Section 67 Income Tax Act 2025: When Are Capital Gains Taxable?
Section 67 sets out the basic charge of capital gains tax and special rules for insurance compensation, unit linked insurance policies, conversion of assets into stock-in-trade, securities held through depositories, partnership contributions, reconstitution, compulsory acquisition and property development agreements.
What does Section 67(1) provide?
Profits or gains arising from the transfer of a capital asset during a tax year are ordinarily chargeable under the head Capital gains in the tax year of transfer. This rule is subject to the relief and exemption provisions in sections 82 to 89. The amount of taxable gain is not necessarily the entire sale price: computation follows section 72 and other applicable provisions.
Special transactions covered by Section 67
Insurance compensation for destroyed or damaged assets - subsections (2) to (4)
Capital gains can arise when insurance money or other assets are received for destruction or damage caused by natural calamities, riots or civil disturbances, accidental fire or explosion, or enemy action. Taxability is linked to the year of receipt. For computation, the insurance money or fair market value of assets received is treated as full value of consideration. The term insurer takes its meaning from section 2(9) of the Insurance Act, 1938.
Taxable unit linked insurance policies - subsection (5)
Where a unit linked insurance policy does not qualify for the specified exemption under Schedule II, Table, serial number 2, profits or gains on receiving an amount, including a bonus, are taxable as capital gains in the year of receipt. The taxable amount is computed in the prescribed manner.
Conversion of capital asset into stock-in-trade - subsection (6)
When an owner converts a capital asset into business stock-in-trade, the capital gain is taxed in the tax year when that stock is sold or otherwise transferred. The fair market value on the conversion date is deemed to be the consideration for capital gains computation. Business income arising from the subsequent sale is considered separately under the applicable rules.
Depository securities and beneficial owners - subsections (7) and (8)
Capital gains on transfers of beneficial interests in securities are taxable in the hands of the beneficial owner, not the depository merely registered as owner. The cost and holding period are determined on the first-in-first-out (FIFO) basis. The terms beneficial owner, depository and security adopt the meanings assigned under the Depositories Act, 1996.
Capital contribution to a firm or association - subsection (9)
Where a person transfers a capital asset to a firm, association of persons or body of individuals in which that person is or becomes a partner or member, the gain is taxable in the year of transfer. The value recorded in the entity's books is deemed to be the full value of consideration. This rule does not describe contributions to a company or co-operative society.
Reconstitution of a specified entity - subsections (10) and (11)
Where a specified person receives money, capital assets or both from a specified entity upon its reconstitution, a capital gain may arise in the hands of the specified entity. The statutory computation is:
B = money received; C = fair market value of capital assets received; D = eligible balance in the recipient's capital account. A negative result is treated as zero. Revaluation increments and self-generated goodwill or assets are excluded from the relevant capital-account balance.
These rules operate alongside the separate charge under section 8 where applicable. The expressions specified entity, specified person and reconstitution take their meanings from section 8.
Compulsory acquisition and enhanced compensation - subsections (12) and (13)
For compulsory acquisition or specified government/RBI-approved transfers, the original compensation is generally taxed in the year it is first received. Enhanced compensation is taxed in the year of receipt, except that enhanced compensation received under an interim order is taxed in the year of the final order. Subsequent reductions may require recomputation. For enhanced compensation, cost of acquisition and improvement are treated as nil under the stated provisions.
Joint development agreements - subsections (14) to (16)
For an individual or Hindu undivided family transferring land or building under a registered specified development agreement, capital gains are generally taxed in the tax year when the competent authority issues a completion certificate for all or part of the project. Consideration is based on the stamp duty value of the owner's share on that date plus any other consideration received. If the owner's project share is transferred on or before completion certification, the special timing rule does not apply.
Repurchase of specified units - subsections (17) and (18)
The difference between the repurchase price and capital value of units referred to in section 80CCB(2) of the Income-tax Act, 1961 is deemed capital gains in the tax year of repurchase or termination of the relevant plan. Capital value means the amount invested in those units.
Important statutory terms
Practical illustrations
Example 1: Ordinary sale of investment property
A taxpayer sells a capital asset during tax year 2026-27. Subject to the statutory transfer rules and available exemptions, any chargeable capital gain ordinarily belongs to tax year 2026-27, even if the taxpayer calculates or reports the gain later.
Example 2: Conversion to trading stock
A landowner converts investment land into trading stock in 2026-27 but sells it in 2028-29. Section 67(6) generally postpones the capital gains charge until 2028-29, using the fair market value on the conversion date as deemed consideration for the capital gains component.
Example 3: Reconstitution of a firm
On reconstitution, a partner receives Rs. 12 lakh in money and an asset worth Rs. 18 lakh, against an eligible capital-account balance of Rs. 20 lakh. The section 67(10) amount is Rs. 10 lakh (12 + 18 - 20), subject to statutory adjustments and separate section 8 treatment.
How are capital gains computed?
Section 67 establishes the charge and certain deemed timing and consideration rules. Section 72 deals with the mode of computation. Other provisions address acquisition cost, depreciable assets, specified transactions and exemptions. Whether a gain is short-term or long-term and the rate applicable to it require separate examination; Section 67 does not prescribe one universal capital gains tax rate.
Frequently asked questions
Is capital gains tax payable in the year of sale?
Usually, yes, under section 67(1). Special rules may shift the relevant tax year, including conversion into stock-in-trade, certain compulsory acquisitions and qualifying development agreements.
Is the entire insurance payout taxable as capital gains?
Not necessarily. Section 67 deems the relevant insurance receipt to be consideration in specified circumstances; the chargeable gain must still be computed under the applicable provisions.
Are all joint development agreements taxed on signing?
No. For eligible individuals and HUFs under a registered specified agreement, section 67(14) generally links taxation to the completion certificate, subject to the early-transfer exception.
Does Section 67 provide capital gains exemptions?
It refers to exceptions under sections 82 to 89. Each exemption has separate eligibility requirements and conditions.
Official legislation and useful references
Last reviewed: 10 November 2026. This article is explanatory and should be read with the enacted statutory text and applicable rules.