# Transactions Not Regarded as Transfer [Section 47]

Section 47 lists transactions which, despite appearing to be transfers, are NOT treated as transfer for capital gains. Hence no capital gain tax arises on these.

## Key Exclusions

1. Gift / Will / Inheritance by an individual or HUF.

2. Total or partial partition of an HUF.

3. Amalgamation / Demerger of companies (specific clauses):

Transfer of capital asset by amalgamating company to amalgamated Indian company.
Transfer of capital asset by demerged company to resulting Indian company.
Issue of shares by amalgamated company to shareholders of amalgamating company.
Issue of shares by resulting company to shareholders of demerged company.

4. Transfer between holding company and wholly-owned subsidiary (100%), provided:

Transferee company must be Indian.
Holding company must hold 100% share capital for at least 8 years from the date of transfer.

5. Conversion of bonds/debentures into shares.

6. Conversion of preference shares into equity shares.

7. Conversion of gold into electronic gold receipts (or vice versa).

8. Transfer of capital asset under reverse mortgage: senior citizen mortgages his property to a bank against a lump-sum/periodic loan; if the loan is not repaid, the property goes to the bank — this transfer is not treated as transfer.

## Why This Matters

In each of these cases, the transaction is commercially a transfer but the law gives a tax exemption because the legislature does not want to charge capital gains on these specific events (e.g., family gifts, corporate restructuring, senior citizen welfare).

Worked example

### Example 1

Example 1 — Gift to son: Mr. X gifts a piece of land (purchased in 2010 for ₹5 lacs, FMV in 2026 = ₹50 lacs) to his son. No capital gain arises to Mr. X. (However, when the son later sells, his cost = ₹5 lacs and POH includes father's holding.)

### Example 2

Example 2 — HUF partition: An HUF is partitioned and assets are distributed among coparceners. No capital gain to the HUF.

### Example 3

Example 3 — Amalgamation: Company A (amalgamating) merges into Company B (Indian amalgamated company), transferring capital assets to B. No capital gain in A's hands.

### Example 4

Example 4 — Holding-Subsidiary: H Ltd. (Indian) holds 100% of S Ltd. (Indian). H transfers a machine to S. Exempt — but if H reduces its holding below 100% within 8 years, the exemption is withdrawn under section 47A.

### Example 5

Example 5 — Reverse mortgage: A senior citizen mortgages his house to a bank for a monthly payout of ₹40,000. He passes away after 10 years and the bank takes over the house. The deemed transfer to the bank is not treated as transfer for capital gains.

⚠️ Common exam mistakes

Believing that gifts to non-relatives are also exempt under section 47 — section 47 covers any gift/will by individual/HUF, but recipient may be taxed under section 56(2)(x) if not a relative.
Forgetting the 100% / 8-year condition for holding-subsidiary transfers.
Treating conversion of debentures into shares as a transfer — it's explicitly excluded.
Mixing up the holding-subsidiary direction — exemption is for transfer between them, but conditions apply (Indian transferee, 100% holding).
Not appreciating that section 47 is an exemption from charge, while section 49 carries forward cost/POH to the next holder.

Bare-Act text Section 47 · Income Tax Act, 1961 · click to expand

Section 47 lists transactions not regarded as transfer, including: distribution of capital assets on the total or partial partition of a HUF; transfer of a capital asset under a gift or will or an irrevocable trust; transfer of a capital asset by a company to its 100% subsidiary, being an Indian company (and vice versa); transfer in a scheme of amalgamation by an amalgamating company to the amalgamated Indian company; transfer in a scheme of demerger by the demerged company to the resulting Indian company; issue of shares by amalgamated/resulting company to shareholders of amalgamating/demerged company in consideration of amalgamation/demerger; conversion of bonds/debentures into shares of the same company; conversion of preference shares into equity shares; transfer of capital asset in a transaction of reverse mortgage under a notified scheme.

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