Section 47A of Income Tax Act 1961: Withdrawal of Exemption in Certain Cases
Section 47A was an anti-avoidance provision connected with Section 47. It withdrew the benefit of treating specified transfers as not being a "transfer" for capital gains purposes when prescribed conditions were later broken.
Updated: 28 September 2026
On this page
- Meaning and purpose of Section 47A
- Section 47A(1): transfers between holding and subsidiary companies
- Section 47A(2): recognised stock exchange membership
- Section 47A(3): succession of firm or proprietary concern by company
- Section 47A(4): conversion of company into LLP
- Position after the Income Tax Act 2025
What did Section 47A mean?
Section 47 of the Income-tax Act, 1961 excluded specified transactions from the definition of a taxable transfer for capital gains purposes. Section 47A operated as a clawback provision. If a taxpayer obtained that benefit and later failed to satisfy a condition attached to it, the earlier exemption could be withdrawn and the relevant profits or gains could become taxable.
In practical terms, Section 47A had to be read together with Section 45, which was the charging provision for capital gains, and the particular clause of Section 47 under which the original transaction was treated as not being a transfer.
Section 47A(1): holding company and subsidiary company transfers
Section 47( iv ) and Section 47( v ) dealt with qualifying transfers of capital assets between a company and its wholly owned Indian subsidiary, subject to the statutory conditions. Section 47A(1) withdrew that protection in specified circumstances.
Trigger 1: within eight years from the transfer, the transferee company converts the capital asset into, or treats it as, stock-in-trade of its business.
Trigger 2: within that period, the required 100 percent shareholding relationship between the parent or holding company and the subsidiary ceases.
Where either trigger applied, the profits or gains that had escaped charge under Section 45 because of Section 47( iv ) or 47( v ) were deemed to be capital gains of the previous year in which the original transfer took place.
Section 47A(2): transfer of shares received for stock exchange membership
Section 47A(2) dealt with the exemption formerly connected with Section 47( xi ). If shares allotted to the transferor in exchange for membership of a recognised stock exchange were transferred before expiry of the prescribed three-year period, the profits and gains that were not charged earlier became taxable as capital gains under the statutory rule.
Section 47A(3): succession of a firm or proprietary concern by a company
Section 47( xiii ) and Section 47( xiv ) provided conditions for specified succession of a firm or sole proprietary concern by a company to qualify as a transaction not regarded as transfer. Section 47A(3) applied if any condition in the relevant proviso was not complied with.
On such failure, the profits or gains arising from the earlier transfer of the capital asset or intangible asset, which had not been charged under Section 45, were deemed to be profits and gains chargeable to tax in the hands of the successor company for the previous year in which the condition was breached.
Section 47A(4): conversion of a private company or unlisted public company into LLP
Section 47( xiiib ) contained conditions under which transfer of assets on conversion of a private company or an unlisted public company into a limited liability partnership could qualify as a transaction not regarded as transfer. Section 47A(4) provided the consequence where those conditions were not complied with.
The profits or gains arising from the earlier transfer of capital assets, intangible assets or shares that had not been charged under Section 45 could then become taxable in the hands of the successor LLP or the shareholder of the predecessor company, as applicable, for the previous year in which the statutory requirements were breached.
Quick summary of Section 47A
| Provision | Original Section 47 relief | Event causing withdrawal | Broad consequence |
|---|---|---|---|
| 47A(1) | Section 47( iv ) or ( v ) | Asset treated as stock-in-trade or qualifying 100 percent shareholding ceases within eight years | Earlier untaxed gain becomes chargeable as capital gains under the statutory deeming rule |
| 47A(2) | Section 47( xi ) | Specified shares transferred within three years | Earlier untaxed gain becomes chargeable as capital gains |
| 47A(3) | Section 47( xiii ) or ( xiv ) | Condition for qualifying succession is breached | Earlier untaxed gain becomes taxable in the hands of the successor company |
| 47A(4) | Section 47( xiiib ) | Condition for qualifying company-to-LLP conversion is breached | Earlier untaxed gain becomes taxable in the hands of the successor LLP or shareholder, as applicable |
Section 47A after 1 April 2026: transition to the Income Tax Act 2025
The Income Tax Act, 2025 took effect from 1 April 2026. For tax years beginning on or after that date, the new Act is the governing legislation. The Income-tax Act, 1961 continues to matter for tax years beginning before 1 April 2026 and for proceedings and rights preserved by the repeal and savings provisions.
This is particularly important for Section 47A because a transaction may have received exemption under the 1961 Act while the later breach of a condition occurs after the new Act has commenced. Section 536 of the Income Tax Act, 2025 contains repeal and savings provisions addressing such transitional consequences. Accordingly, an older transaction should be examined by reference to the date of the transaction, the precise exemption originally claimed, the condition attached to that exemption and the applicable transition rule.
Related capital gains provisions
For the surrounding statutory scheme, see Section 45 - Capital gains, Section 47 - Transactions not regarded as transfer, Section 48 - Mode of computation and Section 49 - Cost with reference to certain modes of acquisition.
Official references
Readers should verify the applicable year and statutory text from the Income Tax Department, particularly where the transaction spans the commencement of the Income Tax Act, 2025.
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