What is section 47 of Income Tax Act?
Section 47 of the Income Tax Act, 1961 (India) specifies transactions that are not regarded as transfers for the purposes of capital gains tax. Under normal circumstances, when a capital asset is transferred, any gains or profits derived from the transfer are subject to capital gains tax. However, Section 47 provides exemptions for certain types of transactions, making them tax-free.
Following transactions are not regarded as transfer. Therefore, no Capital Gain will arise
1. Distribution of capital asset on the partial or total partition of HUF [Section 47(i)]
2. Transfer of capital asset under gift, will, irrevocable trust [Section 47(ii)]
*Note:
- This clause shall not apply to gift or an irrevocable trust of share, debenture or warm allotted by company to employee under ESOPS.
- As per sixth proviso to Section 48- FMV on the date of transfer (date of GIFT or irrevocable trust) shall be treated as FVOC of such shares, debentures or warrants.
3.Transfer of capital asset by holding company to its subsidiary company or subsidiary to its holding provided following conditions are satisfied [Section 46(iv)/Section 47(v)]
- Holding company holds 100% shareholding of subsidiary company
- Transferee company should be Indian company
In above cases
- (A) Cost of Acquisition Section 49 (1): Cost to the previous Owner
- (B) Cost of Improvement: Incurred by previous owner & present owner shall be considered.
- (C) Period of Holding: POH of previous owner shall also be considered.
- (D) Indexed Cost of Acquisition: Manjula J. Shah (Bombay H.C)
Cost of Acquisition X Cost Inflation Index of the year of Transfer/Cost Inflation Index for the year in which asset first held by Previous Owner
- (E) Benefit of Fair Market Value as on 01/04/2001
4. Transfer under Amalgamation
| Transfer of Any Capital asset by Amalgamating company to amalgamated company | If Amalgamated Company is an Indian Company |
5.Transfer under Demerger
| Transfer of Any Capital asset by Demerged Company to Resulting Company | If resulting Company is a Indian Company |
6.Conversion of Securities
| Conversion of Bond, Debentures, Debenture stock, Deposit certificates of a company into Share or debenture of same company Section 47(x) | Cost of Acquisition of share/debenture on conversion = cost of that part of bond, debenture deposit certificates which is converted Section 49(2A) Period of holding of share/ debenture shall also include the period for which bond, debenture, deposit certificates held by assessee |
| Conversion of Preference share of a company into equity of same company Section 47(xb) | Cost of Acquisition of equity share received on conversion = cost of that part of preference shares which is so converted Section 49(2AE) Period of holding of equity share shall also include the period for which preference shares held by the assessee Section(42A) |
| Conversion of gold into electronic gold receipt (EGR) issued by a Vault Manager, or conversion of Electronic Gold Receipt into Gold Section 47(viid) (Added by finance Act,2023 With effect from AY 2024-2025) | Cost of Acquisition of current asset (EGR/gold) received on conversion = cost of earlier asset (EGR/gold) which is so converted Section 49(10) Period of holding of (EGR/gold) shall also include the period for which preference shares held by the assessee Section(42A) |
7.Transfer of Sovereign Gold Bond issued by RBI under Sovereign Gold Bond Scheme 2015, by way of redemption by the assessee being an Individual. (Section 47)
8. Transfer of Work of Art, scientific, archaeological, manuscript, books, photograph or print to Govt., University, National Museum or art gallery or archives, any public notified museum. Section 47(ix)
9. Transfer of capital asset under reversed mortgage under a scheme made and notified by CG. Section 47(xvi)
*Note: Amount of loan (either in instalment or lumpsum) received by the senior citizen under the transaction of reverse mortgage would be exempt from income tax u/s 10(43).
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