Capital gains
Section 45 of the Income-tax Act, 1961 deals with capital gains. Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as other wise provided in sections 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G and 54H, be chargeable to income-tax under the head "Capital gains", and shall be deemed to be the income of the prev The Act came into force on 01 Apr 1962. Repealed by the Income-tax Act, 2025 with effect from 1 April 2026, but conduct before that date is still charged, tried and appealed under it.
(1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as other wise provided in sections 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 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. (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 consid eration 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). (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 [***], 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.
(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 charge able 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. (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.
(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.
(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 subsection 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.
(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 charge able as 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 :
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;
(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 in come, chargeable to tax under the head "Capital gains", of such other person. (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 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.
(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.
Section 45, The Income-tax Act, 1961 (Act 43 of 1961).
Now in the Income-tax Act
INCOME-TAX-ACT-2025 67 Capital gains Official correspondence
Measured by comparing the text of the two provisions, not taken from an official correspondence table — there is no machine-readable one. See both texts side by side before relying on it.
Both regimes are live. The repealed enactment still governs what happened while it was in force. We never redirect one to the other.
Cross-references
Extracted from the operative text of the enactments themselves. Every destination below exists in our corpus.
This section refers to
- Depositories Act s. 2 Definitions
- Depositories Act s. 10 Rights of depositories and beneficial owner
- s. 2 Definitions
- s. 9B Income on receipt of capital asset or stock in trade by specified person from specified entity
- s. 10 Incomes not included in total income
- s. 48 Mode of computation
- s. 54 Profit on sale of property used for residence
- s. 54B Capital gain on transfer of land used for agricultural purposes not to be charged in certain cases
- s. 54D Capital gain on compulsory acquisition of lands and buildings not to be charged in certain cases
- s. 54E Capital gain on transfer of capital assets not to be charged in certain cases
- s. 54EA Capital gain on transfer of long-term capital assets not to be charged in the case of investment in specified securities
- s. 54EB Capital gain on transfer of long-term capital assets not to be charged in certain cases
- s. 54F Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house
- s. 54G Exemption of capital gains on transfer of assets in cases of shifting of industrial undertaking from urban area
- s. 54H Extension of time for acquiring new asset or depositing or investing amount of capital gain
- s. 80CCB Deduction in respect of investment made under Equity Linked Savings Scheme
- Insurance Act s. 2 Definitions
Referred to by 47
- Arunachal Pradesh Building (Lease, Rent and Eviction) Control Act 2014 s. 9
- Finance Act s. 13 Amendment of section 45
- Finance Act s. 8 Amendment of section 45
- Finance Act s. 6 Amendment of section 45
- Finance Act s. 13 Amendment of section 45
- Finance Act s. 15 Amendment of section 45
- Finance Act s. 17 Amendment of section 45
- Finance Act s. 22 Amendment of section 45
- Finance Act s. 19 Amendment of section 45
- Finance Act s. 32 Amendment of section 45
- Finance Act s. 29 Amendment of section 45
- Finance Act s. 17 Amendment of section 45
and 35 more
Related judgements & precedents
These are some judgments that construed this section, and hold precedence value. They hold authority on how to read, interpret and use this section.
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Principal Commissioner of Income Tax-4 & Anr. v. M/s Jupiter Capital Pvt. Ltd.
Court's Decision & Legal Precedent
SC expressly notes a company has a right under Companies Act s.66 to reduce share capital (including by reducing face value/number of shares); that statutory reduction mode interacts with IT Act transfer/capital-gains analysis when shareholder rights are extinguished.
On this section: s.45 capital gains charge — capital loss claimed on reduction of share capital treated as arising from a transfer.
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Commissioner of Service Tax, Delhi-i vs Associated Chamber of Commerce and Industry of India through Its Director
Court's Decision & Legal Precedent
The doctrine of mutuality continues to be applicable to both incorporated and unincorporated members' clubs even after the 46th Amendment inserting Article 366(29-A) to the Constitution. Young Men's Indian Association and other judgments applying this doctrine continue to hold the field. Where members of a club are joint owners of club property and the club functions as agent of members in providing goods or services to members, there is no transfer of property or consideration flowing from one distinct person to another, and therefore no taxable sale or service. Article 366(29-A)(e) applies only to unincorporated associations or bodies of persons and does not apply to incorporated clubs. Article 366(29-A)(f) applies only to commercial supply of food and drink in hotels and restaurants, not to member supplies in clubs. Incorporated members' clubs registered under Section 25 of the Companies Act or as registered cooperative societies, where dividends are prohibited and profits are applied to the objects of the club, remain members' clubs to which the doctrine of mutuality applies, regardless of their corporate form.
On this section: Cited as example of express deeming fiction needed to tax transfer by person to himself
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The Commissioner of Income Tax vs Kaveri Thimmaiah
Court's Decision & Legal Precedent
When a capital asset is acquired by way of succession, inheritance, or devolution, the indexed cost of acquisition for computing capital gains must be calculated with reference to the year in which the previous owner first held the asset (or 1981, whichever is later), not with reference to the year in which the assessee actually became the owner through succession. This is because Section 49 deems the cost of acquisition to be the cost for which the previous owner acquired it, and therefore the indexation benefit must be applied from the date the previous owner held the asset.
On this section: Establishes that profits or gains arising from transfer of capital asset in previous year are chargeable to income tax under head 'Capital Gains'
The holding above is the ratio decidendi as extracted from the judgment by eCourts India, reproduced unaltered — it is a rendering of the court's reasoning, not a substitute for its words. Read the order itself before relying on it.
Questions about Section 45
What have the courts held on Section 45 of the Income-tax Act?
Principal Commissioner of Income Tax-4 & Anr. v. M/s Jupiter Capital Pvt. Ltd. (02 Jan 2025) is the leading judgment on this section among those set out below: s.45 capital gains charge — capital loss claimed on reduction of share capital treated as arising from a transfer. Another 2 judgments on this section are set out below, 2 of them from the Supreme Court. They run from 2014 to 2025.
How do I find court cases under Section 45 of the Income-tax Act?
In judgments and charge sheets this section is written several ways, and each form finds a different set of orders. These search the full text of every order eCourtsIndia holds, best matches first: Income Tax Act 45, section 45 Income Tax Act, section 45 of the Income-tax Act. Each opens the full list of orders on eCourtsIndia, where it can be narrowed by court, year and outcome. 3 reported judgments on this section are set out on this page, beginning with Principal Commissioner of Income Tax-4 & Anr. v. M/s Jupiter Capital Pvt. Ltd. (02 Jan 2025).
What should I read with Section 45 of the Income-tax Act, and has it changed?
Its own text turns on Depositories Act 2 (Definitions), Depositories Act 10 (Rights of depositories and beneficial owner), section 2 (Definitions), section 9B (Income on receipt of capital asset or stock in trade by specified person from specified entity), and on 13 further provisions, so none of them can safely be read on its own. 47 other provisions in this corpus refer back to it. For anything done on or after 1 April 2026 the provision to read is Income-tax Act, 2025, section 67 (Capital Gains), which replaced it; conduct before that date is still charged, tried and appealed under this section.
When did Section 45 of the Income-tax Act come into force?
Section 45 of the Income-tax Act, cited as Income Tax Act 45, came into force on 01 Apr 1962, having been enacted on 13 Sep 1961. It is no longer in force.
Other sections of this Act
- 10. Incomes not included in total income30885 words
- 2. Definitions11419 words
- 80HHF. Deduction in respect of profits and gains from export or transfer of film software, etc7148 words
- 80-IB. Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings5474 words
- 155. Other amendments5451 words
- 139. Return of income5400 words
Source and method. Compiled from the enactments of Parliament and of the State legislatures as published on India Code, and republished together with commentary and other original matter under section 52(1)(q)(ii) of the Copyright Act, 1957. Structured, cross-referenced and maintained by eCourtsIndia. Recovered from the consolidated text published by the Income Tax Department, as amended by the Finance Act, 2026. India Code holds no record of this Act in any form. This page is not a substitute for legal advice.