Guidelines under section 9B and sub-section (4) of section 45 of the Income-tax act, 1961

Last updated: 03 July 2021

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This circular provides guidelines on new provisions introduced by the Finance Act 2021 in the Income-tax Act, 1961. Section 9B addresses 'deemed transfers' of capital assets or stock-in-trade when a specified person receives them from a specified entity during its dissolution or reconstitution. Section 45(4) covers profits and gains arising from the receipt of money or capital assets by a specified person from a specified entity in connection with its reconstitution. Both sections are effective from assessment year 2021-22 onwards and taxation is calculated independently.

F. No.370142/22/2021-TPL Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes (TPL Division) Circular No. 14 of 2021 Dated: 02nd July, 2021 Sub.: Guidelines under section 9B and sub-section (4) of section 45 of the Income-tax Act, 1961- reg. Finance Act, 2021 inserted a new section 98 in the Income-tax Act 1961 (hereinafter referredto as the Act). This section mandates that whenever a specified person receives any capital asset or stock in trade

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FAQ :

A 'deemed transfer' occurs when a specified person receives a capital asset or stock-in-trade from a specified entity due to its dissolution or reconstitution. This is treated as a transfer by the specified entity in the year of receipt.

Profits and gains from a deemed transfer are taxed as income of the specified entity in the year the assets are received, under the head 'Profits and gains of business or profession' or 'Capital gains'.

Section 45(4) states that profits or gains arising from the receipt of money or capital assets by a specified person from a specified entity in connection with its reconstitution are chargeable to income-tax as the specified entity's income under the head 'Capital gains'.

Yes, if a capital asset is received by a specified person from a specified entity due to reconstitution, the provisions of both Section 45(4) and Section 9B apply, and taxation is calculated independently for each.

Both the new Section 9B and the substituted sub-section (4) of Section 45 are applicable for the assessment year 2021-22 and subsequent assessment years.

The Central Board of Direct Taxes (CBDT) may issue guidelines, with the approval of the Central Government, to remove any difficulties in applying the provisions of Section 9B and sub-section (4) of Section 45.

Circular No : 14/2021
Source : https://www.incometaxindia.gov.in/communications/circular/circular_14_2021.pdf

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