Section 45 - Capital gains - Income-tax Act, 1961

E.-Capital gains Capital gains. 45. 1 [ (1) ] Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 2 [ **** ] 3 [ 54, 54B, 4 [ **** ] 5 [ 6 [ 54D, 7 [ 54E, 8 [ 54EA, 54EB ,] 54F 9 [ , 54G and 54H ]]]]], be chargeable to income-tax under the head Capital gains , and shall be deemed to be the income of the previous year in which the transfer took place. 10 [ (1A) Notwithstanding anything contained in sub-section (1), where any person receives at any time during any previous year any money or other assets under an insurance from an insurer on account of damage to, or destruction of, any capital asset, as a result of- ( i ) flood, typhoon, hurricane, cyclone, earthquake or other convulsion of nature; or ( ii ) riot or civil disturbance; or ( iii ) accidental fire or explosion; or ( iv ) action by an enemy or action taken in combating an enemy (whether with or without a declaration of war), then, any profits or gains arising from receipt of such money or other assets shall be chargeable to income-tax under the head Capital gains and shall be deemed to be the income of such person of the previous year in which such money or other asset was received and for the purposes of section 48, value of any money or the fair market value of other assets on the date of such receipt shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of such capital asset. Explanation .-For the purposes of this sub-section, the expression insurer shall have the meaning assigned to it in clause ( 9 ) of section 2 of the Insurance Act, 1938 (4 of 1938). ] 20 [ (1B) Notwithstanding anything contained in sub-section (1), where any person receives at any time during any previous year any amount under a unit linked insurance policy, to which exemption under clause (10D) of section 10 does not apply 23 [ **** ] , including the amount allocated by way of bonus on such policy, then, any profits or gains arising from receipt of such amount by such person shall be chargeable to income-tax under the head Capital gains and shall be deemed to be the income of such person of the previous year in which such amount was received and the income taxable shall be calculated in such manner as may be prescribed. ] 11 [ (2) Notwithstanding anything contained in sub-section (1), the profits or gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by him as stock-in-trade of a business carried on by him shall be chargeable to income-tax as his income of the previous year in which such stock-in-trade is sold or otherwise transferred by him and, for the purposes of section 48, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset. ] 12 [ (2A) Where any person has had at any time during previous year any beneficial interest in any securities, then, any profits or gains arising from transfer made by the depository or participant of such beneficial interest in respect of securities shall be chargeable to income-tax as the income of the beneficial owner of the previous year in which such transfer took place and shall not be regarded as income of the depository who is deemed to be the registered owner of securities by virtue of sub-section (1) of section 10 of the Depositories Act, 1996 (22 of 1996), and for the purposes of- ( i ) section 48; and ( ii ) proviso to clause (42A) of section 2, the cost of acquisition and the period of holding of any securities shall be determined on the basis of the first-in-first-out method. Explanation .-For the purposes of this sub-section, the expressions beneficial owner , depository and security shall have the meanings respectively assigned to them in clauses ( a ), ( e ) and ( l ) of sub-section (1) of section 2 of the Depositories Act, 1996. ] 13 [ (3) The profits or gains arising from the transfer of a capital asset by a person to a firm or other association of persons or body of individuals (not being a company or a co-operative society) in which he is or becomes a partner or member, by way of capital contribution or otherwise, shall be chargeable to tax as his income of the previous year in which such transfer takes place and, for the purposes of section 48, the amount recorded in the books of account of the firm, association or body as the value of the capital asset shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset. 21 [ (4) Notwithstanding anything contained in sub-section (1), where a specified person receives during the previous year any money or capital asset or both from a specified entity in connection with the reconstitution of such specified entity, then any profits or gains arising from such receipt by the specified person shall be chargeable to income-tax as income of such specified entity under the head Capital gains and shall be deemed to be the income of such specified entity of the previous year in which such money or capital asset or both were received by the specified person, and notwithstanding anything to the contrary contained in this Act, such profits or gains shall be determined in accordance with the following formula, namely:- A = B+C-D Where, A = income chargeable to income-tax under this sub-section as income of the specified entity under the head Capital gains ; B = value of any money received by the specified person from the specified entity on the date of such receipt; C = the amount of fair market value of the capital asset received by the specified person from the specified entity on the date of such receipt; and D = the amount of balance in the capital account (represented in any manner) of the specified person in the books of account of the specified entity at the time of its reconstitution: Provided that if the value of A in the above formula is negative, its value shall be deemed to be zero: Provided further that the balance in the capital account of the specified person in the books of account of the specified entity is to be calculated without taking into account the increase in the capital account of the specified person due to revaluation of any asset or due to self-generated goodwill or any other self-generated asset. Explanation 1.- For the purposes of this sub-section,- (i) the expressions reconstitution of the specified entity , specified entity and specified person shall have the meanings respectively assigned to them in section 9B; (ii) self-generated goodwill and self-generated asset mean goodwill or asset, as the case may be, which has been acquired without incurring any cost for purchase or which has been generated during the course of the business or profession. Explanation 2.- For the removal of doubts, it is clarified that when a capital asset is received by a specified person from a specified entity in connection with the reconstitution of such specified entity, the provisions of this sub-section shall operate in addition to the provisions of section 9B and the taxation under the said provisions thereof shall be worked out independently. ]] 14 [ (5) Notwithstanding anything contained in sub-section (1), where the capital gain arises from the transfer of a capital asset, being a transfer by way of compulsory acquisition under any law, or a transfer the consideration for which was determined or approved by the Central Government or the Reserve Bank of India, and the compensation or the consideration for such transfer is enhanced or further enhanced by any court, Tribunal or other authority, the capital gain shall be dealt with in the following manner, namely :- ( a ) the capital gain computed with reference to the compensation awarded in the first instance or, as the case may be, the consideration determined or approved in the first instance by the Central Government or the Reserve Bank of India shall be chargeable as 15 [ income under the head Capital gains of the previous year in which such compensation or part thereof, or such consideration or part thereof, was first received ] ; and ( b ) the amount by which the compensation or consideration is enhanced or further enhanced by the court, Tribunal or other authority shall be deemed to be income chargeable under the head Capital gains of the previous year in which such amount is received by the assessee; 8 [Provided that any amount of compensation received in pursuance of an interim order of a court, Tribunal or other authority shall be deemed to be income chargeable under the head Capital gains of the previous year in which the final order of such court, Tribunal or other authority is made; ] 16 [ ( c ) where in the assessment for any year, the capital gain arising from the transfer of a capital asset is computed by taking the compensation or consideration referred to in clause ( a ) or, as the case may be, enhanced compensation or consideration referred to in clause ( b ), and subsequently such compensation or consideration is reduced by any court, Tribunal or other authority, such assessed capital gain of that year shall be recomputed by taking the compensation or consideration as so reduced by such court, Tribunal or other authority to be the full value of the consideration. ] Explanation. -For the purposes of this sub-section,- ( i ) in relation to the amount referred to in clause ( b ), the cost of acquisition and the cost of improvement shall be taken to be nil ; ( ii ) the provisions of this sub-section shall apply also in a case where the transfer took place prior to the 1st day of April, 1988; ( iii ) where by reason of the death of the person who made the transfer, or for any other reason, the enhanced compensation or consideration is received by any other person, the amount referred to in clause ( b ) shall be deemed to be the income, chargeable to tax under the head Capital gains , of such other person. ] 19 [ (5A) Notwithstanding anything contained in sub-section (1), where the capital gain arises to an assessee, being an individual or a Hindu undivided family, from the transfer of a capital asset, being land or building or both, under a specified agreement, the capital gains shall be chargeable to income-tax as income of the previous year in which the certificate of completion for the whole or part of the project is issued by the competent authority; and for the purposes of section 48, the stamp duty value, on the date of issue of the said certificate, of his share, being land or building or both in the project, as increased by 22 [ any consideration received in cash or by a cheque or draft or by any other mode ] shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset: Provided that the provisions of this sub-section shall not apply where the assessee transfers his share in the project on or before the date of issue of the said certificate of completion, and the capital gains shall be deemed to be the income of the previous year in which such transfer takes place and the provisions of this Act, other than the provisions of this sub-section, shall apply for the purpose of determination of full value of consideration received or accruing as a result of such transfer. Explanation .-For the purposes of this sub-section, the expression- (i) competent authority means the authority empowered to approve the building plan by or under any law for the time being in force; (ii) specified agreement means a registered agreement in which a person owning land or building or both, agrees to allow another person to develop a real estate project on such land or building or both, in consideration of a share, being land or building or both in such project, whether with or without payment of part of the consideration in cash; (iii) stamp duty value means the value adopted or assessed or assessable by any authority of the Government for the purpose of payment of stamp duty in respect of an immovable property being land or building or both. ] 17 [ (6) Notwithstanding anything contained in sub-section (1), the difference between the repurchase price of the units referred to in sub-section (2) of section 80CCB and the capital value of such units shall be deemed to be the capital gains arising to the assessee in the previous year in which such repurchase takes place or the plan referred to in that section is terminated and shall be taxed accordingly. Explanation. -For the purposes of this sub-section, capital value of such units means any amount invested by the assessee in the units referred to in sub-section (2) of section 80CCB. ] ************* NOTES:- 1. Numbered as (1) vide Section 12 of the Finance Act, 1964 w.e.f. 01-04-1964 while inserting Sub-Section (2) to (4). Sub-Section (2) to (4) have been Omitted vide Section 13 of the Finance Act, 1966 w.e.f. 01-04-1966 2. Omitted vide Section 22 of the Finance Act, 1992 w.e.f. 01-04-1993 before it was read as, 53, 3. Substituted vide Section 6 of the Finance Act, 1973 w.e.f. 01-04-1974 before it was read as, sections 53, 54, 54B, 54C Earlier , Substituted vide Section 11 of the Finance Act, 1970 w.e.f. 01-04-1970 before it was read as, sections 53 and 54 And was Substituted vide Section 8 of the Finance Act, 1972 w.e.f. 01-04-1973 before it was read as, sections 53, 54 and 54B 4. Omitted vide Section 26 of the Finance Act, 1976 w.e.f. 01-04-1976 before it was read as, ,54C 5. Substituted vide Section 29 of the Finance (No. 2) Act, 1977 w.e.f. 01-04-1978 before it was read as, and 54D 6. Substituted vide Section 32 of the Finance Act, 1982 w.e.f. 01-04-1983 before it was read as, 54D and 54E 7. Substituted vide Section 13 of the Finance Act, 1987 w.e.f. 01-04-1988 before it was read as, 54E and 54F 8. Inserted vide Section 19 of the Finance (No. 2) Act, 1996 w.e.f. 01-10-1996 9. Substituted vide Section 17 of the Finance (No. 2) Act, 1991 w.e.f. 01-04-1991 before it was read as, and 54G 10. Inserted vide Section 32 of the Finance Act, 1999 w.e.f. 01-04-2000 11. Inserted vide Section 12 of the Taxation Laws (Amendment) Act, 1984 w.e.f. 01-04-1985 Earlier , Inserted vide Section 12 of the Finance Act, 1964 w.e.f. 01-04-1964 And was Omitted vide Section 13 of the Finance Act, 1966 w.e.f. 01-04-1966 before it was read as, (2) Notwithstanding anything contained in sub-section (1), every equity shareholder to whom any shares are allotted by the company by way of bonus shall, unless such shares are issued wholly out of the share premium account, be chargeable to income-tax under the head Capital gains in respect of such shares on an amount equal to the fair market value of such shares on the date next following the expiry of the period of thirty days from the date of such allotment and such amount shall be deemed to be the income of the previous year in which the date next following the aforesaid period of thirty days falls: Provided that income-tax shall not be chargeable under this sub-section if such shares are included in the stock-in-trade of the assessee or if such shares were allotted before the 1st day of April, 1964: Provided further that nothing contained in section 48 shall apply to the income chargeable under the head Capital gains under this sub-section. Explanation.- For the removal of doubts, it is hereby declared that income chargeable under the head Capital gains under this sub-section shall, for the purposes of this Act, be treated as capital gains relating to capital assets other than short-term capital assets. 12. Inserted vide Schedule of the Depositories Act, 1996 w.e.f. 20-09-1995 13. Inserted vide Section 13 of the Finance Act, 1987 w.e.f. 01-04-1988 Earlier , Inserted vide Section 12 of the Finance Act, 1964 w.e.f. 01-04-1964 And was Omitted vide Section 13 of the Finance Act, 1966 w.e.f. 01-04-1966 before it was read as, (3) Where any shares in respect of which an assessee is chargeable to income-tax under the head Capital gains under sub-section (2) are transferred by him before the expiry of the period of thirty days referred to in that sub-section, any profits or gains arising from such transfer shall not be included in his total income. (4) Save as otherwise provided in sub-section (3), nothing contained in sub-section (2) shall be deemed to preclude the inclusion of any profits and gains arising from the transfer of any shares referred to in that sub-section in the total income of the assessee for any previous year in which such shares are transferred by him. 14. Inserted vide Section 13 of the Finance Act, 1987 w.e.f. 01-04-1988 15. Substituted vide Section 17 of the Finance (No. 2) Act, 1991 w.e.f. 01-04-1988 before it was read as, income under the head Capital gains of the previous year in which the transfer took place 16. Inserted vide Section 29 of the Finance Act, 2003 w.e.f. 01-04-2004 17. Inserted vide Section 15 of the Finance Act, 1990 w.e.f. 01-04-1991 18. Inserted vide Section 17 of the Finance (No. 2) Act, 2014 w.e.f. 01-04-2015 19. Inserted vide Section 22 of the Finance Act, 2017 w.e.f. 01-04-2018 20. Inserted vide Section 16 of the Finance Act, 2021 w.e.f. 01-04-2021 21. Substituted vide Section 16 of the Finance Act, 2021 w.e.f. 01-04-2021 before it was read as, (4) The profits or gains arising from the transfer of a capital asset by way of distribution of capital assets on the dissolution of a firm or other association of persons or body of individuals (not being a company or a co-operative society) or otherwise, shall be chargeable to tax as the income of the firm, association or body, of the previous year in which the said transfer takes place and, for the purposes of section 48, the fair market value of the asset on the date of such transfer shall be deemed to be the full value of the consideration received or accruing as a result of the transfer. 22. Substituted vide Section 20 of the Finance Act, 2023 w.e.f. 01-04-2024 before it was read as, the consideration received in cash, if any, 23. Omitted vide Section 12 of the Finance Act, 2025 dated 29-03-2025 w.e.f. 01-04-2026 before it was read as, on account of the applicability of the fourth and fifth proviso thereof