Capital Gains Tax Exemptions: Clause 70 of the Income Tax Bill 2025 vs. Section 47 of the Income Tax Act 1961

Clause 70 Transactions not regarded as transfer.

Income Tax Bill, 2025

Introduction

The Income Tax Bill, 2025 introduces Clause 70, which outlines transactions not regarded as transfers for the purpose of capital gains taxation. This clause is pivotal in delineating scenarios where the transfer of capital assets does not attract capital gains tax, aligning closely with the existing Section 47 of the Income Tax Act, 1961. This article provides a detailed analysis of each provision within Clause 70 and compares it with the corresponding provisions in Section 47, highlighting similarities, differences, and implications.

Objective and Purpose

Clause 70 of the Income Tax Bill, 2025 aims to provide clarity and continuity regarding transactions that do not qualify as transfers for capital gains purposes. The legislative intent is to ensure that certain transactions, typically involving restructuring, amalgamations, and reorganizations, do not incur capital gains tax, thereby facilitating business operations and corporate restructuring without additional tax burdens. This aligns with policy considerations that encourage economic growth and corporate efficiency.

Detailed Analysis

1. Partition of Hindu Undivided Family (HUF)

Clause 70(1)(a) specifies that the distribution of capital assets upon the total or partial partition of a Hindu undivided family is not considered a transfer. This mirrors Section 47(i) of the Income Tax Act, 1961, maintaining consistency in the treatment of HUF partitions.

2. Transfer by Will, Gift, or Trust

Clause 70(1)(b) addresses transfers of capital assets by individuals or HUFs under a will, gift, or irrevocable trust. This provision is similar to Section 47(iii) of the 1961 Act, with both excluding such transfers from capital gains tax. However, the 1961 Act includes a proviso excluding employee stock options, which is not explicitly mentioned in the 2025 Bill.

3. Transfers Between Companies

Clause 70(1)(c) and (d) cover transfers of capital assets between parent and subsidiary companies, provided the subsidiary is an Indian company. This is equivalent to Section 47(iv) and (v), ensuring continuity in corporate restructuring tax benefits.

4. Amalgamations

Clause 70(1)(e)-(h) deals with various amalgamation scenarios, including domestic and cross-border mergers. These provisions align with Section 47(vi)-(via) and further extend to foreign company amalgamations, reflecting a modernized approach to international mergers.

5. Demergers

Clause 70(1)(j)-(m) outlines non-taxable transfers in demergers, similar to Section 47(vib)-(vicc). The 2025 Bill expands on the specifics of foreign company demergers, ensuring comprehensive coverage.

6. Business Reorganizations and Banking Sector

Clause 70(1)(n)-(o) addresses transfers in business reorganizations involving cooperative banks, akin to Section 47(vica)-(vicb). The provisions ensure tax neutrality in banking sector consolidations.

7. Non-Resident Transactions

Clause 70(1)(p)-(s) pertains to transfers by non-residents, including bonds and securities transactions. These provisions are consistent with Section 47(viia)-(viib), facilitating international financial transactions.

8. Infrastructure and Public Sector Transfers

Clause 70(1)(v)-(w) includes transfers by public sector companies and infrastructure finance institutions, similar to Section 47(viiae)-(viiaf), promoting infrastructure development.

9. Conversion and Exchange Transactions

Clause 70(1)(x)-(zb) covers conversion of bonds, debentures, and shares, aligning with Section 47(x)-(xb). These provisions support corporate financing flexibility.

10. Art and Cultural Assets

Clause 70(1)(zc) addresses transfers of art and cultural assets to governmental and educational institutions, akin to Section 47(ix), supporting cultural preservation.

11. Succession and Conversion of Business Entities

Clause 70(1)(zd)-(zf) deals with the succession of firms and sole proprietorships by companies, similar to Section 47(xiii)-(xiv). These provisions facilitate business continuity.

12. Securities Lending and Reverse Mortgage

Clause 70(1)(zg)-(zh) includes securities lending and reverse mortgage transactions, aligning with Section 47(xv)-(xvi), promoting financial market stability.

13. Mutual Fund Schemes

Clause 70(1)(zi)-(zk) pertains to mutual fund consolidations, akin to Section 47(xvii)-(xix), supporting investment diversification.

14. Joint Ventures

Clause 70(1)(zl) covers transfers involving joint ventures, similar to Section 47(xx), encouraging international collaborations.

Practical Implications

The provisions under Clause 70 have significant implications for businesses, investors, and financial institutions. By exempting specified transactions from capital gains tax, the Bill promotes corporate restructuring, international investments, and economic growth. Stakeholders must be aware of compliance requirements and procedural impacts, particularly in cross-border transactions and business reorganizations.

Comparative Analysis

Clause 70 of the Income Tax Bill, 2025 largely mirrors Section 47 of the Income Tax Act, 1961, with some modernizations and expansions to accommodate contemporary business practices and international transactions. The 2025 Bill provides a more detailed framework for foreign company amalgamations and demergers, reflecting global business trends. Both provisions aim to maintain tax neutrality in specific transactions, supporting economic stability and growth.

Conclusion

Clause 70 of the Income Tax Bill, 2025, and Section 47 of the Income Tax Act, 1961, serve as crucial mechanisms for exempting certain transactions from capital gains tax. While the provisions are largely consistent, the 2025 Bill introduces enhancements to address modern business environments. Future reforms may focus on further simplification and alignment with international tax standards, ensuring continued support for economic development.

 

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Full Text:

Clause 70 Transactions not regarded as transfer.

 

Dated: 12-3-2025