Types of Capital Assets

1. Short term capital asset:

An asset which is held for a period of 36 months or less is a short-term capital asset. The criteria of 36 months have been reduced to 24 months in the case of Unlisted Shares, immovable property being land, building, and house property, from FY 2017-18.

However, following assets held for not more than 12 months shall be treated as short-term capital assets:

  • Equity or preference shares in a company which are listed in any recognized stock exchange in India;
  • Other listed securities;
  • Units of UTI;
  • Units of equity oriented funds; or
  • Zero Coupon Bonds.

2. Long term capital asset:

Capital Asset that is held for more than 36 months or 24 months or 12 months, as the case may be, immediately preceding the date of transfer is treated as long-term capital asset.

Summary of the period of holding:

Meaning and Definitions

What is meant by Capital Gains ?

Capital Gains means, any profits arising from the transfer of Capital Asset affected in the previous year will be chargeable to income tax under the head ‘Capital Gains’. A capital gain may be short-term or long-term.

Defining Capital Assets:

As per section 2(14), a Capital Asset means –     

  1. Property of any kind held by an assessee, whether or not connected with his business or profession;
  2. Any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the SEBI regulations.

However, it does not include the following:

  1. Any stock, consumables or raw material, held for the purpose of business or profession
  2. Personal goods such as clothes and furniture held for personal use
  3. Agricultural land in rural India
  4. 6½% gold bonds (1977) or 7% gold bonds (1980) or national defence gold bonds (1980) issued by the central government
  5. Special bearer bonds (1991)
  6. Gold deposit bond issued under the gold deposit scheme (1999) or deposit certificates issued under the Gold Monetisation Scheme, 2015.


  1. However, jewellery, archaeological collections, drawings, paintings, sculptures, or any work of art are not treated as personal effects and, hence, are included in the definition of capital assets.
  2. ‘Property’ includes and shall be deemed to have always included any rights in or in relation to an Indian company, including rights of management or control or any other rights whatsoever.
  3. Rural Agriculture Land means not being land situate –
    • agricultural land situated in any area within the jurisdiction of a municipality or cantonment board having population of not less than 10,000 or
    • agricultural land situated in any area within such distance, measured aerially, in relation to the range of population as shown hereunder –
  Shortest aerial distance from the local limits of a municipality or cantonment board referred to in item Population according to the last preceding census of which the relevant figures have been published before the first day of the previous year.
(i) ≤ 2 kilometers > 10,000 ≤ 1,00,000
(ii) ≤ 6 kilometers > 1,00,000 ≤ 10,00,000
(iii) ≤ 8 kilometers > 10,00,000

Section 47- Transactions not regarded as Transfer

Section 47 specifies certain transactions which will not be regarded as transfer for the purpose of capital gains tax:

  1. Any distribution of capital assets on the total or partial partition of a HUF [Section 47(i)].
  2. Any transfer of capital asset by a company to its subsidiary company, the following conditions should be satisfied [Section 47(iv)];
    • The parent company or its nominee must hold the whole of the shares of the subsidiary company;
    • The subsidiary company must be an Indian company
  3. Any transfer of capital asset by a subsidiary company to the holding company, the following conditions should be satisfied [Section 47(v)];
    • The whole of shares of the subsidiary company must be held by the holding company;
    • The holding company must be an Indian company.
  4. Any transfer, in a scheme of amalgamation, of a capital asset by the amalgamating company to the amalgamated company if the amalgamated company is an Indian company [Section 47(vi)].
  5. Any transfer in a demerger, of a capital asset by the demerged company to the resulting company, if the resulting company is an Indian company [Section 47(vib)].
  6. Any transfer or issue of shares by the resulting company, in a scheme of demerger to the shareholders of the demerged company, if the transfer is made in consideration of the demerger of the undertaking [Section 47(vid)].
  7. Any transfer by a shareholder, in a scheme of amalgamation, of shares held by him in the amalgamating company [Section 47(vii)];
    • The transfer is made in consideration of the allotment to him of any share/s in the amalgamated company, except where the shareholder itself is the amalgamated company;
    • The amalgamated company is an Indian company.
  8. Any transfer of a capital asset under a gift or will or an irrevocable trust [Section 47(iii)];
    • However, this clause shall not include transfer under a gift or an irrevocable trust of a capital asset being shares, debentures or warrants allotted by a company directly or indirectly to its employees under the Employees’ Stock Option Plan or Scheme offered to its employees in accordance with the guidelines issued in this behalf by the Central Government.