Section 70: transactions not regarded as transfer

Family and individual transactions

• Distribution of capital assets on total or partial partition of a Hindu undivided family.
• Transfer of a capital asset by an individual or HUF under a will, a gift, or an irrevocable trust.

Corporate group and reorganisation transactions

Section 70(1) excludes several categories of intra-group and reorganisation transfers, generally conditional on the transferee being an Indian company or the arrangement meeting continuity conditions:

• Transfer of a capital asset (not stock-in-trade) between a wholly-owned subsidiary and its Indian holding company (both directions), while the parent continues to hold the entire share capital.
• Transfer of a capital asset by an amalgamating company to an amalgamated company in a scheme of amalgamation, where the amalgamated company is Indian.
• A shareholder's transfer of shares in the amalgamating company, in exchange for shares in the amalgamated company (Indian company), in a scheme of amalgamation.
• Cross-border amalgamation of foreign companies holding shares in an Indian company (or shares deriving substantial value from an Indian company), subject to at least 25% shareholder continuity and no capital gains tax in the foreign country of incorporation.
• Transfer of a capital asset by a banking company to a banking institution under an RBI/Central Government-sanctioned amalgamation scheme.
• Transfer of a capital asset by a demerged company to a resulting Indian company in a demerger, and the resulting company's issue of shares to the demerged company's shareholders in consideration of the demerger.
• Cross-border demerger of foreign companies holding shares in an Indian company (or deriving substantial value from one), subject to at least 75% shareholder continuity and no capital gains tax in the foreign country.
• Transfer of a capital asset by a predecessor co-operative bank to a successor co-operative bank/converted banking company in a business reorganisation, and a shareholder's corresponding share exchange.

Cross-border securities and IFSC transactions

• Transfer outside India, by one non-resident to another non-resident, of bonds or Global Depository Receipts referred to in Section 209(1), or of rupee-denominated bonds of an Indian company issued outside India.
• Transfer by a non-resident on a recognised stock exchange in an International Financial Services Centre, paid in foreign currency, of bonds/GD₹, rupee-denominated bonds, derivatives, or other notified securities.
• Transfer outside India, of a Government security carrying periodic interest, by one non-resident to another through an intermediary dealing in settlement of securities.
• Transfer of assets from an "original fund" to a "resulting fund" in a relocation (on or before 31 March 2030), and the corresponding transfer of shares/units/interest to shareholders/unit holders/interest holders.

Business succession and conversion transactions

Three categories cover changing the legal form of a business, each with detailed continuity conditions:

• Firm succeeded by a company (Section 70(1)(zd)): all assets/liabilities become the company's, all partners become shareholders in the same proportion as their capital accounts, no consideration other than shares, and the partners' aggregate shareholding stays at least 50% for five years.
• Private/unlisted public company converting to an LLP under Sections 56/57 of the LLP Act, 2008 (Section 70(1)(ze)): all assets/liabilities transfer, shareholders become partners in matching proportion, no consideration other than profit share/capital contribution, partners' aggregate profit-sharing ratio stays at least 50% for five years, the company's turnover in any of the preceding three years does not exceed ₹60 lakh, its total assets do not exceed ₹5 crore, and no payment is made to any partner from pre-conversion accumulated profits for three years.
• Sole proprietorship succeeded by a company (Section 70(1)(zf)): all assets/liabilities transfer, the proprietor's shareholding stays at least 50% for five years, and no consideration other than shares.

Other specified exclusions

• Redemption of a Sovereign Gold Bond issued by the RBI, if held by an individual from original issue to maturity.
• Conversion of gold into an Electronic Gold Receipt (or vice versa) issued by a Vault Manager.
• Conversion of bonds, debentures, debenture-stock or deposit certificates into shares/debentures of the same company; conversion of Section 209(1) bonds into shares/debentures; conversion of preference shares into equity shares.
• Transfer of specified artwork, manuscripts, archaeological or scientific collections to the Government, a University, national museums/galleries/archives, or a Central Government-notified public institution of national importance.
• Securities lending under SEBI/RBI-guided schemes; a reverse mortgage transaction under a notified scheme; transfer of shares of an SPV to a business trust in exchange for units; transfer/consolidation of mutual fund scheme or plan units under the SEBI Mutual Funds Regulations; transfer of a joint-venture interest by a public sector company for shares of a foreign-incorporated company under a foreign government's laws.

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