Land, building, house property, vehicles, patents, trademarks, leasehold rights, machinery, and jewellery are a few examples of capital assets. This includes having rights in or in relation to an Indian company. It also includes the rights of management or control or any other legal right.
The following do not come under the category of capital asset:
- Any stock, consumables or raw material, held for the purpose of business or profession
- Personal goods such as clothes and furniture held for personal use
- Agricultural land in rural (*) India
- 6½% gold bonds (1977) or 7% gold bonds (1980) or National Defence gold bonds (1980) issued by the central government
- Special bearer bonds (1991)
- Gold deposit bond issued under the gold deposit scheme (1999) or deposit certificates issued under the Gold Monetisation Scheme, 2015
STCG (Short-term capital asset) An asset held for a period of 36 months or less is a short-term capital asset.
The criteria are 24 months for immovable properties such as land, building and house property from FY 2017-18. For instance, if you sell house property after holding it for a period of 24 months, any income arising will be treated as a long-term capital gain, provided that property is sold after 31st March 2017.
The reduced period of the aforementioned 24 months is not applicable to movable property such as jewellery, debt-oriented mutual funds etc.
Some assets are considered short-term capital assets when these are held for 12 months or less. This rule is applicable if the date of transfer is after 10th July 2014 (irrespective of what the date of purchase is). These assets are:
Equity or preference shares in a company listed on a recognized stock exchange in India
Securities (like debentures, bonds, govt securities etc.) listed on a recognized stock exchange in India
Units of UTI, whether quoted or not
Units of equity oriented mutual fund, whether quoted or not
Zero coupon bonds, whether quoted or not
LTCG (Long-term capital asset): An asset held for more than 36 months is a long-term capital asset. They will be classified as a long-term capital asset if held for more than 36 months as earlier.
Capital assets such as land, building and house property shall be considered as long-term capital asset if the owner holds it for a period of 24 months or more (from FY 2017-18).
Whereas, below-listed assets if held for a period of more than 12 months, shall be considered as long-term capital asset.
Equity or preference shares in a company listed on a recognized stock exchange in India
Securities (like debentures, bonds, govt securities etc.) listed on a recognized stock exchange in India
Units of UTI, whether quoted or not
Units of equity oriented mutual fund, whether quoted or not
Zero coupon bonds, whether quoted or not
| Tax Type | Condition | Applicable Tax |
| Long-term capital gains tax (LTCG) | On sale of Equity shares/ units of equity oriented fund | 10% over and above Rs 1 lakh |
| Long-term capital gains tax (LTCG) | Except on sale of equity shares/ units of equity oriented fund | 20% |
| Short-term capital gains tax (STCG) | When Securities Transaction Tax (STT)is not applicable | The short-term capital gain is added to your income tax return and the taxpayer is taxed according to income tax slab rates. |
| Short-term capital gains tax (STCG) | When STT is applicable | 15%. |
Tax on Equity and Debt Mutual Funds
Gains made on the sale of debt funds and equity funds are treated differently. Any fund that invests heavily in equities (more than 65% of their total portfolio) is called an equity fund.
| Funds | Effective 11 July 2014 | On or before 10 July 2014 | ||
| Short-Term Gains | Long-Term Gains | Short-Term Gains | Long-Term Gains | |
| Debt Funds | At tax slab rates of the individual | At 20% with indexation | At tax slab rates of the individual | 10% without indexation or 20% with indexation whichever is lower |
| Equity Funds | 15% | 10% over and above Rs 1 lakh without indexation. | 15% | Nil |
Tax Rules for Debt Mutual Funds
Debt mutual funds have to be held for more than 36 months to qualify as a long-term capital asset. It means you need to remain invested in these funds for at least three years to get the benefit of long-term capital gains tax. If redeemed within three years, the capital gains will be added to your income and will be taxed as per your income tax slab rate.
Full value consideration: The consideration received or to be received by the seller as a result of transfer of his capital assets. Capital gains are chargeable to tax in the year of transfer, even if no consideration has been received.
Cost of acquisition: The value for which the capital asset was acquired by the seller.
Cost of improvement: Expenses of a capital nature incurred in making any additions or alterations to the capital asset by the seller.