Union Budget 2024-25 (Full) + FINANCE (No.2) Bill, 2024

Amendment of section 47

Section 47 of the Act provides exclusion to certain transactions not regarded as transfer for the purposes of chargeability under ‘Capital Gains’ under section 45.

2. Clause (iii) of section 47 provides that nothing contained in section 45 shall apply to any transfer of a capital asset under a gift or will or an irrevocable trust. The first proviso to the said clause makes an exception to the clause in respect of specified ESOPs.

3. With the insertion of section 50D in the Act in the Finance Act, 2012, providing for taking fair market value as full value of consideration in cases where the consideration received or accruing as a result of the transfer of a capital asset is not ascertainable or cannot be determined, and section 50CA vide Finance Act, 2017, providing for taking fair market value as full value of consideration in case of unquoted shares where the consideration received or accruing is less than the fair market value of such share, the Revenue has aimed at bolstering the anti-avoidance machinery provisions of the Act to eliminate avoidance of Capital Gains tax. However, in multiple cases, taxpayers have argued before judicial fora that transaction of gift of shares by company is still not liable to capital gains tax, in view of the provisions of section 47(iii) of the Act. The matter thus remains a litigated issue leading to:

a) tax avoidance and

b) erosion of Indian tax base.

4. Further, a gift is given out of natural love and affection and accordingly it is proposed to substitute clause (iii) of section 47 and its proviso, to provide that nothing contained in section 45 shall apply to transfer of a capital asset, under a gift or will or an irrevocable trust, by an individual or a Hindu undivided family.

5. This amendment is proposed to be made effective from the 1st day of April, 2025 and will accordingly apply to assessment year 2025-26 and subsequent assessment years.

[Clause 19]

---

Full Text:

Union Budget 2024-25 (Full) + FINANCE (No.2) Bill, 2024

Gift transfers of capital assets now exempt only when made by individuals or Hindu undivided families, narrowing the prior exclusion. The amendment restricts the exclusion from capital gains chargeability for transfers by gift, will or irrevocable trust so that it applies only where the transferor is an individual or a Hindu undivided family, thereby preventing use of gift transfers by companies to avoid capital gains tax and aligning the non-recognition rule with fair market value anti-avoidance provisions; the substitution applies prospectively to the announced assessment year and subsequent years.