The charge under section 45 triggers only on transfer of a capital asset. Section 2(47) gives an inclusive definition.
## Acts Treated as Transfer
1. Sale or Exchange of a capital asset.
2. Possession of immovable property in part performance of a contract (section 53A of the Transfer of Property Act).
3. Redemption of Zero Coupon Bonds.
4. Capital asset destroyed and money or other asset received from an insurance company → Section 45(1A).
5. Capital asset converted into stock-in-trade → Section 45(2).
6. Compulsory acquisition of a capital asset → Section 45(5).
7. Distribution on liquidation of a company to shareholders → Section 46.
8. Buyback of shares → Section 46A.
9. Redemption / Transfer of Market Linked Debentures, Specified Mutual Fund units, and Unlisted Bonds/Debentures → Section 50AA.
10. Slump Sale of an undertaking → Section 50B.
Each of these triggers a specific computation regime, but conceptually they are all 'transfers'.
Worked example
### Example 1
Example 1 — Insurance receipt: Mr. A's factory building (capital asset) is destroyed in a fire. He receives ₹50 lacs from the insurance company. This is a deemed transfer under section 45(1A); capital gain is computed in the year of receipt.
### Example 2
Example 2 — Conversion to stock: A landowner converts his investment land (cost ₹10 lacs, FMV on date of conversion ₹40 lacs) into stock-in-trade of his real estate business. This is a transfer under section 45(2). Capital gain (computed using FMV as full value of consideration) is taxable only in the year the stock is sold.
### Example 3
Example 3 — Buyback: A shareholder receives ₹500 per share in a company's buyback. The transaction is a deemed transfer under section 46A.
### Example 4
Example 4 — Part performance of contract: B agrees to sell a flat to C, hands over possession against payment of ₹40 lacs, but the sale deed is not yet registered. This is a transfer under section 2(47) via section 53A of the TPA.
⚠️ Common exam mistakes
Excluding insurance compensation from transfer — section 45(1A) treats destruction + insurance receipt as transfer.
Believing that capital gain on conversion of capital asset into stock arises in the year of conversion — section 45(2) defers it to the year of sale of stock.
Treating partition of HUF or gift as transfer — these are specifically EXCLUDED under section 47.
Forgetting that handing over possession under section 53A (TPA) counts as transfer even without registered sale deed.
Confusing redemption of zero coupon bonds with normal redemption — for ZCBs, redemption IS a transfer.
Bare-Act text Section 2(47) · Income Tax Act, 1961 · click to expand
Section 2(47): 'Transfer', in relation to a capital asset, includes the sale, exchange or relinquishment of the asset; or the extinguishment of any rights therein; or the compulsory acquisition thereof under any law; or in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him; the maturity or redemption of a zero coupon bond; or any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882.