Income Tax Act 2025: Section 175 for Tax Year 2025-26

Avoidance of tax by certain transactions in securities

[As per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]

Section 175(1) of Income Tax Act 2025

(1) Where the owner of any securities (hereinafter referred to as “the owner”) sells or transfers such securities and buys back or reacquires them or buys or acquires any similar securities, any interest that becomes payable in respect of such securities,––
(a) is receivable by a person other than the owner, shall be deemed, for all purposes of this Act, to be the income of the owner; and

(b) shall not be the income of the other person,
irrespective of whether it would have been chargeable to income-tax under any other provision of this Act.

Section 175(2) of Income Tax Act 2025

(2) Where similar securities as referred to in sub-section (1) are bought or acquired, the owner shall not be under greater liability to income-tax than he would if the original securities had been bought back or reacquired.

Section 175(3) of Income Tax Act 2025

(3) If any person has had a beneficial interest in any securities at any time during a tax year, and the result of any transaction relating to such securities or the income from it is that, in respect of such securities within such year,––
(a) either no income is received by him; or
(b) the income received by him is less than what would have been if the income from such securities had accrued from day to day and been apportioned accordingly,
the income from such securities for such year shall be deemed to be the income of such person.

Section 175(4) of Income Tax Act 2025

(4) The provisions of sub-sections (1), (2) and (3) shall not apply if the owner, or the person who has had a beneficial interest in the securities, proves to the satisfaction of the Assessing Officer that—
(a) there has been no avoidance of income-tax; or
(b) the avoidance of income-tax was exceptional and not systematic and also that in any of the three preceding years any avoidance of income-tax by a transaction of the nature referred to in sub-sections (1), (2) or (3) was not there in his case.

Section 175(5) of Income Tax Act 2025

(5) If a person carrying on a business which consists wholly or partly in dealing in securities, buys or acquires any securities and sells back or retransfers the securities, then, if the result of the transaction is that interest in respect of the securities receivable by him is not deemed to be his income by reason of the provisions contained in sub-section (1), no account shall be taken of the transaction in computing the profits arising from or loss sustained in the business for any of the purposes of this Act.

Section 175(6) of Income Tax Act 2025

(6) The provisions of sub-section (5) shall have effect, subject to any necessary modifications, as if references to selling back or retransferring the securities included references to selling or transferring similar securities.

Section 175(7) of Income Tax Act 2025

(7) The Assessing Officer may, by notice in writing, require any person to provide within specified time, which shall not be less than twenty-eight days, details in respect of all securities of which such person was the owner or in which he had a beneficial interest at any time during the period specified in the notice, for the purposes of this section and for the purpose of discovering whether income-tax has been borne in respect of the interest on all those securities.

Section 175(8) of Income Tax Act 2025

(8) If—
(a) any person buys or acquires any securities or unit within three months before the record date;
(b) such person sells or transfers—
(i) such securities within three months after such date; or
(ii) such unit within nine months after such date;
(c) the dividend or income on such securities or unit received or receivable by such person is exempt,
then, the loss, if any, arising to him on account of such purchase and sale of securities or unit, to the extent such loss does not exceed dividend or income received or receivable on such securities or unit, shall be ignored for the purposes of computing his income chargeable to tax.

Section 175(9) of Income Tax Act 2025

(9) If—
(a) any person buys or acquires any securities or unit within three months before the record date;
(b) such person is allotted additional securities or unit without any payment on the basis of holding of such securities or unit on such date;
(c) such person sells or transfers all or any of the securities or unit referred to in clause (a) within nine months after such date, while continuing to hold all or any of the additional securities or unit referred to in clause (b),
then, the loss, if any, arising to him on account of such purchase and sale of all or any of such securities or unit shall be ignored for the purposes of computing his income chargeable to tax.

Section 175(10) of Income Tax Act 2025

(10) Irrespective of any other provision of this Act, loss ignored as per sub-section (9) shall be deemed to be the cost of purchase or acquisition of such additional securities or unit referred to in sub-section (9)(b) as are held by him on the date of such sale or transfer.

Section 175(11) of Income Tax Act 2025

(11) In this section,—
(a) “interest” includes a dividend;
(b) “record date” means such date as may be fixed by—
(i) a company;
(ii) a Mutual Fund or the Administrator of the specified undertaking or the specified company referred to in the Explanation to section 10(35) of the Income-tax Act, 1961; or
(iii) a business trust defined in section 2(21); or
(iv) an Alternative Investment Fund defined in regulation 2(1)(b) of the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012, made under the Securities and Exchange Board of India Act, 1992,
for the purposes of entitlement of the holder of the securities or unit to receive dividend, income, or additional securities or unit without any consideration;
(c) “securities” includes stocks and shares;
(d) securities shall be deemed to be similar if they entitle their holders to the same rights against the same persons as to capital and interest and the same remedies for the enforcement of those rights, irrespective of any difference in the total nominal amounts of the respective securities or in the form in which they are held or in the manner in which they can be transferred;
(e) “unit” shall mean,—
(i) a unit of a business trust defined in section 2(21);
(ii) a unit defined in section 208(3)(c); or
(iii) beneficial interest of an investor in an Alternative Investment Fund, referred to in clause (b)(iv), and shall include shares or partnership interests.

Notes on Section 175 of Income Tax Act 2025

Section 175 of the Income Tax Act 2025 primarily deals with the taxation of income from securities, particularly in cases where securities are bought, sold, or transferred in a way that could result in tax avoidance. Below is a breakdown of each subsection:

Sub-section (1): Deemed Income for the Original Owner

• If the owner of securities sells or transfers them and then buys them back or acquires similar securities, any interest (including dividends) payable on those securities will be treated as the owner’s income, even if it is received by another person.
• The recipient of the interest will not be taxed on it; instead, the original owner will be taxed.

Purpose: Prevents tax avoidance strategies where taxpayers transfer securities temporarily to shift taxable income to a person with a lower tax rate.

Sub-section (2): Tax Liability for Similar Securities

• If the owner buys or acquires similar securities instead of buying back the exact ones sold, their tax liability will not be higher than if they had repurchased the original securities.

Purpose: Ensures fairness in taxation by preventing excessive tax burdens just because a taxpayer acquired similar rather than identical securities.

Sub-section (3): Deemed Income on Beneficial Interest

• If a person had a beneficial interest in securities during the tax year, and:
  • (a) No income was received, or
  • (b) The income received was lower than if it had been accrued daily,
  • Then, the income will be deemed to be that of the person, as if it accrued daily.

Purpose: Prevents tax avoidance through complex transactions that reduce or eliminate taxable income.

Sub-section (4): Exemptions from Tax Avoidance Provisions

• The rules in sub-sections (1), (2), and (3) won’t apply if the owner or beneficial interest holder proves to the Assessing Officer that:
  • (a) There was no tax avoidance, or
  • (b) If there was tax avoidance, it was exceptional, not systematic, and did not occur in any of the previous three years.

Purpose: Provides relief for genuine transactions that are not meant for tax evasion.

Sub-section (5): Treatment for Securities Dealers

• If a business dealing in securities buys, sells, or transfers securities in a way that prevents interest from being counted as its income (as per sub-section (1)), then:
  • The transaction will be ignored for computing business profits or losses.

Purpose: Ensures that tax-avoidance-driven transactions do not affect a securities dealer’s taxable business profits.

Sub-section (6): Extended Definition of “Selling Back”

• The rules in sub-section (5) also apply when a dealer sells or transfers similar securities, not just the exact ones originally acquired.

Purpose: Closes loopholes where dealers might exploit minor differences between securities.

Sub-section (7): Reporting Requirement

• The Assessing Officer can issue a notice requiring a person to provide details of securities they owned or had a beneficial interest in, during a specified period (at least 28 days).

Purpose: Enhances tax compliance by allowing tax authorities to track securities-related transactions.

Sub-sections (8) & (9): Loss Adjustment for Dividend-Stripping & Bonus Stripping

(8) Dividend-Stripping:

• If a person:
  • (a) Buys securities within 3 months before the record date (dividend entitlement date),
  • (b) Sells them within 3 months (for securities) or 9 months (for units) after the record date,
  • (c) Receives tax-exempt dividends on those securities/units,
  • Then, any loss from the sale up to the amount of dividend received will be ignored for tax computation.

(9) Bonus-Stripping:

• If a person:
  • (a) Buys securities within 3 months before the record date,
  • (b) Receives additional securities (bonus shares) at no cost,
  • (c) Sells the original securities within 9 months but keeps the bonus shares,
  • Then, any loss from selling the original securities will be ignored for tax computation.

Purpose: Prevents dividend-stripping and bonus-stripping, where taxpayers create artificial losses by selling securities after receiving tax-exempt dividends or free bonus shares.

Sub-section (10): Cost Basis Adjustment

• The ignored loss from sub-section (9) will be added to the cost of the additional securities (bonus shares).

Purpose: Ensures the tax liability is properly adjusted when bonus shares are eventually sold.

Sub-section (11): Definitions

• “Interest” includes dividends.
• “Record date” is the date set by a company, mutual fund, business trust, or alternative investment fund to determine entitlement to dividends or bonus shares.
• “Securities” include stocks and shares.
• “Similar securities” are those that provide the same rights and remedies as the original securities.
• “Unit” includes business trust units, investment fund units, and partnership interests.

Overall Purpose of Section 175

This section is designed to prevent tax avoidance through complex securities transactions. It targets:

• Sale and repurchase of securities to shift taxable income.
• Dividend-stripping (creating artificial losses to offset taxable income).
• Bonus-stripping (manipulating securities transactions to reduce capital gains tax).

By treating certain interest and dividend income as the original owner’s income and ignoring artificial losses, Section 175 ensures fairness in taxation and strengthens the anti-avoidance framework.