Section 175 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 175 targets three kinds of arrangement in securities: selling and buying back so that interest goes to another person, holding securities in such a way that no income, or less income, is received, and short-term buying and selling around the record date to create a loss against exempt income. This article reads it as per the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026, sub-section by sub-section.
Where an owner sells securities and buys back or reacquires them (or similar ones), interest paid to someone else is deemed the owner's income (sub-sections (1) to (3)). A loss on securities or units bought within three months before the record date and sold within three months after (securities) or nine months after (units) is ignored, up to the exempt dividend or income received (sub-section (8)). A loss on bonus securities or units sold within nine months is ignored too, and added to the cost of the bonus holding (sub-sections (9) and (10)).
Scope
Section 175 is in Chapter X. The Act came into force on the 1st April, 2026 (section 1(3)), save as otherwise provided. Later amendments, rules and notifications should be checked.
For the Chapter, see Chapter X of the Income-tax Act, 2025. Another anti-avoidance provision on income shifted offshore is described in section 174. If you trade in listed securities or units and need the rules applied to your holdings, our capital gains calculation team can help.
Section 175(1) and (2): sale and buy-back
Where the owner of any securities sells or transfers them 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, and is deemed, for all purposes of the Act, to be the income of the owner; and
- (b) is not the income of the other person,
irrespective of whether it would have been chargeable to income-tax under any other provision of the Act. Where similar securities are bought or acquired, the owner is not under greater liability to income-tax than he would be if the original securities had been bought back or reacquired (sub-section (2)).
Section 175(3): no income or reduced income
If any person has had a beneficial interest in securities at any time during a tax year, and the result of any transaction relating to the securities or the income from it is that, in respect of those securities within that year, (a) no income is received by him, or (b) the income received by him is less than what would have been if the income had accrued from day to day and been apportioned accordingly, the income from those securities for the year is deemed to be the income of that person.
Section 175(4): the exception
Sub-sections (1), (2) and (3) do 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-section (1), (2) or (3) was not there in his case.
Section 175(5) and (6): dealers in securities
If a person carrying on a business which consists wholly or partly in dealing in securities buys or acquires securities and sells them back or retransfers them, then, if the result is that the interest receivable by him is not deemed his income because of sub-section (1), no account is taken of the transaction in computing the profits or loss of the business for any purpose of the Act. This has effect, subject to necessary modifications, as if references to selling back or retransferring included selling or transferring similar securities.
Section 175(7): notice for details
The Assessing Officer may, by notice in writing, require any person to provide within a specified time, which shall not be less than twenty-eight days, details of all securities of which the 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 the section and for discovering whether income-tax has been borne on the interest on those securities.
Section 175(8): purchase before and sale after the record date
If:
- any person buys or acquires any securities or unit within three months before the record date;
- he sells or transfers (i) the securities within three months after that date, or (ii) the unit within nine months after that date; and
- the dividend or income on those securities or unit received or receivable by him is exempt,
then the loss arising to him on that purchase and sale, to the extent it does not exceed the dividend or income received or receivable on the securities or unit, is ignored for computing his income chargeable to tax.
Section 175(9) and (10): bonus securities or units
If:
- any person buys or acquires any securities or unit within three months before the record date;
- he is allotted additional securities or units without any payment on the basis of holding on that date; and
- he sells or transfers all or any of the securities or units in clause 1 within nine months after that date, while continuing to hold all or any of the additional securities or units,
then the loss arising on the purchase and sale is ignored for computing his income chargeable to tax. Irrespective of any other provision of the Act, the loss so ignored is deemed to be the cost of purchase or acquisition of the additional securities or units held by him on the date of the sale or transfer.
The table summarises the two loss-ignoring rules:
| Rule | Bought | Sold | Other condition | Loss ignored |
|---|---|---|---|---|
| Sub-section (8) | within three months before the record date | securities: within three months after; unit: within nine months after | dividend or income on them is exempt | up to the dividend or income received or receivable |
| Sub-section (9) | within three months before the record date | within nine months after | additional securities or units allotted without payment and still held | the loss on purchase and sale (and sub-section (10) adds it to the cost of the additional holding) |
Section 175(11): definitions
- "interest" includes a dividend;
- "record date" means the date fixed by (i) a company, (ii) a Mutual Fund or the Administrator of the specified undertaking or the specified company (with "Administrator" and "specified company" defined by reference to the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002)), (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 (15 of 1992), for the purposes of entitlement of the holder to receive dividend, income or additional securities or units without any consideration;
- "securities" includes stocks and shares;
- securities are "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 total nominal amounts, form of holding or manner of transfer;
- "unit" means (i) a unit of a business trust defined in section 2(21); (ii) a unit defined in section 208(3)(c); or (iii) the beneficial interest of an investor in an Alternative Investment Fund referred to in the record date definition, and includes shares or partnership interests.
The Unit Trust of India Act, the SEBI Act and the Regulations named here should be checked by the reader for their own terms. For the unit definition in section 208(3)(c), see our article on sections 208 and 209.
A worked example
Names, dates and amounts are invented; the windows are as printed.
Preeti Nair buys 1,000 units of a business trust on the 20th January, which is within three months before a record date of the 15th March. The trust pays Preeti an exempt distribution of Rs. 8,000 on those units. She sells the units on the 10th November of the same year, which is within nine months after the record date, at a loss of Rs. 12,000.
- Bought within three months before the record date: yes.
- Sold within nine months after the record date (for a unit): yes.
- Income on the units is exempt: yes.
- The loss ignored is limited to the income received: Rs. 8,000 of the Rs. 12,000 loss is ignored under sub-section (8), so only Rs. 4,000 of the loss remains available for the purposes of computing income.
If the same transactions had been in shares of a company rather than a unit, the sale would have to fall within three months after the record date; a sale in November would be outside that window, and sub-section (8) would not apply.
Need help with loss claims on securities?
Holding periods, record dates and bonus allotments all change whether a loss can be claimed. Our capital gains calculation service can check your trades against section 175 before you compute capital gains.
Key takeaways
- Interest on securities that go back to the owner after a sale and buy-back is taxed as the owner's income.
- Income from securities for the year can be deemed to be that of the holder where no income, or less income than day-to-day accrual, is received.
- A loss on securities bought within three months before the record date and sold within three months after is ignored up to the exempt income; for units the later window is nine months.
- The loss on securities sold within nine months while bonus securities are held is ignored and added to the cost of the bonus holding.
- The exception in sub-section (4) requires proof to the satisfaction of the Assessing Officer.
Read next
- Section 174: transfer of income to non-residents
- Section 176: notified jurisdictional area
- Sections 208 and 209: units, bonds and GDRs bought in foreign currency
- Section 198: long-term capital gains on equity
Disclaimer: Based on the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026, as consulted on 2 October 2026. It explains the words of the Act only; the Income-tax Rules, 2026, notifications, circulars, later amendments and the way the tax authorities and courts apply these provisions should be checked. This article is general information, not legal advice; check the official text before acting.