The Income Tax Act of India is a comprehensive statute that governs various aspects of taxation in the country. Section 47 of the Income Tax Act is an important provision that deals with the tax implications of the transfer of capital assets. In this article, we will take a closer look at Section 47, its scope, and its impact on taxpayers.
Section 47 of the Income Tax Act provides for certain transactions that will not be treated as a transfer of capital assets. This means that such transactions will not attract any tax liability under the capital gains tax provisions of the Income Tax Act. The section lists various situations where the transfer of a capital asset will not be considered a transfer for taxation.
The scope of Section 47 is quite wide and covers a range of transactions. Some of the important transactions covered under this section are as follows:
Section 47 has a significant impact on taxpayers as it exempts certain transactions from capital gains tax liability. This can result in significant tax savings for taxpayers. For instance, in the case of amalgamation, merger, or demerger, the transfer of capital assets is not considered a transfer for taxation. This means that the transfer of capital assets will not result in any tax liability for the companies involved in the transaction.
Similarly, the transfer of capital assets by way of gift or will is also exempt from capital gains tax liability. This can result in significant tax savings for taxpayers who wish to transfer their assets to their family members or other beneficiaries.
Section 47 of the Income Tax Act provides for exemptions from capital gains tax liability in certain transactions involving the transfer of capital assets. Taxpayers need to understand the scope of this provision and the conditions that need to be satisfied for the exemption to apply. By taking advantage of the exemptions provided under Section 47, taxpayers can significantly reduce their tax liability and optimize their tax planning strategies.
Q:1 What is Section 47 of the Income Tax Act?
A: Section 47 of the Income Tax Act deals with the transfer of capital assets under certain circ*mstances, without any tax implications.
Q:2 What is the objective of Section 47 of the Income Tax Act?
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A: The objective of Section 47 is to provide relief from tax liability when certain types of transfers of capital assets take place.
Q:3 What are the types of transfers covered under Section 47 of the Income Tax Act?
A: The types of transfers covered under Section 47 of the Income Tax Act include:
- Transfer of capital assets in case of amalgamation or demerger of companies.
- Transfer of capital assets by a company to its subsidiary company.
- Transfer of a capital asset in a scheme of business reorganization.
- Transfer of a capital asset by a holding company to its subsidiary company.
- Transfer of shares or stock in a resulting company to the shareholders of an amalgamating company.
Q:4 Is there any tax liability on transfers covered under Section 47 of the Income Tax Act?
A: No, there is no tax liability on transfers covered under Section 47 of the Income Tax Act.
Q:5 What are the conditions that must be fulfilled to claim tax exemption under Section 47 of the Income Tax Act?
A: To claim tax exemption under Section 47 of the Income Tax Act, the following conditions must be fulfilled:
- The transfer should be made by a scheme of amalgamation, demerger, or reorganization.
- The transfer should involve the transfer of a capital asset.
- The transfer should take place between companies, or between a company and its shareholders.
- The transfer should be by the provisions of the Companies Act, 1956, or the Companies Act, 2013.
Q:6 Are there any exceptions to the tax exemption provided under Section 47 of the Income Tax Act?
A: Yes, there are some exceptions to the tax exemption provided under Section 47 of the Income Tax Act, which includes:
- Transfer of stock-in-trade.
- Transfer of property held as investments.
- Transfer of a capital asset to a firm or association of persons.
- Transfer of a capital asset to a trust or institution.
- Transfer of a capital asset outside India.
Q:7 How is the tax exemption under Section 47 of the Income Tax Act claimed?
A: The tax exemption under Section 47 of the Income Tax Act is claimed by filing a return of income, and mentioning the transfer as exempt under Section 47 of the Income Tax Act. The details of the transfer should also be mentioned in the return of income.
Q:8 Is it mandatory to file a return of income for claiming tax exemption under Section 47 of the Income Tax Act?
A: Yes, it is mandatory to file a return of income for claiming tax exemption under Section 47 of the Income Tax Act.
FAQs
(47)"transfer", in relation to a capital asset, includes,— (i)the sale, exchange or relinquishment of the asset ; or (ii)the extinguishment of any rights therein ; or (iii)the compulsory acquisition thereof under any law ; or (iv)in a case where the asset is converted by the owner thereof into, or is treated by him as, ...
What is the meaning of capital asset in Income Tax Act? ›
GENERAL MEANING: Capital asset Means property of any kind held by an assessee, whether or not connected with his business or profession (such property con be movable, immovable, tangible, intangible etc).
What is Section 47A of Income Tax Act? ›
Sеction 47A of Income Tax Act, 1961 applies to non-rеsidеntial immovablе property, such as commеrcial buildings, industrial property, or land for commеrcial purposеs. It does not apply to rеsidеntial propеrtiеs.
Can I use more than $3000 capital loss carryover? ›
Capital losses that exceed capital gains in a year may be used to offset capital gains or as a deduction against ordinary income up to $3,000 in any one tax year. Net capital losses in excess of $3,000 can be carried forward indefinitely until the amount is exhausted.
What is section 47? ›
A section 47 enquiry is initiated to decide whether and what type of action is required to safeguard and promote the welfare of a child who is suspected of or likely to be suffering significant harm.
What assets are excluded from capital asset status? ›
The Internal Revenue Code defines capital assets by exclusion. ' Capital assets include all property except (1) inventory, (2) deprecia- ble or real property used in a trade or business, (3) copyrights, other artistic creations, or letters, (4) trade receivables, or (5) certain United States government publications.
What qualifies as a capital asset for tax purposes? ›
Examples of capital assets include a home, personal-use items like household furnishings, and stocks or bonds held as investments. When you sell a capital asset, the difference between the adjusted basis in the asset and the amount you realized from the sale is a capital gain or a capital loss.
What are two examples of capital assets? ›
Capital assets are significant pieces of property such as homes, cars, investment properties, stocks, bonds, and even collectibles or art. For businesses, a capital asset is an asset with a useful life longer than a year that is not intended for sale in the regular course of the business's operation.
What is not included in capital assets? ›
Any stocks in trade, consumable stores, or raw materials held for the purpose of business or profession have been excluded from the definition of capital assets. Any movable property (excluding jewellery made out of gold, silver, precious stones, and drawing, paintings, sculptures, archeological collections, etc.)
What is the under section 47a? ›
"47-A (1) If the market value of any property which is the subject of any instrument, on which duty is chargeable on market value of such property, as set forth in such instrument, is less than even the minimum value determined in accordance with the rules made under this Act, the registering officer appointed under ...
(2) An employer may make a no - private - use declaration that covers all the employer's residual fringe benefits for an FBT year that are covered by a consistently enforced policy in relation to the use of the property that is the subject of the benefit that would result in the taxable value of the benefit being nil.
What is 47A? ›
[ Withdrawal of exemption in certain cases. [Inserted by Act 67 of 1984, Section 13 (w.e.f. 1.4. 1985).]
At what age do you not pay capital gains? ›
Since there is no age exemption to capital gains taxes, it's crucial to understand the difference between short-term and long-term capital gains so you can manage your tax planning in retirement.
Does capital loss carryover reduce taxable income? ›
Capital loss carryover is the ability to use the capital loss tax deduction over multiple years if the loss is large enough. This means you can use the capital loss to offset taxable income.
What is the 6 year rule for capital gains tax? ›
Here's how it works: Taxpayers can claim a full capital gains tax exemption for their principal place of residence (PPOR). They also can claim this exemption for up to six years if they move out of their PPOR and then rent it out. There are some qualifying conditions for leaving your principal place of residence.
What is considered a transfer of assets? ›
A transfer of assets is when property, money, or ownership rights are moved from one account to another. When there is a change in ownership, such as when an investor sells real estate holdings, a transfer may call for an exchange of money.
What things qualify as capital assets? ›
Capital assets are significant pieces of property such as homes, cars, investment properties, stocks, bonds, and even collectibles or art. For businesses, a capital asset is an asset with a useful life longer than a year that is not intended for sale in the regular course of the business's operation.
What is considered a capital asset for tax purposes? ›
Examples of capital assets include a home, personal-use items like household furnishings, and stocks or bonds held as investments. When you sell a capital asset, the difference between the adjusted basis in the asset and the amount you realized from the sale is a capital gain or a capital loss.
What is Section 47 XIV of Income Tax Act? ›
47(xiv): The provisions of S. 47 (xiv) read as under: "where a sole proprietary concern is succeeded by a company in the business carried on by it as a result of which the sole proprietary concern sells or otherwise transfers any capital asset or intangible asset to the company.
