M/s W Inc. a foreign company holds 100 shares in M/s I Ltd., an Indian company, @ ₹ 10 per share for last five years and the market value of such shares is ₹ 3500/- per share, and transfers the same, in case of a demerge

"Capital Gains" under section 45 of the Income Tax Act, 1961 are defined as any profits or gains arising from transfer of a capital asset and are chargeable to tax under the head "Capital Gains." "Transfer" includes sale, exchange, relinquishment, or extinguishment of rights in a capital asset. Tax concession to a foreign demerged company [Section 47(vic) of Income Tax Act, 1961]: Where a foreign company holds any shares in an Indian company and transfers the same, in case of a demerger, to another resulting foreign company, such transaction will not be regarded as transfer for the purpose of capital gain under section 45 if the following conditions are satisfied: the shareholders holding not less than three-fourths in value of the shares of the demerged foreign company continue to remain shareholders of the resulting foreign company; and such transfer does not attract tax on capital gains in the country, in which the demerged foreign company is incorporated: Provided that the provisions of Sections 230 to 232 of Companies Act, 2013 shall not apply in case of demergers referred to in this Clause. Therefore, such transaction of transfer of shares is not subject to tax for the purpose of capital gains under section 45 of the Income Tax Act, 1961, provided the above conditions are met.