Section 70 of the Income-tax Act, 2025 — Transactions Not Regarded as Transfer (Capital Gains Exemptions)

In plain language

What Section 70 actually means

Capital gains tax under the Income-tax Act, 2025 is charged only when there is a "transfer" of a capital asset. Section 70 carves out a long list of transactions that, although they look like transfers, are deliberately treated as "not a transfer". When a transaction falls inside Section 70, no capital gains tax arises at that moment — the tax is either fully forgiven or, more commonly, deferred until a later real sale.

Section 70 is the direct successor to Section 47 of the old Income-tax Act, 1961. The 2025 Act came into force on 1 April 2026, so for FY 2026-27 onwards you cite Section 70; for FY 2025-26 and earlier the old Section 47 applies. The clauses are substantively the same, re-lettered and modernised.

Who it applies to

• Families — on partition of a Hindu Undivided Family (HUF) and on gifts, wills or transfers to an irrevocable trust.
• Companies undergoing restructuring — amalgamations, demergers, and asset transfers between a holding company and its wholly-owned subsidiary.
• Businesses changing legal form — a firm or sole proprietorship converting into a company, or a company converting into an LLP.
• Investors — those redeeming Sovereign Gold Bonds, converting bonds/debentures into shares, or lending securities under an approved scheme.
• Non-residents and IFSC/GIFT City players — certain non-resident-to-non-resident transfers and relocation of offshore funds into an IFSC resultant fund.

Key transactions covered

• HUF partition: Distribution of assets on total or partial partition is not a transfer.
• Gift, will or irrevocable trust: Transfer without consideration is outside capital gains (though gifts may be taxed in the recipient's hands under other-income rules).
• Holding-subsidiary transfers: A transfer of a capital asset by a holding company to its 100% Indian subsidiary (or vice-versa) is exempt.
• Amalgamation: Transfer of assets by the amalgamating company to an Indian amalgamated company; and shares received by shareholders in exchange are also exempt.
• Demerger: Transfer to a resulting Indian company and shares issued to demerged-company shareholders are exempt.
• Conversion of firm/proprietorship into company and company into LLP, subject to strict conditions.
• Sovereign Gold Bonds: Redemption is exempt — but from 1 April 2026 the blanket exemption is narrowed to the original subscriber holding to maturity.

Key conditions and limits (don't miss these)

• Anti-abuse clawback: For holding-subsidiary transfers, the exemption is withdrawn if, within 8 years, the asset is converted into stock-in-trade or the 100% shareholding link is broken. The originally-exempt gain then becomes taxable in the transferor's hands.
• Company-to-LLP conversion: Turnover must not exceed ₹60 lakh in any of the 3 preceding years; book value of assets must not exceed ₹5 crore; all shareholders must become partners in the same ratio; they must hold at least 50% profit share for 5 years; and no accumulated profits may be withdrawn for 3 years.
• Amalgamation/demerger: The resultant company must generally be an Indian company (with specific carve-outs for qualifying foreign reorganisations).

How it interacts with other sections

• Cost & holding period carry over: Because tax is only deferred, the successor takes the previous owner's cost of acquisition and period of holding. This preserves the tax liability for a future genuine sale.
• Clawback section: The 2025 Act's equivalent of old Section 47A/155 reverses the exemption if conditions fail within the specified period.
• Section 70 sits alongside the general capital gains charging and computation provisions of the 2025 Act.

Practical implications

Section 70 is what makes corporate restructuring, family succession and business reorganisation tax-neutral. Without it, every merger or gift within a family would trigger a cash tax bill. But the exemption is a deferral, not a permanent escape — get the conditions wrong (break the 100% holding, withdraw LLP profits early, exceed turnover limits) and the tax comes roaring back, sometimes retrospectively.