Transactions not regarded as Transfer (Sec. 70)
by Under Section 70 of the Income-tax Act, 2025, certain transactions are specifically not regarded as transfer for the purpose of capital gains. Consequently, the charging provision of Section 67 does not apply to such transactions when the prescribed conditions are satisfied. These exclusions generally cover transactions involving family arrangements, gifts, corporate restructuring, amalgamation, demerger and specified conversions. The purpose is mainly to provide tax neutrality where ownership is reorganised without an ordinary commercial sale, subject to fulfilment of the statutory requirements.
1. Distribution of Assets on Partition of HUF
Under Section 70(1)(a), distribution of capital assets on the total or partial partition of a Hindu Undivided Family (HUF) is not regarded as a transfer for capital-gains purposes. When an HUF is partitioned, its assets may be distributed among its members according to their respective rights. Although ownership of the assets changes, such distribution does not attract capital gains under Section 67. The provision recognises partition as a rearrangement or distribution of family property rather than an ordinary commercial transfer. Therefore, no capital gain arises merely because the capital assets of the HUF are distributed among members pursuant to a total or partial partition.
2. Transfer under Gift, Will or Irrevocable Trust
Under Section 70(1)(b), transfer of a capital asset by an individual or HUF under a will, gift or irrevocable trust is not regarded as a transfer for capital-gains purposes. Accordingly, the transferor is generally not liable to capital-gains tax merely because ownership of the capital asset passes to another person through one of these specified modes. The exemption reflects the fact that such transactions are ordinarily not commercial sales for consideration. However, the statutory conditions concerning the nature of the transferor and transaction must be fulfilled. Subsequent transfer of the asset by the recipient may have separate capital-gains consequences under the Act.
3. Transfer by Holding Company to Subsidiary Company
Under Section 70(1)(c), transfer of a capital asset, other than stock-in-trade, by a company to its subsidiary company is not regarded as a transfer if prescribed conditions are satisfied. The parent company or its nominees must hold the whole share capital of the subsidiary, and the subsidiary must be an Indian company. Where these requirements are fulfilled, the transfer does not attract capital-gains taxation under Section 67 at that stage. The provision facilitates restructuring and movement of capital assets within a wholly owned corporate group without immediate capital-gains liability, while ensuring that the benefit is available only in specifically qualifying holding-subsidiary relationships.
4. Transfer by Subsidiary Company to Holding Company
Under Section 70(1)(d), transfer of a capital asset, other than stock-in-trade, by a subsidiary company to its holding company is not regarded as a transfer where the statutory conditions are satisfied. The whole share capital of the subsidiary company must be held by the holding company, and the holding company must be an Indian company. Consequently, qualifying transfers of capital assets within such a wholly owned corporate structure do not immediately attract capital-gains tax under Section 67. The provision provides tax neutrality for genuine intra-group restructuring, although the prescribed ownership and other conditions must continue to be carefully considered for claiming the benefit.
5. Transfer in a Scheme of Amalgamation
Under Section 70(1)(e), transfer of a capital asset by an amalgamating company to an amalgamated company under a scheme of amalgamation is not regarded as a transfer where the amalgamated company is an Indian company. An amalgamation involves combining companies and transferring the assets and liabilities of the amalgamating company to the resulting company. Although legal ownership of capital assets changes, the qualifying transaction receives tax-neutral treatment for capital-gains purposes. Therefore, no immediate capital gain is charged under Section 67 on such transfer when the statutory conditions are fulfilled. This provision facilitates genuine corporate reorganisations and amalgamations without immediate capital-gains taxation.
6. Other Specified Corporate Restructuring Transactions
Section 70 also covers several other qualifying transactions involving amalgamation, demerger, business reorganisation, conversion and corporate restructuring, subject to detailed statutory conditions. These transactions may involve transfer or exchange of capital assets, shares or other interests as part of a genuine restructuring arrangement. Although such transactions might ordinarily fall within the broad meaning of transfer, the Act grants tax-neutral treatment where the specific requirements of Section 70 are fulfilled. The relief generally postpones capital-gains taxation rather than permanently eliminating tax consequences, because subsequent disposal of the resulting asset may become taxable. Thus, Section 70 facilitates qualifying reorganisations without immediate capital-gains liability.