Understanding Transfer in Capital Gains Section 2(47)
As per section 45 of Income Tax Act, 1961, any profit or gains arise on transfer of capital asset is taxable under the head capital gains.
This section emphasizes more on two important terms i.e. capital asset and transfer. Capital asset is defined under section 2(14) and transfer is defined under section 2(47). Transfer in relation to a capital asset includes following types of transactions: –
- The sales, exchange or relinquishment of the asset, or
- The extinguishment of any right there in, or
- Compulsory acquisition thereof under any law, or
- Conversion of capital asset into stock in trade, or
- Allowing the possession of any immovable property to be taken or retained in part performance of a contract referred to in section 53A of the Transfer of Property Act, 1882.
- Any transaction (like becoming a member of, or acquiring shares in a co-operative society) which has the effect of transferring or enabling the enjoyment of immovable property.
- The maturity or redemption of Zero-Coupon Bonds (ZCB).
Explanation 2 to section 2(47) clarifies that transfer includes and shall be deemed to have always included, disposing of or parting with an asset or any interest therein, or creating any interest in any manner whatsoever, directly or indirectly, absolutely or conditionally, voluntarily.
Under section 47 certain transactions are not regarded as transfer for the purpose of capital gains tax some of them is listed below: –
- Distributions of capital assets on the total or partial partition of a HUF.
- Upto A.Y 2024-25, transfer of capital asset as a gift or will or irrevocable trust other than shares, debentures or warrants.
- A holding company transfer its capital asset to its wholly owned Indian subsidiary company or vice a verse.
- Transfer of capital asset by amalgamating company (Transferor Co.) in scheme of amalgamation.
- Transfer of capital asset by demerged company to the resulting Indian company.
- Transfer or issue of share by a resulting company (New company) in demerger.
- Any transfer of shares by shareholders in scheme of amalgamation.
- Transfer of Government security outside India by a non- resident to another non-resident.
- Redemption of sovereign gold bonds by an Individual.
- Conversion of gold into Electronic gold receipt or vice a versa.
- Transfer of specified capital Asset to the government or university etc.
- Transfer of capital asset under Reverse Mortgage.
- Conversion of preference share into equity shares.
- Transfer or conversions of bonds or debentures etc. into share or debentures.
Conclusion
The definition of transfer under section 2(47) is vast. It includes various actions such as sales, exchanges of assets, compulsory acquisitions and other transactions. However, it also provides certain exceptions which is not regarded as transfer for the purpose of capital gains tax such as redemption of sovereign gold bonds, conversion of shares into equity, transfer of shares in demerger etc. Being aware about these terms can help individuals and companies to strategically plan their investment, optimize their capital gains savings and ensure compliance with tax regulations.