Section 67 of the Income-tax Act 2025 — The Charging Section for Capital Gains (Complete Analysis with Case Laws)

Section Analysis

Section 67 of the Income-tax Act, 2025 is the charging provision for capital gains — the successor to Section 45 of the Income-tax Act, 1961. It provides that any profits or gains arising from the transfer of a capital asset during a Tax Year are chargeable to income-tax under the head "Capital Gains," and are deemed to be the income of the Tax Year in which the transfer takes place. Critically, Section 67 operates subject to the exemptions contained in Sections 82 to 89 of the Act (covered in later articles in this series).

Three ingredients must all be satisfied for a capital gains charge to arise:

  1. There must be a capital asset (Section 2(22));
  2. There must be a transfer of that asset during the Tax Year; and
  3. Profit or gain must arise from that transfer (subject to specific exemptions).

If any one ingredient is missing — say, the asset isn't a "capital asset," or no "transfer" has legally occurred — no capital gains charge arises at all, regardless of how much money changed hands.

Case Laws

1. CIT v. B.C. Srinivasa Setty [1981] 5 Taxman 1 (SC) — The Supreme Court held that self-generated goodwill of a business, having no ascertainable "cost of acquisition," could not be brought to capital gains tax because the computation machinery under the charging provision failed entirely when cost of acquisition was indeterminate. This established the enduring principle that the charging section and the computation provisions operate as one integrated scheme — if computation is impossible, the charge fails. This principle continues to be directly relevant in applying Section 67 read with the cost-of-acquisition provisions of the 2025 Act.

2. Sunil Siddharthbhai v. CIT [1985] 156 ITR 509 (SC) — The Supreme Court held that when a partner contributes a personal capital asset to a partnership firm as capital contribution, the resulting credit in the partner's capital account (based on notional/agreed value) does not represent "profit or gain" received by the partner in the ordinary commercial sense at that stage, affecting how the charge under the predecessor of Section 67 applied to such contributions (a position later modified by specific statutory provisions for firm-partner transactions).

3. CIT v. Bangalore Transport Co. Ltd. (1967) 66 ITR 373 (SC) — While concerning business income more broadly, this case affirmed the principle that income (including gains) accrues from day to day during the relevant year and does not escape taxation merely because a business or arrangement is discontinued before the year ends — a principle of continuing relevance to timing questions under Section 67.

FAQs

Q1. What replaced Section 45 of the old Act? Section 67 of the Income-tax Act, 2025 is the direct successor to Section 45 of the 1961 Act, serving as the charging provision for capital gains.

Q2. Are all three conditions (capital asset, transfer, gain) mandatory? Yes — capital gains tax can only be charged if there is a capital asset, a transfer of that asset, and a computable profit or gain arising from it. Absence of any one is fatal to the charge, per the principle in B.C. Srinivasa Setty.

Q3. Does Section 67 override the exemption provisions? No — it explicitly operates subject to Sections 82 to 89, meaning even where a charge technically arises, a taxpayer may still be entitled to exemption under those specific provisions.

Q4. In which Tax Year is the gain taxed? In the Tax Year in which the transfer takes place, not the year in which consideration is actually received (subject to specific deeming provisions for certain transactions).

Q5. Is old case law under Section 45 still relevant? Yes — since Section 67 largely restates the same charging principle in updated language, courts are expected to treat established Section 45 jurisprudence as persuasive, if not directly applicable, per the continuity principle under Section 536(2)(j).

Precautions

  • Don't assume a transaction escapes tax simply because no cash changed hands — "transfer" is broadly defined and can be triggered by possession, part-performance of contracts, or other constructive transfers (see Article 2).
  • Always verify whether cost of acquisition can be computed before concluding a transaction is taxable or exempt — indeterminate cost can (in narrow, specific fact patterns akin to Srinivasa Setty) affect the charge, though many such gaps have since been plugged by specific valuation and deeming provisions.
  • Maintain transaction-date documentation carefully, since the Tax Year of transfer — not the year of payment — usually determines when the gain is taxed.
  • Cross-check exemption eligibility under Sections 82–89 before assuming full taxability.

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.