes the conversion itself tax-neutral, with CG arising only on subsequent equity sale (cost-base of preference shares carries into equity per s. 73 Table). Pre-FA 2017, conversion was potentially taxable — Tata Industries v. CIT (Bom HC) had highlighted this gap. Now resolved.

CATEGORY XI — PUBLIC-INSTITUTION DONATIONS [Clause (zc)]

Donation of any work of art, archaeological / scientific / art collection, book, manuscript, drawing, painting, photograph or print to: (i) the Government; (ii) a University (per Table Sl. 7 — University Grants Commission Act 1956 s. 3 declared); (iii) National Museum / National Art Gallery / National Archives; (iv) any CG-notified public museum or institution of national importance. Tax-neutral to the donor; the institution holds at NIL cost. Cultural patronage encouragement. Practitioner trip: collectibles must satisfy 'capital asset' character — personal effects of jewellery / stamps / coins now within s. 2 capital-asset definition (excluded only specified personal effects). Verify chargeability before invoking the exemption — if asset is excluded personal-effect, no s. 67 charge arises in the first place and clause (zc) is irrelevant.

CATEGORY XII — BUSINESS FORM CONVERSIONS [Clauses (zd), (ze), (zf)]

Three vehicles for moving from non-corporate to corporate form (or vice-versa):

Clause (zd) — FIRM → COMPANY succession. Four conditions: (i) ALL assets and liabilities of firm relating to business become assets and liabilities of the company; (ii) ALL partners become shareholders in same proportion as capital-account standing; (iii) partners receive NO consideration / benefit other than allotment of shares; (iv) aggregate shareholding of partners ≥ 50% of total voting power, AND such shareholding continues ≥ 50% for FIVE YEARS from date of succession. Clause (zd) also covers 'intangible asset' transfer expressly. Practitioner: 'capital account standing' for partners must be reconstructed accurately; minority partner buy-outs immediately before conversion can be challenged as round-tripping.

Clause (ze) — PVT/UNLISTED-PUBLIC CO. → LLP CONVERSION under s. 56/57 of LLP Act 2008. SEVEN cumulative conditions: (i) all assets/liabilities of company become those of LLP; (ii) ALL shareholders become partners of LLP, with capital contribution and PSR in same proportion as shareholding on conversion date; (iii) shareholders receive NO consideration other than profit-share-and-capital-contribution; (iv) aggregate PSR of erstwhile shareholders ≥ 50% AT ANY TIME during five years from date of conversion (continuing test); (v) TURNOVER TEST — total sales/turnover/gross-receipts in business of company in ANY of the THREE preceding tax years ≤ INR 60 LAKHS; (vi) ASSETS TEST — total value of assets per books in ANY of the THREE preceding tax years ≤ INR 5 CRORE; (vii) NO PAYMENT to any partner out of accumulated-profit balance for THREE years from conversion date. Clause (ze) is heavily condition-stacked because LLP conversion was being abused for tax-arbitrage (corporate tax rate differential + DDT pre-FA 2020). The INR 60 lakh / INR 5 crore caps eliminate most mid-size companies from this pathway. Practitioner alert: Aravali Polymers LLP (ITAT Kol) — 50%-PSR breach within 5 years triggered s. 71 reversal.

Clause (zf) — SOLE PROPRIETORSHIP → COMPANY succession. Three conditions: (i) all assets/liabilities of proprietorship business become those of company; (ii) sole-proprietor's shareholding ≥ 50% of voting power, AND continues ≥ 50% for FIVE YEARS from succession date; (iii) sole-proprietor receives NO consideration other than share-allotment. Texspin Engineering (Bom HC) is the leading case — 50%-shareholding-continuance is condition precedent.

CATEGORY XIII — CAPITAL-MARKET / INVESTMENT MECHANICS [Clauses (zg)-(zl)]

Clause (zg) — SECURITIES LENDING under SEBI / RBI scheme. The lender does not 'transfer' for CG purposes; the borrower returns identical securities. Clause (zh) — REVERSE MORTGAGE of capital asset under CG-notified scheme [Reverse Mortgage Loan (RML) Scheme]. Senior citizens monetise residential property without triggering CG; CG arises only when lender ultimately disposes the property post-borrower-death/default. Clause (zi) — SPV-SHARE TRANSFER to BUSINESS TRUST in exchange for units issued by trust to transferor (REIT / InvIT primary tranche). Critical for InvIT/REIT IPO structuring — sponsor's SPV-shares roll into trust units tax-neutrally; CG arises only on subsequent unit sale. SPV definition in Table Sl. 9 (Schedule V Note 2). Clauses (zj) and (zk) — MUTUAL FUND SCHEME / PLAN CONSOLIDATION. (zj) covers consolidation of two or more SCHEMES of MF (equity-oriented OR non-equity-oriented separately); (zk) covers consolidation of two or more PLANS within a single SCHEME. Unit-holder receiving consolidated units is tax-neutral. Inserted FA 2016 to ease MF rationalisation post-SEBI scheme-rationalisation circular. Definitions in Table Sl. 10: 'consolidated scheme', 'consolidating scheme', 'equity-oriented fund' (≥ 65% equity threshold). Clause (zl) — PSU JV INTEREST swap for shares of foreign-co incorporated by FOREIGN-STATE GOVT. Niche provision — used in oil-and-gas / refinery / mining JVs where Indian PSU partners with foreign-state-controlled entity; legacy interest can swap for foreign-state-co shares tax-neutrally. ONGC Videsh Ltd has used this mechanism.

THE TABLE (SUB-SECTION 2) — DEFINITIONS BY CLAUSE

Sub-section (2) maps definitions to specific clauses of sub-s. (1) through a 10-row Table: Sl. 1 (clause i) — banking company / banking institution per BR Act 1949 ss. 5(c) and 45(15). Sl. 2 (clauses n, o) — business reorganisation / converted banking company / predecessor / successor co-op bank per s. 65 of this Act. Sl. 3 (clause r) — derivative / securities per SCRA 1956 ss. 2(ac) / 2(h). Sl. 4 (clause s) — Government Security per SCRA s. 2(b). Sl. 5 (clauses t, u) — original fund / relocation / resultant fund (the elaborate offshore-to-IFSC framework, with sunset 31-Mar-2030). Sl. 6 (clause y) — Electronic Gold Receipt / Vault Manager per SEBI Vault Managers Regulations 2021 reg. 2(1)(h)/(l). Sl. 7 (clause zc) — University per UGC Act 1956 s. 3. Sl. 8 (clause ze) — private company / unlisted public company per LLP Act 2008. Sl. 9 (clause zi) — special purpose vehicle per Schedule V Note 2 (this Act). Sl. 10 (clauses zj, zk) — consolidated scheme / consolidating scheme / equity-oriented fund / mutual fund / plans per SEBI MF Regulations 1996 (with the equity-oriented fund 65%-equity threshold central to LTCG rate-determination).

CASE LAW — LEADING DECISIONS

(i) Vodafone International Holdings BV v. UoI (SC, 2012, 341 ITR 1) — share-of-foreign-co-deriving-value-from-Indian-asset NOT taxable; reversed by FA 2012 retro insertion of indirect-transfer fiction in 1961 s. 9 read with s. 47(viab) [now 70(1)(h)] in FA 2015. (ii) Marshall Sons & Co. (India) Ltd v. ITO (SC, 1997, 223 ITR 809) — definition of 'amalgamation' requires shareholder continuity; cash-element disqualifies. (iii) CIT v. Texspin Engineering & Manufacturing Works (Bom HC, 2003, 263 ITR 345) — proprietorship-to-company succession under 1961 s. 47(xiv) — 50%-shareholding-continuance test foundational. (iv) DCIT v. Aravali Polymers LLP (ITAT Kol, 2014) — pvt-co to LLP conversion under 1961 s. 47(xiiib) [now 70(1)(ze)] — 50%-PSR breach within 5 years triggered s. 71 reversal. (v) CIT v. Bharat Development P. Ltd (Cal HC) — partial partition of HUF qualifies; tax-neutral. (vi) Asia Satellite Telecommunications Co. Ltd v. DIT (Del HC) — cross-border amalgamation 25%-continuity test. (vii) ITO v. Ankur Drugs and Pharma Ltd (ITAT Mumbai) — preferentially-allotted convertible-preference-shares conversion to equity under 1961 s. 47(xb) [now 70(1)(zb)] — tax-neutral, cost-base trace. (viii) Tata Industries Ltd v. CIT (Bom HC) — pre-FA 2017 conversion of preference into equity — gap subsequently closed by 47(xb). (ix) Kalloomal Tapeshwari Prasad (HUF) v. CIT (SC, 1982, 133 ITR 690) — partition is recognition of pre-existing rights, not transfer. (x) CIT v. Hardillia Chemicals Ltd (Bom HC) — bonds-to-shares conversion (clause z) cost-base trace. (xi) Gujarat Reclaim & Rubber Products v. ACIT (ITAT Mumbai) — firm-to-company succession under s. 47(xiii) — capital-account proportions strictly tested. (xii) Yes Bank Reconstruction Scheme 2020 — practical use of clause (i) [BR Act 45(7)].

PLANNING NOTES (TWELVE AREAS)

(i) HUF PARTITION — total partition certified by AO under s. 200/206 of this Act preferred; partial partition acceptable post-1979 at federal level but State stamp-duty implications must be verified. (ii) GIFT/WILL/IRREVOCABLE TRUST — cross-check donee-side s. 92(2)(j) liability; if donor-donee not 'relative', donee taxable on FMV under IFOS — restructure as relative-route gift if possible. (iii) HOLDING-SUBSIDIARY (clauses c/d) — confirm 100%-share-capital ownership at transfer date; document board minutes / transfer register; maintain through 8-year cure period; flag any minority introduction (ESOP allotment, strategic round) as cascade-trigger. (iv) AMALGAMATION/DEMERGER — ensure NCLT scheme-sanction order recites 'amalgamation' / 'demerger' definitionally; share-swap-only consideration (no cash); 75% (amalgamation) / 75%-by-value (demerger) shareholder continuity. (v) CROSS-BORDER (clauses g/h/l/m) — engage foreign-counsel for home-country-no-tax certificate; this is THE failure point for most cross-border M&A. (vi) BANKING (clause i) — only invokable when CG sanctions BR Act s. 45(7) scheme — distress merger; document the gazette notification. (vii) IFSC FUND RELOCATION (t/u) — sunset 31-Mar-2030 — strategic timeline; obtain IFSCA registration as resultant fund (Cat I/II/III AIF or retail/ETF) PRIOR to relocation; ensure shareholder/unit-holder same-proportion swap (anti-dilution). (viii) SGB / EGR (x/y) — for SGB clause (x), 'held till maturity by individual' is condition precedent — pre-maturity sale is taxable; for EGR clause (y), retain Vault Manager certificate documenting conversion. (ix) BOND/PREF-SHARE CONVERSIONS (z/za/zb) — track cost-base trace under s. 73 Table Sl. No. 16 — original bond/pref-share cost carries to converted equity. (x) FIRM/PROPRIETORSHIP/LLP CONVERSIONS (zd/ze/zf) — 50%-shareholding/PSR continuity for 5 years is a CONTINUING test — board calendar reminder for year-1 to year-5 compliance certificates; for LLP conversion, INR 60 lakh / INR 5 crore caps eliminate most candidates. (xi) BUSINESS TRUST / REIT/INVIT (zi) — sponsor's SPV-share to trust-unit swap; ensure SPV is per Schedule V Note 2 definition; coordinate with SEBI registration. (xii) MF SCHEME CONSOLIDATION (zj/zk) — equity-oriented fund 65%-equity threshold determines subsequent LTCG rate (s. 197 12.5%/10%); document SEBI scheme-rationalisation order.

WITHDRAWAL OF EXEMPTION — INTERACTION WITH SECTION 71

Section 71 reverses the s. 70 benefit when conditions fail. Typical triggers: (a) For clause (c)/(d) — within 8 years: stock-conversion of transferred asset OR holding ceasing to hold whole share-capital. (b) For clause (zd) — within 5 years: shareholding falling below 50% of voting power. (c) For clause (ze) — within 5 years: PSR falling below 50%; or accumulated-profit payout within 3 years; or breach of any of the seven conditions ex post facto. (d) For clause (zf) — within 5 years: shareholding below 50%. Withdrawal mechanism: the unrealized CG (computed at original-transfer-date FMV) is added to the income of the YEAR OF BREACH (not original transfer year — this is 'curative-clawback'). The transferee company / LLP / partner-shareholder is the assessee chargeable. Practical impact: deferred trigger but full original-CG quantum becomes due.

CROSS-REFERENCES

Section 67 — Capital Gains charge (this section is its principal carve-out).
Section 71 — Withdrawal of exemption on breach of conditions.
Section 72 — Mode of computation.
Section 73 — Cost in special modes (Table Sl. No. 1 cost-base trace, Sl. No. 16 conversion-cost-trace).
Section 89 — Reference to Valuation Officer (where FMV at transfer or breach disputed).
Section 9(10)(a) — Indirect-transfer deemed-Indian shares (referenced in clauses h, m).
Section 65 — Co-operative bank reorganisation definitions (referenced in Table Sl. 2).
Section 92(2)(j) and (3) — Gift taxation at donee end (read with clause b).
Section 147 — IFSC definition (referenced in resultant-fund definition for clauses t/u).
Section 198 — Business trust definitions (read with clause zi).
Section 209(1) — Bonds/GDR definitions (referenced in clauses p, r, za).
Schedule V Note 2 — SPV definition (clause zi).
Schedule VI Table Sl. 1 / Note 1 — retail scheme / ETF conditions (clauses t/u resultant fund).
Companies Act 2013 ss. 230-232 — scheme of compromise/arrangement (referenced in clauses l, m disapplication).
Banking Regulation Act 1949 ss. 5(c) / 45(7) / 45(15) — banking-company definitions and CG-sanctioned scheme.
LLP Act 2008 ss. 56/57 — conversion provisions (clause ze).
SCRA 1956 ss. 2(ac) / 2(h) / 2(b) — derivative / securities / Government Security.
SEBI Vault Managers Regulations 2021 — EGR / Vault Manager (clause y).
SEBI Mutual Fund Regulations 1996 — for clauses zj / zk.
SEBI Alternative Investment Fund Regulations 2012 — resultant fund (clauses t/u).
IFSCA (Fund Management) Regulations 2022 — alternative resultant fund regime (clauses t/u).
UGC Act 1956 s. 3 — University definition (clause zc).
NaBFID Act 2021 — IIFCL successor entity (clause v context).

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