Tax Planning
Exempt Capital Gains
Published: 14 Mar, 2026
In India, under the existing Income Tax Act, 1961 or newly introduced Income Tax Act, 2025, Capital Gain refers to profit or gain arising from transfer of a capital asset. The profit or gain arising from the transfer of an asset of a taxpayer is exempt from tax, when one of the following conditions is satisfied.
Exemptions
- The asset transferred is not a capital asset, within the meaning of the Income Tax Act, or
- The asset is transferred in a transaction which is not a transfer, within the meaning of the Income Tax Act.
1. Capital Asset
Includes
- Property of any kind, whether or not connected with business or profession
- Jewellery, paintings, drawings, sculptures, archaeological collections or a work of art
Excludes
- Stock-in-trade, consumable stores or raw materials held for business or profession
- Personal effects which include any movable property held for personal use, except jewellery, paintings, drawings, sculptures, archaeological collections or a work of art
- Rural agricultural land in India See full list: Section 2(22)
2. Transfer
Includes
- Sale, exchange or relinquishment of the asset
- Extinguishment of any rights therein
- Compulsory acquisition under any law
- Conversion of capital asset into stock-in-trade
- Maturity or redemption of zero-coupon bond
- Transferring or enabling enjoyment of immovable property See full list: Section 2(109)
Excludes
- Capital assets distributed by a Hindu Undivided Family on its partition
- Transfer by an individual or Hindu Undivided Family under a will or gift or irrevocable trust
- Transfer by an Indian company to its wholly owned subsidiary which is also an Indian company
- Transfer by an Indian company to its holding company which is also an Indian company and holds whole of the share capital of the subsidiary
- Transfer by an Indian amalgamating company to amalgamated company which is also an Indian company
- Conversion of preference shares of a company to equity shares of that company
- Transfer of capital asset in a reverse mortgage scheme notified by Central Government See full list: Section 70
Exemption, when Reinvested
Capital gains arising on transfer of specified assets are exempt from tax, to the extent specified by the Income Tax Act, when, either the profit or gain arising on such sale or the net proceeds of such sale, as the case may be, is reinvested on eligible investments, within the time period specified. Read more