A S BANKA ADVISORS

The Income-tax Act 2025 takes effect from April 1, 2026, but most capital-gains files on a practitioner’s desk this March will still be governed by the 1961 Act. The hinge that holds this together is Section 536 sub-clause 5: a saving clause that preserves the entire Sections 45 to 55A capital-gains framework for any asset transferred on or before March 31, 2026. The mechanic is straightforward; the file discipline it demands is not.

The transfer date controls the year of tax, not the settlement date

Section 45(1) of the 1961 Act charges capital gains in the previous year in which the transfer takes place. The instalment receipt schedule does not shift the year of taxation. Sub-clauses 1, 2, and 4 of Section 536 preserve this position for any previous year ending on or before March 31, 2026. If your client signs a share-sale agreement on March 28, 2026 and receives the consideration in three tranches stretching to FY 2027-28, the entire capital gain is taxed in AY 2026-27 under the 1961 Act framework. That includes the Rs 1.25 lakh annual exemption under Section 112A for STT-paid listed equity, the 12.5 per cent unified LTCG rate under Section 112, the 20 per cent STCG rate under Section 111A (as amended by Finance Act 2024 with effect from July 23, 2024), and the optional 20 per cent with-indexation election available only to resident individuals and HUFs on land or building acquired before July 23, 2024.

Section 47 documentation is where files quietly fail

The 25-clause Section 47 catalogue lists every transaction that is not regarded as transfer for capital-gains purposes: gift, will, partition of a Hindu Undivided Family, amalgamation, demerger, slump sale, conversion of a private limited company to an LLP under clause xiiib, conversion of a sole proprietorship or firm to a company under clauses xiv and xvi, and several restructuring vehicles. Section 49 then anchors the donee or successor cost to the donor or predecessor cost, preserving the holding period for the eventual transfer.

For practitioners, the operational risk is not the Section 47 trigger event itself, but the documentation that proves the trigger took place on or before March 31, 2026. The NCLT order sanctioning an amalgamation or demerger, the registered partition deed, the LLP conversion certificate from the MCA, the irrevocable gift deed, the scheme of arrangement filed under Section 230 to 232 of the Companies Act, the Section 47(xiiib) compliance certificate confirming partner profit-share arithmetic, all need to sit in the FY 2025-26 file before the cutover. If the paperwork is incomplete on April 1, 2026, the Section 49 cost anchor does not automatically attach when the asset is eventually transferred under the Income-tax Act 2025 framework. The cost step-up can be lost or substituted by the fair market value on the conversion date, which is exactly the outcome the saving clause was designed to prevent.

Lock-in clocks keep running deep into the Income-tax Act 2025 era

Section 47(xiiib), which exempts the conversion of an unlisted private limited company into an LLP from capital-gains tax, has a five-year lock-in on four conditions: no partner is paid any consideration other than a profit share, the original shareholders retain at least 50 per cent of the aggregate profit share, no individual erstwhile shareholder drops below 50 per cent of his original profit share, and the company’s turnover in any of the three preceding previous years did not exceed Rs 5 crore. A March 2026 conversion runs that five-year clock through March 2031. Every test continues to be evaluated under the 1961 Act framework by virtue of Section 536, even when the assessing officer issuing the deemed-transfer notice under Section 47A(4) is sitting in AY 2030-31 under the Income-tax Act 2025.

The same continuity applies to the eight-year lock-in under Section 47A on holding-company to wholly-owned-subsidiary transfers under Section 47(iv) and (v), the five-year bond lock-in on Section 54EC subscriptions, the three-year lock-in on a Section 54 or 54F residential house reinvestment, and the five-year share lock-in on Section 54GB startup subscriptions. The Capital Gains Account Scheme deposit deadline under the proviso to Section 54 and Section 54F continues to be the Section 139(1) ITR due date for AY 2026-27, which is July 31, 2026 for non-audit assessees and October 31, 2026 for audit cases. Miss that deposit, lose the exemption. There is no equivalent saving in the Income-tax Act 2025 successor sections that retroactively cures a missed CGAS deposit.

Section 50C and the stamp-duty deeming trap on closing transactions

For property closures straddling the cutover, the Section 50C deeming has its own timing rule. The proviso to Section 50C(1) freezes the stamp-duty value as on the agreement date as the deemed full value of consideration, provided part consideration was received by account-payee cheque, bank draft, or electronic clearing system on or before the agreement date. Otherwise, the stamp-duty value on the date of registration controls. The 10 per cent tolerance band under the third proviso applies. Practitioners closing property files in March 2026 should document the agreement date, the mode of advance payment, and the registration date carefully, and consider a Section 55A reference to the District Valuation Officer where the stamp-duty addition would be material.

An 8-step capital-gains sprint before the cutover

1. Map every client transfer transaction this FY to a 1961 Act section (45 charging event, 47 exempt-transfer, 50 depreciable, 50B slump sale, 50C/50CA/50D deeming).
2. Confirm each transfer date is on or before March 31, 2026. For Joint Development Agreement transactions, check whether the Section 45(5A) completion-certificate date sits before or after the cutover.
3. Anchor Section 49 cost for inherited, gifted, partitioned, or reorganisation-received assets. Tag the donor or predecessor cost, the financial year of acquisition, and indexation basis if applicable.
4. Compute the holding-period bucket under Finance Act 2024 rules (12 months for listed securities, 24 months for everything else). For Section 49 carried-forward assets, include the donor or predecessor holding period.
5. Apply the correct tax rate: 12.5 per cent on Section 112A LTCG above Rs 1.25 lakh, 12.5 per cent on Section 112 LTCG without indexation, 20 per cent on Section 111A STCG, slab rate on other STCG. Evaluate the 20 per cent with-indexation election for pre-July 23, 2024 land and building (resident individuals and HUFs only).
6. Run Section 50C and 50CA stamp-duty or FMV comparisons. Document the 10 per cent tolerance band exhaustion. Consider Section 55A DVO references where the addition is material.
7. Lock the Section 54 to 54GB reinvestment file. Investment proof, CGAS deposit by ITR due date, three-year or five-year lock-in calendar, Section 54EC bond subscription receipt within six months.
8. Cross-tab Section 70, 71, and 74 set-off and carry-forward of capital losses. LTCL sets off only against LTCG; STCL sets off against both. Eight-year carry-forward under Section 74.

What this means for your startup, family office, or cross-border restructuring

If the company is staging a Section 47(xiiib) conversion to an LLP, a Section 47(vi) amalgamation, a Section 47(vib) demerger, a Section 47(xiv) sole-proprietorship-to-company conversion, or a slump sale under Section 50B, the right time to lock the file is before the cutover, not during the AY 2026-27 return-filing window. Section 47(xiiib) lock-in conditions running into March 2031 will be tested under the 1961 Act framework by virtue of Section 536, but only if the conversion itself qualified under the 1961 Act framework on the date it took place. The same applies to family-office HUF partitions, NRI gift transactions to specified relatives, and any Section 54F reinvestment plan where the lock-in window straddles the cutover.

The Income-tax Act 2025 does not provide a retrospective cure for an incomplete 1961 Act file. The saving clause is a continuity rule, not a forgiveness rule. The next six weeks of practitioner time are worth more than the next six months.

Carousel: 9-slide deep-dive on capital-gains transition

Download the full carousel PDF for the rate grid, the 18 operative sections preserved, the Section 47 cost-anchor table, three high-stakes practitioner scenarios (HNI listed-equity switch, family-office demerger, founder pre-IPO Section 54F reinvestment), the Section 54 to 54GB reinvestment lock-in map, and the 8-step file-review sprint:

Download the Capital Gains Transition Carousel (PDF, 9 slides)

Need help with a specific capital-gains file?

If you are advising on a Section 47 restructuring, a Section 50B slump sale, a Joint Development Agreement under Section 45(5A), a large Section 54 or 54F reinvestment, or a cross-border transfer where the Section 49 cost continuity needs to survive the April 1, 2026 cutover, schedule a strategy session with A S Banka Advisors Private Limited. We will help you map the transaction, lock the cost-continuity documentation, and document the file for AY 2026-27 closure.

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