Taxmann's Direct Taxes Manual | Set of 3 Volumes

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1 INCOME-TAX ACT, 1961

Arrangement of Sections

I-3

Text of the Income-tax Act, 1961 as amended by the Finance Act, 2024 and Finance (No. 2) Act, 2024

1.1

Appendix List of provisions of Allied Acts/Circulars/Regulations referred to in Income-tax Act

Text of provisions of Allied Acts/Circulars/Regulations referred to in Income-tax Act

Validation Provisions Subject Index

1.1541 1.1545 1.1644 1.1647

2 FINANCE ACT, 2024 AND FINANCE (NO. 2) ACT, 2024

Text of the Finance Act, 2024

2.9

Text of the Finance (No. 2) Act, 2024

2.41

3 PROHIBITION OF BENAMI PROPERTY TRANSACTIONS ACT, 1988

Arrangement of Sections

3.3

Text of the Prohibition of Benami Property Transactions Act, 1988 as amended by the Finance (No. 2) Act, 2024

3.7

4 SECURITIES TRANSACTION TAX

Arrangement of Sections

4.3

Text of the Securities Transaction Tax as amended by the Finance (No. 2) Act, 2024

4.5

5 COMMODITIES TRANSACTION TAX

Arrangement of Sections

5.3

Text of the Commodities Transaction Tax

5.5

v

CONTENTS

vi PAGE PAGE

6 EQUALISATION LEVY

Arrangement of Sections

6.3

Text of the Equalisation Levy

6.5

Notification u/s 164 of the Finance Act, 2016

6.14

7 BLACK MONEY ACT

Arrangement of Sections

7.3

Text of Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015

7.7

Text of Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Rules, 2015

7.44

Rule-wise Index to Amendments made in Income-tax Rules, 1962 in 2023-24

Guide to Amendments made in Income-tax Rules, 1962 in 2023-24

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CONTENTS

I-8

Centralised Verification Scheme, 2019 ◆

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Faceless Assessment Scheme, 2019 ◆

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Faceless Appeal Scheme, 2021 ◆

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Faceless Penalty Scheme, 2021 ◆

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Site Restoration Fund Scheme, 1999 ◆

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Centralised Processing of Returns Scheme, 2011 ◆

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CONTENTS

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CONTENTS

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CONTENTS PAGE

1 SCHEMES PAGE Income Tax Informants Rewards Scheme, 2018 Hospitalisation and Domiciliary Hospitalisation Benefit

Policy

1.3 1.22

Settlement Commission (Income-tax and Wealth-tax) (Recruit-

ment and Conditions of Service of Chairman, Vice-Chairmen and Members) Rules, 2015

Income-tax Welfare Fund Rules, 2007 Guidelines for Providing Training by Shipping Companies for

Tonnage Tax Scheme under Chapter XII-G of Income-tax Act

1.29 1.33 1.36

Equity Linked Savings Scheme, 2005

1.41

Income Tax Ombudsman Guidelines, 2010

1.44

Authority for Advance Rulings (Procedure for Appointment as

Chairman and Vice-Chairman) Rules, 2016

Electoral Bond Scheme, 2018

1.51 1.54

Prohibition of Benami Property Transactions (Conditions of Ser-

vices of Members of Adjudicating Authority) Rules, 2019

Tribunals Reforms Act, 2021

1.61 1.66

Conditions

of Service of Chairperson and Members of Tribunals, Appellate Tribunals and other Authorities

1.85

Tribunal (Conditions of Service) Rules, 2021

1.89

Direct Tax Vivad se Vishwas Act, 2020

1.108

Direct Tax Vivad se Vishwas Rules, 2020

1.119

I-5

CONTENTS

I-6 PAGE

Income-tax Settlement Commission (Procedure) Rules, 1997

1.174

Tax Return Preparer Scheme, 2006

1.181

Sukanya Samriddhi Account Scheme, 2019

1.190

Kisan Vikas Patra Scheme, 2019

1.200

Public Provident Fund Scheme, 2019

1.215

Mahila Samman Savings Certificate, 2023

1.228

2 WORDS & PHRASES Section key to Words and Phrases judicially defined under

Income-tax Act

Alphabetical key to Words and Phrases judicially defined

under Income-tax Act

Words & Phrases

2.i 2.v 2.3

3 CIRCULARS, CLARIFICATIONS & NOTIFICATIONS [1961 - JUNE 2024] Circulars, Clarifications & Notifications [1961 - June 2024]

3.3

4 LANDMARK RULINGS OF SUPREME COURT/ HIGH COURTS [1922 - JUNE 2024] Landmark Rulings of Supreme Court/High Courts

[1922 - June 2024]

4.3

CONTENTS PAGE

RETURN FORMS FORM

SAHAJ (ITR-1)

SAHAJ - Individual Income Tax Return

1

ITR-2

Return of Income - For Individuals and HUFs not having income from profits and gains of business or profession

5

[Omitted by the IT (Fourth Amdt.) Rules, 2017, w.e.f.

1-4-2017]

39

Return of Income - For Individuals and HUFs having income from profits and gains of business or profession

40

SUGAM - For Individuals, HUFs and Firms (other than LLP) being a resident having total income upto Rs. 50 lakh and having income from business and profession which is computed under section 44AD, 44ADA or 44AE [Not for an individual who is either Director in a company or has invested in unlisted equity shares or if income-tax is deferred on ESOP or has agricultural income more than Rs. 5000]

101

[Omitted by the IT (Fourth Amdt.) Rules, 2017, w.e.f.

1-4-2017]

107

Return of Income - For persons other than — (i) individual, (ii) HUF, (iii) company and (iv) person filing Form ITR-7

108

Return of Income - For Companies other than companies claiming exemption under section 11

166

Return of Income - For persons including companies required to furnish return under section 139(4A) or 139(4B) or 139(4C) or 139(4D) only

228

ITR-2A ITR-3

SUGAM (ITR-4)

ITR-4 ITR-5

ITR-6 ITR-7

I-5

CONTENTS FORM

ITR-8 ITR-V ITR-A

ITR-U

I-6 PAGE

[Omitted by the IT (Twenty-First Amdt.) Rules, 2021, w.e.f. 29-7-2021]

271

Return of Income - Verification Form

272

Acknowledgement

273

Return Form - For successor entities to furnish return of income under section 170A consequent to business reorganisation

274

Return Form - For persons to update income within twenty-four months from the end of the relevant assessment year

276

OTHER RULES AND SCHEMES

Income-tax (Certificate Proceedings) Rules, 1962

281

Bank Term Deposit Scheme, 2006

341

Senior Citizens’ Savings Scheme, 2019

347

National Savings Certificates (VIII Issue) Scheme, 2019

361

Income-tax (Appellate Tribunal) Rules, 1963

379

1.429

CH. IV - COMPUTATION OF INCOME FROM CAPITAL GAINS

S. 45

E.—Capital gains Capital gains.

45. 92[(1)] Any profits or gains arising from the transfer93 of a capital asset93 effected93 in the previous year shall, save as otherwise provided in sections 94 [***] 95[54, 54B, 96[***] 97[98[54D, 99[54E, 1[54EA, 54EB,] 54F 2[, 54G and 54H]]]]], be chargeable to income-tax under the head “Capital gains”, and shall be deemed to be the income of the previous year in which the transfer took place.

91

[(1A) Notwithstanding anything contained in sub-section (1), where any person receives at any time during any previous year any money or other assets under an insurance from an insurer on account of damage to, or destruction of, any capital asset, as a result of—

3

(i) flood, typhoon, hurricane, cyclone, earthquake or other convulsion of nature; or (ii) riot or civil disturbance; or (iii) accidental fire or explosion; or (iv) action by an enemy or action taken in combating an enemy (whether with or without a declaration of war), 91. See also Circular No. 23D(XXIII-6) of 1965 (Business converted into a limited company), Circular No. 768, dated 24-6-1998 (Date of transfer in case of shares in dematerialised form), Circular No. 4/2007, dated 15-6-2007/Circular No. 6/2016, dated 29-2-2016 (Issue of taxability of surplus on sale of shares and securities), Letter F.No. 225/12/2016/ITA.II, dated 2-5-2016 (Consistency in taxability of income/loss arising from transfer of unlisted shares), Letter F. No. 225/12/2016/ITA.II, dated 24-1-2017 (Transfer of unlisted shares by SEBI registered Category I & II Alternative Investment Funds), Letter F. No. 370149/20/ 2018-TPL, dated 4-2-2018 [Taxability of long-term capital gains arising u/s 10(38)] and Circular No. 14/2021, dated 2-7-2021 [Guidelines under section 9B and section 45(4)]. For details, see Taxmann’s Master Guide to Income-tax Act. For relevant case laws, see Taxmann’s Master Guide to Income-tax Act. 92. Inserted by the Finance Act, 1964, w.e.f. 1-4-1964. “(1)” deemed to have been omitted with the omission of sub-sections (2) to (4) by the Finance Act, 1966, w.e.f. 1-4-1966 and deemed to have been inserted with the insertion of sub-section (2) by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4-1985.

93. For the meaning of the terms/expressions “transfer”, “transfer of a capital asset” and “effected”, see Taxmann’s Direct Taxes Manual, Vol. 3.

94. Figure “53,” omitted by the Finance Act, 1992, w.e.f. 1-4-1993.

95. “53, 54 and 54B” substituted for “53 and 54” by the Finance Act, 1970, w.e.f. 1-4-1970.

Earlier, “53, 54, 54B and 54C” was substituted for “53, 54 and 54B” by the Finance Act, 1972, w.e.f. 1-4-1973 and “53, 54, 54B, 54C and 54D” was substituted for “53, 54, 54B and 54C” by the Finance Act, 1973, w.e.f. 1-4-1974.

96. “54C” omitted by the Finance Act, 1976, w.e.f. 1-4-1976.

97. Substituted for “and 54D” by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978.

98. Substituted for “54D and 54E” by the Finance Act, 1982, w.e.f. 1-4-1983.

99. Substituted for “54E and 54F” by the Finance Act, 1987, w.e.f. 1-4-1988.

1. Inserted by the Finance (No. 2) Act, 1996, w.e.f. 1-10-1996.

2. Substituted for “and 54G” by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991.

3. Inserted by the Finance Act, 1999, w.e.f. 1-4-2000.

S. 45

I.T. ACT, 1961

1.430

then, any profits or gains arising from receipt of such money or other assets shall be chargeable to income-tax under the head “Capital gains” and shall be deemed to be the income of such person of the previous year in which such money or other asset was received and for the purposes of section 48, value of any money or the fair market value of other assets on the date of such receipt shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of such capital asset.

Explanation.—For the purposes of this sub-section, the expression “insurer” shall have the meaning assigned to it in clause (9) of section 24 of the Insurance Act, 1938 (4 of 1938).] [(1B) Notwithstanding anything contained in sub-section (1), where any person receives at any time during any previous year any amount under a unit linked insurance policy, to which exemption under clause (10D) of section 10 does not apply on account of the applicability of the fourth and fifth provisos thereof, including the amount allocated by way of bonus on such policy, then, any profits or gains arising from receipt of such amount by such person shall be chargeable to income-tax under the head “Capital gains” and shall be deemed to be the income of such person of the previous year in which such amount was received and the income taxable shall be calculated in such manner as may be prescribed6.]

7 [(2) Notwithstanding anything contained in sub-section (1), the profits or gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by him as stock-in-trade of a 8business carried on by him shall be chargeable to income-tax as his income of the previous year in which such stock-in-trade is sold or otherwise transferred by him and, for the purposes of section 48, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset.]

5

[(2A) Where any person has had at any time during previous year any beneficial interest in any securities, then, any profits or gains arising from transfer made by the depository or participant of such beneficial interest in respect of securities shall be chargeable to income-tax as the income of the beneficial owner of the previous year in which such transfer took place and shall not be regarded as income of the depository who is deemed to be the registered owner of securities by virtue of sub-section (1) of section 10 of the Depositories Act, 1996 (22 of 1996), and for the purposes of—

9

4. For definition of “insurer” under section 2(9) of the Insurance Act, 1938, see Appendix.

5. Inserted by the Finance Act, 2021, w.e.f. 1-4-2021.

6. See rule 8AD. 7. Inserted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4-1985. Original subsection (2) was inserted by the Finance Act, 1964, w.e.f. 1-4-1964 and later on omitted by the Finance Act, 1966, w.e.f. 1-4-1966.

8. For the meaning of the expression “business carried on by him”, see Taxmann’s Direct Taxes Manual, Vol. 3.

9. Inserted by the Depositories Act, 1996, w.r.e.f. 20-9-1995.

1.431

CH. IV - COMPUTATION OF INCOME FROM CAPITAL GAINS

S. 45

(i) section 48; and (ii) proviso to clause (42A) of section 2, the cost of acquisition and the period of holding of any securities shall be determined on the basis of the first-in-first-out method.

Explanation.—For the purposes of this sub-section, the expressions “beneficial owner”10, “depository”10 and “security”10 shall have the meanings respectively assigned to them in clauses (a), (e) and (l) of sub-section (1) of section 2 of the Depositories Act, 1996.] [(3) The profits or gains arising from the transfer of a capital asset by a person to a firm or other association of persons or body of individuals (not being a company or a co-operative society) in which he is or becomes a partner or member, by way of capital contribution or otherwise, shall be chargeable to tax as his income of the previous year in which such transfer takes place and, for the purposes of section 48, the amount recorded in the books of account of the firm, association or body as the value of the capital asset shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset.]

11

12 [(4)12a Notwithstanding anything contained in sub-section (1), where a specified person receives during the previous year any money or capital asset or both from a specified entity in connection with the reconstitution of such specified entity, then any profits or gains arising from such receipt by the specified person shall be chargeable to income-tax as income of such specified entity under the head “Capital gains” and shall be deemed to be the income of such specified entity of the previous year in which such money or capital asset or both were received by the specified person, and notwithstanding anything to the contrary contained in this Act, such profits or gains shall be determined in accordance with the following formula, namely:— A=B+C–D Where, A = income chargeable to income-tax under this sub-section as income of the specified entity under the head “Capital gains”;

10. For definitions of “beneficial owner”, “depository” and “security” under clauses (a), (e) and (l), respectively, of section 2(1) of the Depositories Act, 1996, see Appendix.

11. Inserted by the Finance Act, 1987, w.e.f. 1-4-1988. Original sub-section (3) was inserted by the Finance Act, 1964, w.e.f. 1-4-1964 and later on omitted by the Finance Act, 1966, w.e.f.

1-4-1966.

12. Substituted by the Finance Act, 2021, w.e.f. 1-4-2021. Prior to its substitution, sub-section (4), as inserted by the Finance Act, 1987, w.e.f. 1-4-1988, read as under: “(4) The profits or gains arising from the transfer of a capital asset by way of distribution of capital assets on the dissolution of a firm or other association of persons or body of individuals (not being a company or a co-operative society) or otherwise, shall be chargeable to tax as the income of the firm, association or body, of the previous year in which the said transfer takes place and, for the purposes of section 48, the fair market value of the asset on the date of such transfer shall be deemed to be the full value of the consideration received or accruing as a result of the transfer.”

Earlier, sub-section (4) was inserted by the Finance Act, 1964, w.e.f. 1-4-1964 and later on omitted by the Finance Act, 1966, w.e.f. 1-4-1966.

12a. See rule 8AB and Form No. 5C.

S. 45

I.T. ACT, 1961

1.432

B = value of any money received by the specified person from the specified entity on the date of such receipt; C = the amount of fair market value of the capital asset received by the specified person from the specified entity on the date of such receipt; and D = the amount of balance in the capital account (represented in any manner) of the specified person in the books of account of the specified entity at the time of its reconstitution: Provided that if the value of “A” in the above formula is negative, its value shall be deemed to be zero : Provided further that the balance in the capital account of the specified person in the books of account of the specified entity is to be calculated without taking into account the increase in the capital account of the specified person due to revaluation of any asset or due to self-generated goodwill or any other self-generated asset.

Explanation 1.—For the purposes of this sub-section,— (i) the expressions “reconstitution of the specified entity”, “specified entity” and “specified person” shall have the meanings respectively assigned to them in section 9B; (ii) “self-generated goodwill” and “self-generated asset” mean goodwill or asset, as the case may be, which has been acquired without incurring any cost for purchase or which has been generated during the course of the business or profession.

Explanation 2.—For the removal of doubts, it is clarified that when a capital asset is received by a specified person from a specified entity in connection with the reconstitution of such specified entity, the provisions of this sub-section shall operate in addition to the provisions of section 9B and the taxation under the said provisions thereof shall be worked out independently.]

13 [(5) Notwithstanding anything contained in sub-section (1), where the capital gain arises from the transfer of a capital asset, being a transfer by way of compulsory acquisition under any law, or a transfer the consideration for which was determined or approved by the Central Government or the Reserve Bank of India, and the compensation or the consideration for such transfer is enhanced or further enhanced by any court, Tribunal or other authority, the capital gain shall be dealt with in the following manner, namely :— (a) the capital gain computed with reference to the compensation awarded in the first instance14 or, as the case may be, the consideration determined or approved in the first instance by the Central Government or the Reserve Bank of India shall be chargeable as 15[income under the head “Capital gains” of the previous year in which such compensation or part thereof, or such consideration or part thereof, was first received]; and* 13. Inserted by the Finance Act, 1987, w.e.f. 1-4-1988.

14. For the meaning of expression “compensation awarded in the first instance”, see Taxmann’s Direct Taxes Manual, Vol. 3.

15. Substituted for ‘income under the head “Capital gains” of the previous year in which the transfer took place’ by the Finance (No. 2) Act, 1991, w.r.e.f. 1-4-1988. * “and” be omitted.

1.433

CH. IV - COMPUTATION OF INCOME FROM CAPITAL GAINS

S. 45

(b) the amount by which the compensation or consideration is enhanced or further enhanced by the court, Tribunal or other authority shall be deemed to be income chargeable under the head “Capital gains” of the previous year in which such amount is received by the assessee : [Provided that any amount of compensation received in pursuance of an interim order of a court, Tribunal or other authority shall be deemed to be income chargeable under the head “Capital gains” of the previous year in which the final order of such court, Tribunal or other authority is made;]†

16

[(c) where in the assessment for any year, the capital gain arising from the transfer of a capital asset is computed by taking the compensation or consideration referred to in clause (a) or, as the case may be, enhanced compensation or consideration referred to in clause (b), and subsequently such compensation or consideration is reduced by any court, Tribunal or other authority, such assessed capital gain of that year shall be recomputed by taking the compensation or consideration as so reduced by such court, Tribunal or other authority to be the full value of the consideration.]

17

Explanation.—For the purposes of this sub-section,— (i) in relation to the amount referred to in clause (b), the cost of acquisition and the cost of improvement shall be taken to be nil; (ii) the provisions of this sub-section shall apply also in a case where the transfer took place prior to the 1st day of April, 1988; (iii) where by reason of the death of the person who made the transfer, or for any other reason, the enhanced compensation or consideration is received by any other person, the amount referred to in clause (b) shall be deemed to be the income, chargeable to tax under the head “Capital gains”, of such other person.] [(5A) Notwithstanding anything contained in sub-section (1), where the capital gain arises to an assessee, being an individual or a Hindu undivided family, from the transfer of a capital asset, being land or building or both, under a specified agreement, the capital gains shall be chargeable to income-tax as income of the previous year in which the certificate of completion for the whole or part of the project is issued by the competent authority; and for the purposes of section 48, the stamp duty value, on the date of issue of the said certificate, of his share, being land or building or both in the project, as increased by 19[any consideration received in cash or by a cheque or draft or by any other mode] shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset :

18

Inserted by the Finance (No. 2) Act, 2014, w.e.f. 1-4-2015.

Inserted by the Finance Act, 2003, w.e.f. 1-4-2004.

Inserted by the Finance Act, 2017, w.e.f. 1-4-2018.

Substituted for “the consideration received in cash, if any,” by the Finance Act, 2023, w.e.f.

1-4-2024. † “and” be inserted.

16.

17.

18.

19.

S. 46

I.T. ACT, 1961

1.434

Provided that the provisions of this sub-section shall not apply where the assessee transfers his share in the project on or before the date of issue of the said certificate of completion, and the capital gains shall be deemed to be the income of the previous year in which such transfer takes place and the provisions of this Act, other than the provisions of this sub-section, shall apply for the purpose of determination of full value of consideration received or accruing as a result of such transfer.

Explanation.—For the purposes of this sub-section, the expression— (i) “competent authority” means the authority empowered to approve the building plan by or under any law for the time being in force; (ii) “specified agreement” means a registered agreement in which a person owning land or building or both, agrees to allow another person to develop a real estate project on such land or building or both, in consideration of a share, being land or building or both in such project, whether with or without payment of part of the consideration in cash; (iii) “stamp duty value” means the value adopted or assessed or assessable by any authority of the Government for the purpose of payment of stamp duty in respect of an immovable property being land or building or both.] [(6) Notwithstanding anything contained in sub-section (1), the difference between the repurchase price of the units referred to in sub-section (2) of section 80CCB and the capital value of such units shall be deemed to be the capital gains arising to the assessee in the previous year in which such repurchase takes place or the plan referred to in that section is terminated and shall be taxed accordingly.

20

Explanation.—For the purposes of this sub-section, “capital value of such units” means any amount invested by the assessee in the units referred to in sub-section (2) of section 80CCB.] Capital gains on distribution of assets by companies in liquidation.

46.

(1) Notwithstanding anything contained in section 45, where the assets of a company are distributed to its shareholders on its liquidation22, such distribution shall not be regarded as a transfer by the company for the purposes of section 45.

21

(2) Where a shareholder on the liquidation of a company receives any money or other assets22 from the company, he shall be chargeable to income-tax under the head “Capital gains”, in respect of the money so received or the market value of the other assets on the date of distribution, as reduced by the amount assessed as dividend within the meaning of sub-clause (c) of clause (22) of section 2 and the sum so arrived at shall be deemed to be the full value of the consideration for the purposes of section 48.

20. Inserted by the Finance Act, 1990, w.e.f. 1-4-1991.

21. For relevant case laws, see Taxmann’s Master Guide to Income-tax Act. 22. For the meaning of the expressions “on its liquidation” and “assets”, see Taxmann’s Direct Taxes Manual, Vol. 3.

1.435

CH. IV - COMPUTATION OF INCOME FROM CAPITAL GAINS

S. 47

[Capital gains on purchase by company of its own shares or other specified securities.

23

46A. Where a shareholder or a holder of other specified securities receives any consideration from any company for purchase of its own shares or other specified securities held by such shareholder or holder of other specified securities, then, subject to the provisions of section 48, the difference between the cost of acquisition and the value of consideration received by the shareholder or the holder of other specified securities, as the case may be, shall be deemed to be the capital gains arising to such shareholder or the holder of other specified securities, as the case may be, in the year in which such shares or other specified securities were purchased by the company: 24

[Provided that where the shareholder receives any consideration of the nature referred to in sub-clause (f) of clause (22) of section 2 from any company, in respect of any buy-back of shares, that takes place on or after the 1st day of October, 2024, then for the purposes of this section, the value of consideration received by the shareholder shall be deemed to be nil.]

24a

Explanation.—For the purposes of this section, “specified securities” shall have the meaning assigned to it in Explanation to section 77A25 of the Companies Act, 1956 (1 of 1956).]

Transactions not regarded as transfer26.

47.

27

Nothing contained in section 45 shall apply to the following transfers :— (i) any distribution of capital assets28 on the total or partial partition of a Hindu undivided family; (ii) 29[***] (iii) any transfer of a capital asset under a gift30 or will or an irrevocable trust : 31 [Provided that this clause shall not apply to transfer under a gift30 or an irrevocable trust of a capital asset being shares, debentures or warrants allotted by a company directly or indirectly to its employees

23. Inserted by the Finance Act, 1999, w.e.f. 1-4-2000.

24. See also Circular No. 3/2016, dated 26-2-2016 (Nature of share buy-back transactions).

For details, see Taxmann’s Master Guide to Income-tax Act. 24a. Inserted by the Finance (No. 2) Act, 2024, w.e.f. 1-10-2024.

25. Now section 68 of the Companies Act, 2013. For text of section 68 of the Companies Act, 2013, see Appendix.

26. See also Circular No. 2/2008, dated 22-2-2008 (Securities lending/borrowing scheme of SEBI). For details, see Taxmann’s Master Guide to Income-tax Act. 27. For relevant case laws, see Taxmann’s Master Guide to Income-tax Act. 28. For the meaning of the expression “distribution of capital assets”, see Taxmann’s Direct Taxes Manual, Vol. 3.

29. Omitted by the Finance Act, 1987, w.e.f. 1-4-1988.

30. For the meaning of the expression “under a gift”, see Taxmann’s Direct Taxes Manual, Vol. 3.

31. Inserted by the Finance Act, 2000, w.e.f. 1-4-2001.

S. 47

I.T. ACT, 1961

1.436

under 32[any Employees’ Stock Option Plan or Scheme of the company offered to such employees in accordance with the guidelines issued by the Central Government in this behalf];] Following clause (iii) shall be substituted for the existing clause (iii) of section 47 by the Finance (No. 2) Act, 2024, w.e.f.

1-4-2025: (iii) any transfer of a capital asset by an individual or a Hindu undivided family, under a gift or will or an irrevocable trust; (iv) any transfer of a capital asset by a company to its subsidiary company, if— (a) the parent company or its nominees hold the whole of the share capital of the subsidiary company, and (b) the subsidiary company is an Indian company; [(v) any transfer of a capital asset by a subsidiary company to the holding company, if—

33

(a) the whole of the share capital of the subsidiary company is held by the holding company, and (b) the holding company is an Indian company :] [Provided that nothing contained in clause (iv) or clause (v) shall apply to the transfer of a capital asset made after the 29th day of February, 1988, as stock-in-trade;]

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[(vi) any transfer, in a scheme of amalgamation36, of a capital asset by the amalgamating company to the amalgamated company if the amalgamated company is an Indian company;

35

[(via) any transfer, in a scheme of amalgamation36, of a capital asset being a share or shares held in an Indian company, by the amalgamating foreign company to the amalgamated foreign company, if—

37

(a) at least twenty-five per cent of the shareholders of the amalgamating foreign company continue to remain shareholders of the amalgamated foreign company, and (b) such transfer does not attract tax on capital gains in the country, in which the amalgamating company is incorporated;] [(viaa) any transfer, in a scheme of amalgamation of a banking company with a banking institution sanctioned and brought into force by the

38

32. Substituted for “the Employees’ Stock Option Plan or Scheme” by the Finance Act, 2001, w.e.f. 1-4-2001.

33. Inserted by the Finance Act, 1965, w.e.f. 1-4-1965.

34. Inserted by the Finance Act, 1988, w.e.f. 1-4-1988.

35. Clauses (vi) and (vii) inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967.

36. For the meaning of the term “amalgamation”, see Taxmann’s Direct Taxes Manual, Vol. 3.

37. Inserted by the Finance Act, 1992, w.e.f. 1-4-1993.

38. Inserted by the Finance Act, 2005, w.e.f. 1-4-2005.

1.437

CH. IV - COMPUTATION OF INCOME FROM CAPITAL GAINS

S. 47

Central Government under sub-section (7) of section 45 of the Banking Regulation Act, 1949 (10 of 1949), of a capital asset by the banking company to the banking institution.

Explanation.—For the purposes of this clause,— (i) “banking company” shall have the same meaning assigned to it in clause (c) of section 539 of the Banking Regulation Act, 1949 (10 of 1949); (ii) “banking institution” shall have the same meaning assigned to it in sub-section (15) of section 4539 of the Banking Regulation Act, 1949 (10 of 1949);] [(viab) any transfer, in a scheme of amalgamation, of a capital asset, being a share of a foreign company, referred to in the Explanation 5 to clause (i) of sub-section (1) of section 9, which derives, directly or indirectly, its value substantially from the share or shares of an Indian company, held by the amalgamating foreign company to the amalgamated foreign company, if—

40

(A) at least twenty-five per cent of the shareholders of the amalgamating foreign company continue to remain shareholders of the amalgamated foreign company; and (B) such transfer does not attract tax on capital gains in the country in which the amalgamating company is incorporated;] [(vib) any transfer, in a demerger, of a capital asset by the demerged company to the resulting company, if the resulting company is an Indian company;

41

(vic) any transfer in a demerger, of a capital asset, being a share or shares held in an Indian company, by the demerged foreign company to the resulting foreign company, if— (a) 42[the shareholders holding not less than three-fourths in value of the shares] of the demerged foreign company continue to remain shareholders of the resulting foreign company; and (b) such transfer does not attract tax on capital gains in the country, in which the demerged foreign company is incorporated : Provided that the provisions of sections 391 to 39443 of the Companies Act, 1956 (1 of 1956) shall not apply in case of demergers referred to in this clause; For text of sections 5(c) and 45 of the Banking Regulation Act, 1949, see Appendix.

Inserted by the Finance Act, 2015, w.e.f. 1-4-2016.

Clauses (vib), (vic) and (vid) inserted by the Finance Act, 1999, w.e.f. 1-4-2000.

Substituted for “at least seventy-five per cent of the shareholders” by the Finance Act, 2000, w.e.f. 1-4-2000.

43. Now sections 230 to 232 of the Companies Act, 2013. For text of sections 230 to 232 of the Companies Act, 2013, see Appendix.

39.

40.

41.

42.

S. 47

I.T. ACT, 1961

1.438

[(vica) any transfer in a business reorganisation, of a capital asset by the predecessor co-operative bank to the successor co-operative bank 45 [or to the converted banking company] ; (vicb) any transfer by a shareholder, in a business reorganisation, of a capital asset being a share or shares held by him in the predecessor co-operative bank if the transfer is made in consideration of the allotment to him of any share or shares in the successor co-operative bank 45[or to the converted banking company] .

44

Explanation.—For the purposes of clauses (vica) and (vicb), the expressions “business reorganisation”, 45 [“converted banking company”,] “predecessor co-operative bank” and “successor co-operative bank” shall have the meanings respectively assigned to them in section 44DB;] 46 [(vicc) any transfer in a demerger, of a capital asset, being a share of a foreign company, referred to in the Explanation 5 to clause (i) of sub-section (1) of section 9, which derives, directly or indirectly, its value substantially from the share or shares of an Indian company, held by the demerged foreign company to the resulting foreign company, if— (a) the shareholders, holding not less than three-fourths in value of the shares of the demerged foreign company, continue to remain shareholders of the resulting foreign company; and (b) such transfer does not attract tax on capital gains in the country in which the demerged foreign company is incorporated: Provided that the provisions of sections 391 to 39447 of the Companies Act, 1956 (1 of 1956) shall not apply in case of demergers referred to in this clause;] (vid) any transfer or issue of shares by the resulting company, in a scheme of demerger to the shareholders of the demerged company if the transfer or issue is made in consideration of demerger of the undertaking;] (vii) any transfer48 by a shareholder, in a scheme of amalgamation48, of a capital asset being a share or shares held by him in the amalgamating company, if— (a) the transfer48 is made in consideration of the allotment to him of any share or shares in the 49[amalgamated company except where the shareholder itself is the amalgamated company, and] (b) the amalgamated company is an Indian company;] Inserted by the Finance Act, 2007, w.e.f. 1-4-2008.

Inserted by the Finance Act, 2021, w.e.f. 1-4-2021.

Inserted by the Finance Act, 2015, w.e.f. 1-4-2016.

Now sections 230 to 232 of the Companies Act, 2013. For text of sections 230 to 232, see Appendix.

48. For the meaning of the terms “transfer” and “amalgamation”, see Taxmann’s Direct Taxes Manual, Vol. 3.

49. Substituted for “amalgamated company, and” by the Finance Act, 2012, w.e.f. 1-4-2013.

44.

45.

46.

47.

1.439

CH. IV - COMPUTATION OF INCOME FROM CAPITAL GAINS

S. 47

[(viia) any transfer of a capital asset, being bonds or 51[Global Depository Receipts] referred to in sub-section (1) of section 115AC, made outside India by a non-resident to another non-resident;] 52 [(viiaa) any transfer, made outside India, of a capital asset being rupee denominated bond of an Indian company issued outside India, by a non-resident to another non-resident;] 53 [(viiab) any transfer of a capital asset, being— (a) bond or Global Depository Receipt referred to in sub-section (1) of section 115AC; or (b) rupee denominated bond of an Indian company; or 54 [(c) derivative; or 50

(d) such other securities as may be notified55 by the Central Government in this behalf,] made by a non-resident on a recognised stock exchange located in any International Financial Services Centre and where the consideration for such transaction is paid or payable in foreign currency.

Explanation.—For the purposes of this clause,— (a) “International Financial Services Centre”56 shall have the meaning assigned to it in clause (q) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005); (b) “recognised stock exchange” shall have the meaning assigned to it in clause (ii) of Explanation 1 to clause (5) of section 43; (c) “derivative”57 shall have the meaning assigned to it in clause (ac) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956);] 58 [(d) “securities” shall have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956)59;]

50.

51.

52.

53.

54.

55.

56.

57.

58.

59.

Inserted by the Finance Act, 1992, w.e.f. 1-6-1992.

Substituted for “shares” by the Finance Act, 2001, w.e.f. 1-4-2002.

Inserted by the Finance Act, 2017, w.e.f. 1-4-2018.

Inserted by the Finance Act, 2018, w.e.f. 1-4-2019.

Sub-clauses (c) and (d) substituted for sub-clause (c) by the Finance (No. 2) Act, 2019, w.e.f.

1-4-2020. Prior to its substitution, sub-clause (c) read as under : “(c) derivative,” For notified ‘securities’, see Notification No. S.O. 986(E), dated 5-3-2020, as amended by, SO 3981(E), dated 12-9-2023. For details, see Taxmann’s Master Guide to Income-tax Act. For definition of “International Financial Services Centre” under section 2(q) of the Special Economic Zones Act, 2005, see Appendix.

For definition of “derivative” under section 2(ac) of the Securities Contracts (Regulation) Act, 1956, see Appendix.

Inserted by the Finance (No. 2) Act, 2019, w.e.f. 1-4-2020.

For definition of “securities” under section 2(h) of the Securities Contracts (Regulation) Act, 1956, see Appendix.

Direct Taxes Manual | Set of 3 Volumes AUTHOR PUBLISHER

: :

TAXMANN'S EDITORIAL BOARD TAXMANN

DATE OF PUBLICATION EDITION

: :

AUGUST 2024 54TH EDITION

ISBN NO NO. OF PAGES

: :

9789357789332 6642

BINDING TYPE

:

Hardbound

Rs. 8,450

DESCRIPTION The Direct Taxes Manual is widely regarded as the most authoritative resource in the field of direct tax, setting the standard for accuracy, depth, and comprehensive coverage.

This manual has been a trusted companion for tax professionals, legal practitioners, and revenue officers across India for over fifty years. Renowned for its clarity and systematic approach, the manual provides a structured and in-depth understanding of direct tax laws.

This three-volume set is a complete reference, providing: •

Acts

•

Rules

•

Landmark Rulings

•

Direct Taxes Law Lexicon

•

Circulars, Clarifications & Notifications

•

Schemes

•

Return Forms

•

Other Rules/Schemes

The Present Publication is the 54th Edition, edited by Taxmann's Editorial Board, with the following volume-wise noteworthy features: •

Volume One | Acts o Fully updated with the amendments introduced by the Finance Act, 2024 and Finance (No. 2) Act, 2024 o Each section features detailed annotations, including relevant rules, forms, key circulars, and cross-references to allied laws o Comprehensive history of amendments since 1961, coupled with a user-friendly design for easy navigation

•

Volume Two | Rules o Incorporates all amendments notified up to the Income Tax (Sixth Amendment) Rules, 2024, and includes the latest return forms for A.Y. 2024-25 o Provides thorough coverage of rules and schemes, including ICDS and Faceless Schemes o Equipped with practical tools for filing forms and quick identification of redundant or e-forms

•

Volume Three | Landmark Rulings, Direct Taxes Law Lexicon, Circulars, Clarifications & Notifications, Schemes o Updated till July 2024 o Coverage of 20+ key schemes under the Income-tax Act o Features a comprehensive collection of judicially defined words and phrases, organized by section and alphabetically for quick reference o Summarizes circulars and notifications and includes a digest of landmark rulings by the Supreme Court and High Courts from 1922 to June 2024

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