Avoidance of tax by certain transactions in securities
[Section-175 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 175(1) of Income Tax Act 2025
175(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
175(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
175(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
175(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
175(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
175(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
175(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
175(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
175(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
175(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
175(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.
FAQs on Section 175 of Income Tax Act 2025
What is the purpose of Section 175 of the Income Tax Act, 2025?
Section 175 is aimed at curbing tax avoidance through transactions in securities, especially when such transactions are structured to shift or defer income, such as interest or dividends, to persons not liable to tax or to reduce taxable profits.
Who is considered the “owner” under Section 175?
The “owner” refers to the person who originally holds the securities before selling or transferring them and subsequently reacquires or acquires similar securities.
What happens if the owner sells securities and reacquires them, but the interest is received by another person?
Such interest is still deemed to be the income of the original owner and not the recipient, for all purposes under the Act.
Does it matter whether the recipient of interest would otherwise be chargeable to income tax?
No, the deeming provision applies irrespective of the recipient’s chargeability under other provisions of the Act.
How does Section 175(2) protect the owner in cases of acquiring similar securities?
It ensures that the owner’s liability to income tax is not increased merely because they acquired “similar securities” instead of the exact original ones.
What does Section 175(3) provide regarding beneficial interest?
If a person had a beneficial interest in securities during a tax year and received little or no income (compared to an apportioned daily basis), the deemed income is adjusted to reflect what they would have received on a daily accrual basis.
Can a person escape the deeming provisions of sub-sections (1), (2), or (3)?
Yes, under Section 175(4), if they prove to the Assessing Officer that there was no tax avoidance, or any avoidance was exceptional and not systematic and did not occur in the preceding three years, the deeming provisions will not apply.
What is the impact on securities dealers under Section 175(5)?
If the dealer engages in buy-sell-back transactions and the interest is not considered their income due to Section 175(1), such transactions will be excluded from their profit or loss computation for tax purposes.
Does the provision apply to transactions involving “similar securities”?
Yes, Section 175(6) extends the effect of sub-section (5) to transactions involving “similar securities,” with necessary modifications.
What power does the Assessing Officer have under Section 175(7)?
The Assessing Officer can issue a written notice requiring disclosure of details of all securities owned or beneficially held during a specified period for the purposes of Section 175.
What does Section 175(8) say about purchase and sale around the record date?
If a person buys securities within three months before and sells within three months after the record date (or nine months for units), and the dividend or income is exempt, then any resulting loss is ignored for tax computation to the extent of the exempt income.
How are bonus issues (additional securities or units) treated under Section 175(9)?
If a person receives bonus securities without payment and sells the original securities within nine months while retaining the bonus ones, the loss from such sale is ignored for tax purposes.
What happens to the ignored loss under Section 175(10)?
Such ignored loss is treated as the cost of acquisition of the additional securities or units retained by the person.
What is included in the definition of “interest” under Section 175?
“Interest” includes dividends.
What is the “record date” in the context of Section 175?
It is the date fixed by a company, mutual fund, specified undertaking, business trust, or AIF to determine eligibility for receiving dividend, income, or additional securities/units.
How are “securities” and “similar securities” defined under this section?
“Securities” include stocks and shares, while “similar securities” are those offering the same rights and remedies regardless of nominal differences or form.
What does “unit” include as per Section 175(11)(e)?
A “unit” includes units of business trusts, mutual funds, or AIFs, as well as shares or partnership interests representing beneficial ownership.
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