Section 175 - Avoidance of tax by certain transactions in securities
The rule neutralises manufactured tax losses where exempt income or free bonus entitlements are captured while the original holding is sold at a loss.
Reviewed by CA Nikhil Gupta · Updated 9 October 2026
Current law and effective date
Section 175 is controlled against the consolidated Income-tax Act, 2025 as amended by the Finance Act, 2026. The Act and Income-tax Rules, 2026 operate from 1 April 2026; earlier years and saved proceedings require the repeal-and-savings framework rather than automatic migration.
Primary statute: Income Tax Department consolidated Act | Rules: Notified Income-tax Rules, 2026
2-minute decode
The rule neutralises manufactured tax losses where exempt income or free bonus entitlements are captured while the original holding is sold at a loss.
Who should use this section
Investors and intermediaries undertaking interest-bearing security or unit transactions around income / record dates where bond-washing, dividend-stripping or bonus-stripping rules may apply.
Old-law bridge
section 94
The old-law bridge is navigational, not automatic precedent transfer. Match the 1961 Act wording, saved proceedings, current 2025 Act text and effective date before importing an older interpretation.
Finance Act 2026 / current-law note
No section-specific Finance Act, 2026 textual substitution is separately flagged for section 175; the consolidated post-Finance-Act-2026 text remains the controlling version and must be used instead of pre-1 April 2026 extracts.
Professional alert
Application caution Apply the correct three-month or nine-month window to the correct instrument and distinguish exempt income from taxable distributions.
Connected Income-tax Rules, 2026 and Forms
| Rule | Current control | Form |
|---|---|---|
| Rule 77-85 | Transaction pricing context only where applicable; section operates principally through statutory anti-avoidance rules | - |
Worked application
Units are bought two months before the record date, exempt distribution is received and the units are sold four months later at a loss. The nine-month unit window can trigger dividend-stripping loss restriction.
Evidence / compliance checklist
- contract notes (section 175 evidence control 1).
- record-date notice (section 175 evidence control 2).
- distribution statement (section 175 evidence control 3).
- unit or security classification (section 175 evidence control 4).
Common mistake
A common section 175 error is to apply the old-law label or headline rate without rebuilding the current statutory conditions. For “Transactions in securities designed to avoid tax”, the safer control is to test the exact taxpayer/transaction facts, the operative tax year, every linked Rule/Form and the Finance Act 2026 consolidated wording. Application caution Apply the correct three-month or nine-month window to the correct instrument and distinguish exempt income from taxable distributions.
Recommended approach
For section 175, start with the legal trigger in “Transactions in securities designed to avoid tax”, document the evidence for that trigger, then run the computation or procedural step against the current text. As a cross-check, verify this provision-specific checkpoint: Bond-washing / dividend-stripping / bonus-stripping windows must be tested against exact acquisition, record-date and disposal dates.
Thresholds, periods and timing checkpoints
- Bond-washing / dividend-stripping / bonus-stripping windows must be tested against exact acquisition, record-date and disposal dates.
Related provisions and interaction map
Section 175 is one of the sections 174-177 specific anti-avoidance measures; Chapter XI GAAR applies only if independently attracted, with treaty and withholding provisions checked for this fact pattern.
Provision summary - verify verbatim text in the official Act
Text-status note: This guide does not reproduce the complete verbatim provision for section 175. Use the linked official consolidated Act before quoting sub-section language or preparing a filing, opinion or litigation document.
Primary-source trail
Statute: Income-tax Act, 2025 as amended by Finance Act, 2026
Rules: Income-tax Rules, 2026
Law navigation: Income Tax Department 2025 Act / Rules hub
Quoting note: Use the official consolidated Act for verbatim legislative language.
FAQs
Does an old Income-tax Act, 1961 case automatically decide section 175?
No. The old-law bridge helps research, but transferability depends on materially matching language, transition rules and any Finance Act 2026 change.
Which text should be quoted in advice or litigation?
Quote the consolidated official statute for the relevant tax year. If this page presents a provision summary rather than complete statutory text, use the official consolidated Act for verbatim legislative language.