Transactions Not Regarded as Transfer Under Section 70 of Income Tax Act 2025
Section 70 identifies specified transactions that are not treated as a transfer for charging capital gains under Section 67 of the Income-tax Act, 2025. It is the present-law provision corresponding broadly to Section 47 of the former Income-tax Act, 1961.
Meaning and effect of Section 70
Capital gains are generally charged when a capital asset is transferred. Under the Income-tax Act, 2025, Section 67 contains the principal charging provisions for capital gains. Section 70 creates specific exceptions: when a transaction falls within a listed clause and all prescribed conditions are satisfied, Section 67 does not apply to that transfer.
This treatment is transaction-specific and condition-specific. It should not automatically be understood as a permanent tax exemption. In many cases, the tax law preserves the earlier cost or holding history so that tax consequences may arise when the asset is transferred later. The related provisions on cost of acquisition and withdrawal of relief should therefore also be checked.
Main transactions not regarded as transfer
HUF partition
Distribution of capital assets on the total or partial partition of a Hindu undivided family.
Gift, will or irrevocable trust
Transfer of a capital asset by an individual or HUF under a will, gift or irrevocable trust.
Holding and subsidiary companies
Specified transfers of capital assets, other than stock-in-trade, between a company and its wholly held Indian subsidiary or Indian holding company.
Amalgamation
Specified transfers by amalgamating companies and shareholders, including qualifying domestic and foreign amalgamations.
Demerger
Specified transfers of assets or shares in qualifying demergers, including certain foreign-company reorganisations.
Business reorganisation
Specified transfers involving predecessor and successor co-operative banks or converted banking companies.
1. Family and gratuitous transfers
- HUF partition - Section 70(1)(a): distribution of capital assets on total or partial partition of a Hindu undivided family.
- Will, gift or irrevocable trust - Section 70(1)(b): transfer of a capital asset by an individual or HUF under a will, gift or irrevocable trust.
2. Transfers within a corporate group
Section 70(1)(c) and (d) cover qualifying transfers of a capital asset, other than stock-in-trade, between a parent company and its subsidiary. The statutory conditions include 100% shareholding and the relevant subsidiary or holding company being an Indian company, as applicable.
3. Amalgamation
Section 70 contains several provisions for qualifying amalgamations. These include transfer of capital assets from an amalgamating company to an Indian amalgamated company, qualifying share exchanges by shareholders, specified foreign amalgamations involving shares of Indian companies, and certain indirect-transfer situations involving foreign companies. Separate conditions apply to each clause.
4. Banking amalgamation and business reorganisation
Specified transfers under a Central Government sanctioned banking amalgamation and qualifying business reorganisations of co-operative banks are also covered. The expressions used for banking companies, banking institutions and business reorganisations take their meanings from the statutes or cross-referenced provisions specified in Section 70.
5. Demerger
Qualifying demergers are covered for transfers by a demerged company to an Indian resulting company, issue or transfer of shares by the resulting company to shareholders of the demerged company, and specified foreign-company demergers. Foreign demerger clauses include continuity-of-shareholding and foreign capital-gains-tax conditions.
6. Certain non-resident and IFSC transactions
Section 70 includes specified transfers between non-residents involving bonds, Global Depository Receipts, rupee-denominated bonds and Government securities. It also covers specified capital assets transferred by a non-resident on a recognised stock exchange in an International Financial Services Centre where the statutory foreign-currency condition is satisfied.
7. Relocation of qualifying funds and specified public-sector transfers
Qualifying relocation of an original fund to a resulting fund, and the corresponding exchange by shareholders, unit holders or interest holders, may fall within Section 70. The section also covers specified transfers involving India Infrastructure Finance Company Limited and certain transfers under Central Government approved plans involving public sector companies or Government.
8. Sovereign Gold Bonds
Under Section 70(1)(x), as amended by the Finance Act, 2026, redemption of a Sovereign Gold Bond issued under the Sovereign Gold Bond Scheme, 2015 or a subsequent Sovereign Gold Bond Scheme is not regarded as transfer where the bond is held by an individual from the date of original issue until maturity. The holding condition should be checked carefully before relying on this provision.
9. Gold and Electronic Gold Receipts
Conversion of gold into an Electronic Gold Receipt issued by a Vault Manager, or conversion of an Electronic Gold Receipt into gold, is covered by Section 70(1)(y), subject to the statutory framework.
10. Conversion of securities
Specified conversions are not regarded as transfer, including conversion of bonds, debentures, debenture-stock or deposit certificates into shares or debentures of the same company, specified bonds into shares or debentures, and conversion of preference shares into equity shares of the same company.
11. Transfer of specified works to public institutions
Section 70 covers transfer of specified works such as art, archaeological or scientific collections, books, manuscripts, drawings, paintings, photographs or prints to the Government, a University, the National Museum, National Art Gallery, National Archives, or another qualifying notified public museum or institution.
12. Succession of firm by company
Transfer of capital or intangible assets when a firm is succeeded by a company can qualify if the statutory conditions are met. Broadly, business assets and liabilities must vest in the company, partners must become shareholders in the required proportions, consideration must be restricted as prescribed, and the minimum 50% voting-power continuity condition must be maintained for five years.
13. Conversion of company into LLP
Section 70(1)(ze) covers qualifying conversion of a private company or unlisted public company into a limited liability partnership. Conditions include transfer of all assets and liabilities, continuity of shareholders as partners, proportionate capital and profit-sharing, restrictions on consideration, a five-year 50% profit-sharing continuity test, turnover not exceeding Rs. 60 lakh in any of the three preceding tax years, book assets not exceeding Rs. 5 crore in any of those years, and restrictions on distribution of accumulated profits for three years.
14. Succession of sole proprietorship by company
A qualifying succession of a sole proprietorship by a company may be covered where all business assets and liabilities become those of the company, the proprietor maintains at least 50% of total voting power for five years, and the proprietor receives no consideration or benefit other than allotment of shares.
15. Securities lending and reverse mortgage
Qualifying securities-lending arrangements governed by SEBI or RBI guidelines and transfer of a capital asset in a reverse-mortgage transaction under a notified Central Government scheme are included in Section 70.
16. Business trusts and mutual-fund consolidation
The section covers specified exchange of shares of a special purpose vehicle for units of a business trust, consolidation of qualifying mutual-fund schemes, and consolidation of plans within a mutual-fund scheme, subject to the applicable conditions.
17. Specified public-sector joint venture interest
Section 70 also includes the specified exchange by a public sector company of an interest in a joint venture for shares of a company incorporated outside India by the government of a foreign State, where the statutory requirements are met.
Important conditions to check before claiming Section 70 treatment
| Transaction | Important statutory point |
|---|---|
| Gift, will or irrevocable trust | Current Section 70(1)(b) is framed for transfer by an individual or HUF. |
| Holding-subsidiary transfer | Check 100% shareholding, Indian-company condition and exclusion of stock-in-trade. |
| Foreign amalgamation or demerger | Check shareholder-continuity thresholds and whether capital gains tax arises in the foreign jurisdiction. |
| Sovereign Gold Bond | For current Section 70(1)(x), the individual must hold from original issue until maturity. |
| Firm to company | Check transfer of all business assets and liabilities, consideration restrictions and five-year voting-power continuity. |
| Company to LLP | Check all conversion conditions, including turnover, asset-value, continuity and accumulated-profit restrictions. |
| Sole proprietor to company | Check vesting of assets and liabilities, share consideration and five-year 50% voting-power continuity. |
This page is an explanatory guide. The precise clause, definitions, notifications, rules and connected provisions should be checked for the facts and tax year concerned.
Old Section 47 of Income Tax Act 1961 and new Section 70
The former Section 47 of the Income-tax Act, 1961 was titled "Transactions not regarded as transfer" and stated that Section 45 would not apply to specified transfers. The Income-tax Act, 2025 reorganised and simplified the law. From 1 April 2026, the corresponding current provision is Section 70, which states that Section 67 does not apply to the specified transfers.
The earlier page contained the former Section 47 clauses, including HUF partition, gifts, transfers between holding and subsidiary companies, amalgamations, demergers, conversion of firms and proprietary concerns into companies, company-to-LLP conversion, securities lending, reverse mortgage, business trusts and mutual-fund consolidations. These subjects remain important, but current transactions should be tested against the wording and numbering of Section 70 of the 2025 Act.
Official legal sources
- Income-tax Act, 2025 as amended by Finance Act, 2026 - Income Tax Department
- Income Tax Department - official portal
- Income Tax e-Filing portal
Updated: 28 September 2026