Transactions Not Regarded as Transfer: Gift, Family Partition, Reorganisation (Income-tax Act, 2025)

Section 70 of the Income-tax Act, 2025 lists transfers on which no capital gains tax arises, because section 67 (the charging section for capital gains) "shall not apply" to them. The list includes gifts, wills and irrevocable trusts by an individual or HUF, partition of a Hindu undivided family (HUF), many mergers and demergers, and the incorporation of a proprietorship or firm into a company. The tax is not forgiven for good: the receiver takes over the previous owner's cost and holding period, so the gain is taxed when the asset is eventually sold.

This guide covers the family-level clauses (a) and (b) in detail, then groups the business reorganisation clauses with their conditions. Every figure below comes from section 70, section 73, section 2(101), section 92 and rule 6, as amended by the Finance Act, 2026 (tax year 2026-27). This is information, not tax advice.

What does "not regarded as transfer" mean under section 70?

Capital gains arise when a capital asset is "transferred" (section 67(1)). Section 70(1) opens with "The provisions of section 67 shall not apply to transfer" of the kinds listed in clauses (a) to (zl). If a transaction fits a clause, the giver has no capital gain on it, whatever the market value of the asset on the day.

Two follow-on rules keep the system consistent:

• Cost carries over. Under section 73(1), Table Sl. No. 1, the receiver's cost of acquisition is the cost for which the previous owner acquired the asset, increased by the cost of any improvement borne by the previous owner or the receiver. Clause (f) of that serial number extends this to transfers under section 70(1)(a), (c), (d), (e), (g), (h), (i), (j), (l), (m), (n), (o), (t), (u), (v), (w), (zd), (ze) and (zf).
• Holding period carries over. Under section 2(101)(c)(B)(I), the period for which the previous owner held the asset is included when deciding whether the receiver's holding is short-term or long-term.

What counts as a "transfer" in the first place?

Section 70 only matters for events that would otherwise be a transfer. Section 2(109) says "transfer" of a capital asset includes a sale, exchange or relinquishment; extinguishment of rights in the asset; compulsory acquisition under any law; conversion of the asset into (or treating it as) stock-in-trade; maturity or redemption of a zero coupon bond; and allowing possession of immovable property to be taken or kept in part performance of a contract of the kind in section 53A of the Transfer of Property Act, 1882. It also covers arrangements, such as becoming a member of a society or company, that have the effect of transferring or enabling enjoyment of immovable property.

Is a gift of property taxable as capital gains for the giver?

No, if the giver is an individual or an HUF. Section 70(1)(b) covers the transfer of a capital asset by an individual or HUF "under a will or a gift or an irrevocable trust". The clause is about who gives. A gift by a company or a firm is not within clause (b).

Clause (b) protects the giver only. Whether the receiver is taxed on the value of the gift is a separate question under section 92 (income from other sources), covered next.

Is a gift taxable in the hands of the receiver?

Under section 92(2)(m), a person who receives money or property for no consideration (or for too little) can be taxed on it. The limits in the section are:

What is received	Taxable when	Amount taxed
Money, without consideration (92(2)(m)(i))	Total in the tax year exceeds Rs 50,000	The whole sum
Immovable property, without consideration (m)(ii)(A)	Stamp duty value exceeds Rs 50,000	The stamp duty value
Immovable property, for a consideration (m)(ii)(B)	Stamp duty value exceeds the consideration by more than the higher of Rs 50,000 and 10% of the consideration	The excess of stamp duty value over consideration
Other property, without consideration (m)(iii)(A)	Aggregate fair market value exceeds Rs 50,000	The whole fair market value
Other property, for less than fair market value (m)(iii)(B)	Shortfall exceeds Rs 50,000	The shortfall

For these rows, "property" means only the assets listed in section 92(5)(f): land or building, shares and securities, jewellery, archaeological collections, drawings, paintings, sculptures, works of art, bullion and virtual digital assets. A gift of, say, a car or furniture is not caught by clause (m).

Section 92(3) then lists receipts to which this does not apply. Among them: receipts from a relative, on the occasion of the individual's marriage, under a will or by inheritance, in contemplation of the donor's death, from a registered non-profit organisation (with a condition), and receipts by way of a transaction covered by several clauses of section 70(1) (listed in section 92(3)(g)).

"Relative" in section 92 for an individual means spouse; brother or sister; brother or sister of the spouse; brother or sister of either parent; any lineal ascendant or descendant; any lineal ascendant or descendant of the spouse; and the spouse of any of those persons. For an HUF, any member is a relative.

What happens when the receiver later sells a gifted asset? Two worked examples

Example 1: gifted listed shares (tax year 2026-27). Assumptions: Ravi's father bought listed shares in 2019 for Rs 4,00,000 and gifted them to Ravi on 10 June 2026. Ravi sells them on 15 January 2027 for Rs 7,50,000. Brokerage and other transfer expenses are ignored for simplicity.

Step	Working	Result
1. Gift by father on 10 June 2026	Section 70(1)(b): not a transfer	No capital gain for father
2. Ravi's cost of acquisition	Section 73(1), Sl. No. 1: father's cost	Rs 4,00,000
3. Ravi's holding period	Father's holding from 2019 is included (section 2(101)(c)(B)(I)); listed securities use the 12-month test	Well over 12 months, so long-term
4. Capital gain on sale	7,50,000 - 4,00,000	Rs 3,50,000

The rate that applies to long-term gains sits in other provisions and is not covered here. The point is the gain is measured from the father's cost, not from the share price on the gift date.

Example 2: gifted flat with improvements. Assumptions: Meena's mother bought a flat for Rs 18,00,000 and spent Rs 2,00,000 on a renovation. She gifted it to Meena, who spent a further Rs 1,00,000 on repairs. Meena sells it in tax year 2026-27 for Rs 55,00,000.

Item	Rs
Mother's cost of acquisition	18,00,000
Add: improvement by mother	2,00,000
Add: improvement by Meena	1,00,000
Cost of acquisition (section 73(1), Sl. No. 1)	21,00,000
Sale price	55,00,000
Capital gain before transfer expenses	34,00,000

Does an HUF partition attract capital gains tax?

No. Section 70(1)(a) says section 67 does not apply to a transfer "by way of distribution of capital assets on the total or partial partition of a Hindu undivided family". The same cost and holding-period carry-over applies to the member who receives the asset: section 73(1), Sl. No. 1(f) includes transfers under section 70(1)(a). For what happens to income from the assets afterwards, see taxation after HUF partition.

Real-life example: partition between brothers. Ravi and his brother Anil are coparceners in their family HUF, which owns two plots bought years ago. On a partial partition, one plot goes to Ravi and the other to Anil. The HUF has no capital gain on handing over the plots. When Ravi later sells his plot, his cost is the HUF's original cost and his holding period starts when the HUF bought it.

Which other transactions does section 70 cover?

Clauses (c) to (zl) deal mostly with companies, funds and specific instruments. Each carries conditions, so check the clause text before relying on it.

Type of transaction	Clause	Key conditions in the text
Parent to wholly owned subsidiary, and subsidiary to holding company (not stock-in-trade)	70(1)(c), (d)	Whole share capital held; the receiving or transferring company is Indian as stated in each clause
Amalgamation: asset moves to amalgamated company; shareholders swap shares	70(1)(e), (f)	Amalgamated company is Indian; shareholders get shares of the amalgamated company
Demerger: assets to resulting company; shares issued to shareholders	70(1)(j), (k)	Resulting company is Indian; shares issued in consideration of the demerger
Foreign company amalgamations and demergers involving Indian shares	70(1)(g), (h), (l), (m)	At least 25% of shareholders continue (amalgamation), or at least 75% in value (demerger); no capital gains tax in the home country
Firm succeeded by a company	70(1)(zd)	All assets and liabilities pass; partners become shareholders in the same proportion as their capital accounts; only shares received; at least 50% of voting power held for five years
Sole proprietorship succeeded by a company	70(1)(zf)	All business assets and liabilities pass; proprietor holds at least 50% of voting power for five years; only shares received
Private or unlisted public company converting to an LLP	70(1)(ze)	Seven conditions including turnover not above Rs 60 lakh in any of the three preceding tax years, assets not above Rs 5 crore, and profit share of at least 50% for five years
Conversion of debentures or bonds into shares; preference into equity shares	70(1)(z), (zb)	Same company; for bonds in section 209(1) (Sl. No. 1), clause (za)
Redemption of Sovereign Gold Bond	70(1)(x)	Held by an individual from original issue till maturity (as substituted by Act 4 of 2026, effective 1 April 2026)
Gold to Electronic Gold Receipt and back	70(1)(y)	Receipt issued by a Vault Manager
Transfer (for example, a donation) of art, manuscripts, paintings and similar collections	70(1)(zc)	Recipient is the Government, a University, a national museum, gallery or archive, or a notified institution
Securities lending; reverse mortgage; mutual fund consolidation	70(1)(zg), (zh), (zj), (zk)	Subject to SEBI or RBI guidelines, a notified scheme, or the conditions of each clause

Clauses (p) to (s), (t), (u), (v), (w) and (zi), (zl) cover non-resident trades in specified bonds and securities, relocation of offshore funds to an International Financial Services Centre, certain public sector restructuring, business trust swaps and joint venture exchanges. The relocation clauses need the transfer on or before 31 March 2030 (section 70(2), Table Sl. No. 5) and, for Category III Alternative Investment Fund cases, rule 51 caps resident participation in the original fund at 5% of corpus.

When is the section 70 exemption taken back? (section 71)

Some exemptions are conditional, and section 71 ("withdrawal of exemption in certain cases") makes the gain taxable if the conditions are broken later. The gain is deemed to be capital gains income, as follows:

Exemption	What breaks it	Whose income, which year
Parent to wholly owned subsidiary, or subsidiary to holding company (70(1)(c), (d))	Within eight years of the transfer, the receiving company converts the asset into or treats it as stock-in-trade, or the parent or holding company stops holding the whole share capital of the subsidiary (71(1))	Chargeable as capital gains of the tax year in which the transfer took place
Firm or proprietorship to company (70(1)(zd), (zf))	Any condition not complied with, such as the 50% voting power holding for five years (71(2))	Capital gains of the successor company, for the tax year in which the condition fails
Company to LLP (70(1)(ze))	Any condition not complied with, such as the 50% profit share for five years or the three-year bar on paying out accumulated profits (71(3))	Capital gains of the successor LLP or the shareholder of the old company, for the tax year in which the condition fails

Note the different timing. For the subsidiary clauses the tax is pulled back to the year of the original transfer. For the succession and LLP clauses it lands in the year of the default.

Real-life examples

Suresh converts his proprietorship. Suresh runs a trading business as a sole proprietor and incorporates a company to take it over. All assets and liabilities pass to the company, and he receives only shares, holding 100% of the voting power. Under section 70(1)(zf) the transfer of the business assets is not a transfer. If he sells enough shares within five years to fall below 50% of the voting power, the condition in clause (zf)(ii) is no longer met, so check this before any share sale.

Meena's will. Meena's father leaves her a plot under his will. The plot passes under section 70(1)(b), so there is no capital gain in the father's hands. Meena's cost is the cost the father paid plus improvements, and she counts his holding period. The receipt is also outside section 92(2)(m) under section 92(3)(c) (will or inheritance).

Does the receiver's gift test apply to a gift from a friend?

Yes. Section 92(3)(a) protects gifts from a relative, not from a friend. Example for tax year 2026-27, with Ravi receiving the following:

Receipt	From	Taxable under section 92(2)(m)?	Amount
Cash Rs 80,000	Friend A	Counted in the yearly total from non-relatives	Part of Rs 1,20,000
Cash Rs 40,000	Friend B	Total from friends is Rs 1,20,000, which exceeds Rs 50,000, so the whole Rs 1,20,000 is taxed	Rs 1,20,000 taxed
Cash Rs 5,00,000	Brother	No: relative (section 92(3)(a), definition in section 92)	Nil

The first two rows add up because section 92(2)(m)(i) looks at "the total of which exceeds Rs. 50000" received from any person or persons in the year, so Rs 80,000 plus Rs 40,000 gives Rs 1,20,000 taxable. The Rs 5,00,000 from the brother is left out.

Common mistakes

• Assuming a gift ends all tax. The giver's gain is not taxed, but the receiver's later sale is, using the giver's cost and holding period.
• Ignoring the giver test. Clause (b) protects only an individual or HUF. A company that gifts an asset is outside clause (b).
• Missing the five-year condition. Under section 70(1)(zd), (ze) and (zf), falling below 50% before five years breaks the condition.
• Treating the exemption for receipt and for transfer as one rule. Section 70 deals with capital gains of the transferor. Section 92(2)(m) is a separate test on the receiver.
• Forgetting improvement costs. The cost under section 73(1), Sl. No. 1 includes improvements by both the previous owner and you, so keep their records.
• Treating an SGB redeemed before maturity as covered. Clause (x) needs the individual to hold from original issue till maturity.

Quick reference

Question	Answer	Where
Gift, will, irrevocable trust by individual/HUF a transfer?	No	Section 70(1)(b)
HUF partition a transfer?	No	Section 70(1)(a)
Receiver's cost	Previous owner's cost plus improvements	Section 73(1), Sl. No. 1
Receiver's holding period	Includes previous owner's	Section 2(101)(c)(B)(I)
Gift receipt threshold	Rs 50,000 in the tax year	Section 92(2)(m)
Exempt gift sources	Relative, marriage, will or inheritance, and others	Section 92(3)
Firm or proprietorship to company	At least 50% voting power for five years	Section 70(1)(zd), (zf)

Where this is in the Act

• Section 70(1)(a) to (zl) and the definitions Table in section 70(2): transactions not regarded as transfer.
• Section 67(1): charge to capital gains, which section 70 switches off.
• Section 73(1), Table Sl. No. 1 to 16: cost of acquisition for these modes.
• Section 2(101)(c)(B): holding period inclusion.
• Section 92(2)(m) and 92(3): tax on receipts without or below consideration, and the exclusions.
• Section 2(109): meaning of "transfer".
• Section 71: withdrawal of exemption when conditions are broken.
• Rule 6: holding period in certain cases, including conversion of debentures under section 70(1)(z).
• Rule 51: extra condition for original funds relocating to a Category III Alternative Investment Fund.

For a CA firm, the hard part is tracking which clients hold gifted or inherited assets with a carried-over cost, so the data is there when they sell. Finexo's practice management software keeps client notes, documents and tasks in one place so these records are available years later. For TDS on rent and related deductions, see our guide on TDS on rent under the Income-tax Act, 2025.