Section 67 — Capital gains. Successor to s.45 of the 1961 Act.
Section 67 is in Chapter IV — Computation of Total Income, which runs from section 13 to section 95.
Sub-section (1) is the charge: profits or gains from the transfer of a capital asset effected in a tax year are chargeable under the head "Capital gains" and are income of the year in which the transfer took place, save as otherwise provided in sections 82 to 89. The remaining sub-sections are a series of overrides that either move the year of charge or deem the full value of consideration.
Sub-sections (2) to (4) deal with insurance money for damage to or destruction of a capital asset by flood, typhoon, hurricane, cyclone, earthquake or other convulsion of nature, riot or civil disturbance, accidental fire or explosion, or enemy action: the gain is charged in the year the money or other asset is received, and the money or the fair market value of the other assets on the date of receipt is the full value of consideration for section 72. Sub-section (5) charges profits from a unit linked insurance policy outside the Schedule II (Table: Sl. No. 2) exemption as capital gains of the year of receipt, computed as prescribed. Sub-section (6) defers the charge on conversion of a capital asset into stock-in-trade to the year the stock-in-trade is sold or otherwise transferred, with the fair market value on the date of conversion as the full value of consideration.
Sub-sections (7) and (8) put gains on securities held in a depository in the hands of the beneficial owner, not the depository, and fix cost of acquisition and period of holding on a first-in-first-out basis for section 72 and section 2(101)(b). Sub-section (9) charges a transfer of a capital asset to a firm, association of persons or body of individuals by way of capital contribution or otherwise in the year of transfer, with the amount recorded in that entity's books as the full value of consideration.
Sub-sections (10) and (11) tax reconstitution of a specified entity. Where a specified person receives money or a capital asset from a specified entity on reconstitution, the gain is income of the specified entity for the year of receipt, computed as A = B + C – D, where B is the money received, C the fair market value of the capital asset received, and D the balance in the specified person's capital account at reconstitution; a negative A is treated as zero, the capital account is computed ignoring increases from revaluation or self-generated goodwill or other self-generated assets, and the charge operates in addition to section 8, which is worked out independently.
Sub-sections (12) and (13) handle compulsory acquisition and enhanced compensation. Gains on the compensation or consideration first awarded, determined or approved are charged in the year any part of it was first received; an enhancement by a court, tribunal or other authority is charged in the year it is received; compensation received under an interim order is charged in the year of the final order; and the earlier assessment is recomputed if the amount is later reduced. For the enhancement, cost of acquisition and cost of improvement are taken as nil, and where it is received by another person because of the transferor's death or for any other reason, it is charged in that other person's hands.
Sub-sections (14) to (16) cover a joint development agreement. Where an individual or Hindu undivided family transfers land or building, or both, under a registered specified agreement, the gain is charged in the year the competent authority issues the completion certificate for the whole or part of the project, and the full value of consideration is the stamp duty value of that person's share on the date of that certificate plus any consideration received in cash or otherwise. That deferral is withdrawn by sub-section (16) if he transfers his share in the project on or before the date of the certificate. Sub-sections (17) and (18) deem the difference between the repurchase price of units referred to in section 80CCB(2) of the Income-tax Act, 1961 and their capital value to be capital gains of the year of repurchase or of termination of the plan.
Capital gains normally arise on a transfer, but several real events either produce a gain without a transfer or produce consideration that no arm's length price reflects — insurance money for a destroyed asset, conversion into stock-in-trade, a contribution to a firm, a partner's exit on reconstitution, a development agreement whose payoff is flats years later. Each override does one of two jobs: it names the year in which the gain is taxed, or it supplies a deemed full value of consideration for section 72. Sub-sections (12) and (13) do the same for compensation that arrives in instalments as litigation runs its course.
Read sub-section (1) as the default and then look for the override that fits the facts, because in most of these situations the year of charge is not the year of the transfer. Two of them are traps in opposite directions: conversion into stock-in-trade under sub-section (6) postpones the charge until the stock is sold but freezes the consideration at fair market value on the date of conversion, while a joint development agreement under sub-section (14) postpones it to the completion certificate but loses the deferral entirely under sub-section (16) if the owner sells his share on or before that date. Enhanced compensation under sub-section (12)(b) is taxed gross — sub-section (13)(a) takes cost of acquisition and cost of improvement as nil — and it follows the money, so it is taxed in the hands of whoever receives it, even a legal representative. On reconstitution, sub-section (10) charges the specified entity rather than the exiting partner, and sub-section (10)(d) makes clear that this is in addition to, not instead of, section 8.
An individual and a Hindu undivided family own land and enter a registered development agreement, taking flats in the project as consideration. No capital gain arises when the land is handed over; under sub-section (14) the charge falls in the year the competent authority issues the completion certificate, and the full value of consideration is the stamp duty value of their share of the project on that date plus any cash received. If one of them sells his share in the project a month before the certificate is issued, sub-section (16) applies instead: the gain is taxed in the year of that sale and the stamp duty value rule in sub-section (14)(b) does not apply.
This is the section cited in the capital gains schedule of the return and in almost every assessment order that recharacterises the year of a gain — most often on a development agreement, a conversion into stock-in-trade, or enhanced compensation received from a court or land acquisition authority. A partner meets sub-section (10) through the assessment of the firm rather than his own, because the charge is on the specified entity.
Any profits or gains arising from the transfer of a capital asset effected in a tax year shall, save as otherwise provided in sections 82, 83, 84, 85, 86, 87, 88 and 89, be chargeable to income-tax under the head "Capital gains" and shall be deemed to be the income of the tax year in which the transfer took place.
such profits and gains shall be chargeable to income-tax as his income in the tax year in which such stock-in-trade is sold or otherwise transferred by him
such capital gains shall be chargeable to income-tax for the tax year in which the certificate of completion for the whole or part of the project is issued by the competent authority
the cost of acquisition and the cost of improvement shall be taken as nil
See the full 1961 to 2025 concordance.
All of them are in the Rules 2026 index.
See every circular and notification on this section, or the circulars index.
See every circular and notification on this section, or the notifications index.
