Rule 6 — Method of determination of period of holding of capital assets in certain cases. Made under s.2, s.67 of the Income-tax Act, 2025.
Rule 6 gives effect to Section 2 and Section 67 of the Income-tax Act, 2025. A rule cannot go beyond the section it serves: where the two seem to differ, the section governs.
Sub-rule (1) sets the scope: for the purposes of section 2(101)(c)(D), the period for which a capital asset is held by an assessee is to be determined in accordance with this rule.
Sub-rule (2) carries a Table of three cases. Entry 1 covers shares or debentures of a company which become the property of the assessee in the circumstances mentioned in section 70(1)(z); the period of holding includes the period for which the bond, debenture, debenture-stock or deposit certificate was held by the assessee prior to the conversion. Entry 2 covers a capital asset declared under the Income Declaration Scheme, 2016 made under the Finance Act, 2016: for immovable property the holding period is reckoned from the date on which the property is acquired, if the date of acquisition is evidenced by a deed registered with any authority of a State Government, and in any other case it is reckoned from the 1st June, 2016. Entry 3 covers a capital asset which became the property of an Indian subsidiary company in consequence of the conversion of a branch of a foreign company referred to in section 219(1); the period of holding includes the period for which the asset was held by that branch, or the period for which it was held by the previous owner, if any, who acquired it by a mode of acquisition referred to in section 73(1) [Sl. No. 1. C.A] or section 219(1).
Sub-rule (3) deals with an amount chargeable to income-tax as income of a specified entity under section 67(10) under the head "Capital gains", and splits it between short-term and long-term. Clause (a) treats the amount or part of it as arising from the transfer of a short-term capital asset if it is attributed to a capital asset which is short-term at the time of taxation of the amount under section 67(10), or to a capital asset forming part of a block of asset, or to a capital asset being a self-generated asset or self-generated goodwill as defined in section 67(11). Clause (b) treats the amount or part of it as arising from the transfer of a long-term capital asset if it is attributed to a capital asset not covered by sub-clause (i) of clause (a) and which is long-term at the time of taxation of the amount under section 67(10).
Section 2(101)(c)(D) leaves the holding period of certain assets to be worked out by rules, because in each of these cases the assessee's own holding does not begin with an ordinary purchase. A conversion, a declaration under the Income Declaration Scheme, 2016 and the conversion of a foreign company's branch into an Indian subsidiary each break the chain of ownership, and the rule says whether the earlier period counts. Sub-rule (3) does a different job: section 67(10) charges an amount on a specified entity, and something has to decide whether that amount is taxed as short-term or long-term gain.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Date from which the holding period of an asset declared under the Income Declaration Scheme, 2016 runs | The date of acquisition | Immovable property, where the date of acquisition is evidenced by a deed registered with any authority of a State Government | Sub-rule (2), Table Sl. No. 2(i) |
| Date from which the holding period of a declared asset runs in any other case | 1st June, 2016 | A capital asset declared under the Income Declaration Scheme, 2016 that is not immovable property with a registered deed of acquisition | Sub-rule (2), Table Sl. No. 2(ii) |
For a conversion under section 70(1)(z) the clock does not restart: the period during which the bond, debenture, debenture-stock or deposit certificate was held before conversion is added to the holding of the shares or debentures that come out of it. For an asset declared under the Income Declaration Scheme, 2016, everything turns on the registered deed — without it, an immovable property acquired years earlier is treated as held only from the 1st June, 2016, which can make an otherwise long-term asset short-term. In sub-rule (3), read clause (b) against clause (a) carefully: it makes long-term only what is not covered by sub-clause (i) of clause (a), so an amount attributed to an asset forming part of a block of asset, or to a self-generated asset or self-generated goodwill under section 67(11), stays on the short-term side under clause (a)(ii) and (iii).
A firm holds debentures bought in March 2019 and converts them into shares of the company in April 2025 in the circumstances mentioned in section 70(1)(z). When it sells the shares, entry 1 of the Table in sub-rule (2) requires the period from March 2019 to the conversion to be included, so the holding period is measured from March 2019 and not from the date of conversion. Had the same firm instead declared an unregistered immovable property under the Income Declaration Scheme, 2016, entry 2(ii) would have reckoned its holding only from the 1st June, 2016.
In the capital gains computation in the return, and in any assessment where the Assessing Officer disputes whether a gain is short-term or long-term for an asset acquired by conversion or declared under the Income Declaration Scheme, 2016.
the period for which such capital asset is held by an assessee, shall be determined in accordance with the provisions of this rule
The period of holding shall include the period for which the bond, debenture, debenture-stock or deposit certificate, as the case may be, was held by the assessee prior to the conversion.
in any other case, the period for which such asset is held shall be reckoned from the 1st June, 2016