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Section 70 Income Tax Act 2025: Which Transactions Are Not Regarded as Transfer?

Section 70 identifies specified transactions that are not treated as a transfer for the purpose of charging capital gains under Section 67. This guide explains the main exclusions, the conditions attached to them and why later disposals may still be taxable.

Law in force: Income-tax Act, 2025, effective 1 April 2026, as amended by the Finance Act, 2026. This article is explanatory; the precise conditions in Section 70(1) and definitions in Section 70(2) control eligibility.
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What does Section 70 provide?

Capital gains ordinarily arise on the transfer of a capital asset under Section 67. Section 70(1) removes specified transactions from that charge by directing that Section 67 does not apply to them. It does not grant a blanket exemption to every gift, merger, share exchange or asset restructuring: each statutory condition must be satisfied.

Which transactions are not regarded as transfer?

1. Family partition, gifts and inheritance - clauses (a) and (b)

Distribution of capital assets on total or partial partition of a Hindu undivided family is covered. Transfers of capital assets by an individual or HUF under a will, gift or irrevocable trust are also covered, subject to the statutory language and other applicable provisions.

2. Transfers between holding and wholly owned subsidiary companies - clauses (c) and (d)

Specified transfers of capital assets other than stock-in-trade between a parent and its wholly owned subsidiary, or the reverse, are excluded where the relevant Indian-company and 100% shareholding conditions are met. Subsequent changes can trigger withdrawal rules under Section 71.

3. Amalgamations and share exchanges - clauses (e) to (i)

Qualifying transfers of assets in amalgamations, exchanges of shares by shareholders and specified foreign-company amalgamations are covered. The law prescribes conditions such as the amalgamated entity being an Indian company in domestic cases, shareholder continuity of at least 25% in certain foreign amalgamations, and no capital gains tax in the relevant foreign jurisdiction. A specified banking amalgamation is also included.

4. Demergers - clauses (j) to (m)

Qualifying transfers from a demerged company to a resulting Indian company and allotments of shares under a demerger can be outside the capital gains charge. Foreign demergers have additional conditions, including 75% shareholder continuity by value and non-taxability in the country of incorporation in the specified cases.

5. Co-operative bank reorganisation - clauses (n) and (o)

Specified asset transfers and shareholder exchanges arising from a qualifying co-operative bank reorganisation are covered. Section 65 defines the relevant predecessor, successor and converted banking entities.

6. Certain cross-border securities transactions - clauses (p) to (s)

Specified non-resident-to-non-resident transactions involving bonds, Global Depository Receipts, rupee-denominated bonds, certain government securities and eligible transactions on a recognised stock exchange in an International Financial Services Centre are excluded only when the respective conditions are satisfied.

7. Relocation of funds and public-sector transfers - clauses (t) to (w)

Qualifying fund relocations and corresponding exchanges of investors' interests are covered. Certain transfers involving India Infrastructure Finance Company Limited and public-sector companies under approved or notified arrangements are also addressed.

8. Sovereign Gold Bonds and electronic gold receipts - clauses (x) and (y)

Following the Finance Act, 2026 amendment, the Sovereign Gold Bond exclusion applies on redemption of a bond issued by the Reserve Bank of India under the specified schemes where an individual has held it from original issue until maturity. A secondary-market purchaser should not assume this exclusion applies. Conversion of gold into an Electronic Gold Receipt, or the reverse, is separately covered.

9. Conversion of securities and other specified transactions - clauses (z) onwards

The provision also includes specified conversions of bonds or debentures into shares or debentures, conversion of preference shares into equity shares, qualifying transfers of cultural assets to specified institutions, and other narrowly defined reorganisations and exchanges. The later lettered clauses contain additional categories and conditions that must be checked against the official statutory text.

Important conditions and limitations

  • Non-recognition is conditional: an arrangement falling outside a clause, or failing any condition, may be taxable under the normal capital gains rules.
  • Future sale: a subsequent transfer of the acquired asset may generate taxable gains. Cost and holding-period rules must be considered separately under the relevant provisions.
  • Withdrawal: Section 71 provides for withdrawal of certain exclusions where prescribed conditions cease to be satisfied.
  • Other taxes: exclusion from capital gains under Section 67 does not by itself determine stamp duty, GST or any other tax consequences.

Relevant statutory definitions

Transfer: The Act's general definition of transfer in relation to a capital asset is subject to the specific non-recognition rules in Section 70.
Amalgamation: A qualifying merger satisfying the conditions in Section 2, including prescribed vesting of assets and liabilities and shareholder continuity.
Demerger: A qualifying transfer of an undertaking in accordance with the definition and conditions prescribed by the Act.
Banking company and banking institution: For clause (i), the expressions adopt the meanings assigned under the Banking Regulation Act, 1949, as specified in Section 70(2).
Business reorganisation: For clauses (n) and (o), the relevant expressions have the meanings assigned by Section 65.
Relocation, original fund and resultant fund: Specially defined expressions in Section 70(2), including conditions relating to eligible funds, investor interests, IFSC location and timing.

Practical illustrations

Gift of a capital asset

An individual gifts a qualifying capital asset to a family member without consideration. Section 70(1)(b) generally prevents capital gains taxation merely on that gift. The recipient's eventual sale must be examined separately under the applicable cost, holding-period and other provisions.

Wholly owned subsidiary transfer

An Indian holding company transfers a non-stock-in-trade capital asset to its wholly owned Indian subsidiary. Clause (c) may apply if all statutory conditions are satisfied. If the relevant ownership conditions later cease, Section 71 may become relevant.

Sovereign Gold Bond redemption

An individual who subscribed at original issue and retained a qualifying Sovereign Gold Bond until maturity may meet the amended clause (x). An investor who bought the same bond on an exchange after issue does not satisfy the original-issue holding condition.

Frequently asked questions

Does Section 70 make all gifts tax free?

No. It addresses capital gains non-recognition for qualifying transfers by individuals or HUFs. Separate provisions concerning receipt of property, including income from other sources, may apply to the recipient.

Is every company merger exempt from capital gains?

No. The relevant amalgamation must meet the prescribed statutory conditions, which vary between domestic and specified foreign-company transactions.

Are Sovereign Gold Bonds bought in the secondary market covered?

Under the amended clause (x), the individual must hold the bond from its original issue until maturity. Secondary-market purchases do not meet that condition.

Which earlier provision corresponds to Section 70?

Section 70 broadly carries forward the subject of Section 47 of the Income-tax Act, 1961, with changes in drafting and subsequent amendments. Always apply the provision governing the relevant tax year.

Official law and related provisions

Official Income-tax Act 2025 (amended)Income Tax e-Filing Portal

Updated: 10 November 2026. For authoritative interpretation, refer to the statutory text, applicable rules, notifications and judicial decisions.