Indian income tax | Capital gains exemption
Section 10(33): Tax Exemption on Transfer of Unit Scheme 1964 Units
Section 10(33) of the Income-tax Act, 1961 provides a specific exemption for income arising from the transfer of certain units of Unit Scheme, 1964, held as capital assets, when transferred on or after 1 April 2002.
What is Section 10(33)?
Section 10(33) excludes from total income income arising from the transfer of a capital asset, being a unit of the Unit Scheme, 1964, referred to in Schedule I to the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002, where the transfer takes place on or after 1 April 2002. The reference to the 2002 Act is important for identifying the precise units covered.
Eligible assessee, income and amount exempt
| Eligible assessee | Any taxpayer deriving qualifying income from transfer of the specified units held as capital assets. |
|---|---|
| Specified asset | A unit of Unit Scheme, 1964, as referred to in Schedule I to the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002. |
| Nature of income | Income arising from the transfer of that capital asset. |
| Qualifying transfer date | On or after 1 April 2002. |
| Amount exempt | The entire income arising from a qualifying transfer under this clause. |
Conditions for claiming exemption
- Correct scheme: The asset transferred must be a unit of Unit Scheme, 1964, within the statutory description. Other mutual funds and UTI products do not automatically qualify.
- Capital asset: The units must be held as capital assets. The wording does not create a general exemption for trading profits from stock-in-trade.
- Transfer date: The transfer must occur on or after 1 April 2002.
- Qualifying income: The amount claimed must arise from transfer of the specified units, rather than from unrelated investment income.
- Evidence: Preserve unit holding statements, redemption or transfer confirmations, transaction dates and supporting calculations.
What was Unit Scheme, 1964?
Unit Scheme, 1964 (often called US-64) was a scheme of the erstwhile Unit Trust of India. The Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 provided for restructuring and transfer of the undertaking, and its Schedule I identifies the relevant scheme. Section 10(33) refers to that statutory scheme rather than all mutual fund units.
How the exemption works: an illustration
Suppose an investor held qualifying US-64 units as capital assets and received an amount on their transfer after 1 April 2002. If the resulting income satisfies the exact statutory description, Section 10(33) of the 1961 Act excludes that income from total income. A different mutual fund investment, even if managed by a successor institution, does not qualify merely because of its name or manager.
Distinguishing capital gains, distributions and other investments
The exemption is linked to income arising from transfer. Dividends, distributions, interest or income from unrelated units require independent treatment under the relevant tax law. Likewise, the taxation of losses or other deductions should not be assumed from the exemption provision alone.
Income-tax law applicable from April 2026
The Income-tax Act, 2025 took effect on 1 April 2026. The section number 10(33) belongs to the Income-tax Act, 1961. For later tax years, consult the corresponding provisions in the 2025 Act and any applicable transitional rules. The correct treatment depends on the date and nature of the transaction and the governing law.
Official legislation and reference links
- India Code - text of central legislation, including the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002
- Income Tax Department - income-tax legislation
- Income Tax Department - official e-Filing portal
Frequently asked questions
What does Section 10(33) exempt?
Under the Income-tax Act, 1961, income arising from the transfer of a capital asset being a unit of Unit Scheme, 1964, where the transfer is on or after 1 April 2002, is exempt subject to the statutory wording.
Is the exemption available to every mutual fund investment?
No. Section 10(33) concerns units of the specifically identified Unit Scheme, 1964; it is not a general exemption for all mutual fund units.
Does the exemption apply to units held as stock-in-trade?
The provision expressly refers to a capital asset. Units held as trading stock require separate tax analysis.
Does Section 10(33) cover income from distributions?
The clause concerns income arising from transfer of the specified units as capital assets. Distribution income must be considered under the provisions applicable to that receipt.
What happens under the Income-tax Act, 2025?
The Income-tax Act, 2025 applies from 1 April 2026. Verify the corresponding provision and transitional rules for the relevant tax year rather than assuming the former section number applies unchanged.
This article is general tax information. Verify the relevant statutory text and the tax year before applying an exemption to a particular transaction.