Home » Income Tax » Capital Gain » Meaning of Long Term and Short Term Capital Asset
Long term capital asset means a capital asset held by an assessee for more than 36 months immediately preceding the date of its transfer.
However in the following cases, if Capital asset is held for more than 12 months it shall be treated as long term capital asset
- Equity or preference shares held in a company listed in recognized stock exchange in India
- Any other security listed in recognized stock exchange in India
- Units of UTI (whether quoted or not)
- Units of an equity oriented fund
- Zero coupon bonds (whether quoted or not)
- Unlisted Equity or preference shares held in a company (if transfer of such shares takes place on or before 10th July, 2014)
- Units of mutual fund specified under section 10(23D) other than equity oriented fund (whether quoted or not, if transfer of such shares takes place on or before 10th July, 2014)
An asset held for less than or for exactly 36 or 12 months will be considered as short term capital asset.
In calculation of period date of purchase will be included and date of transfer shall be excluded.
Period of holding in some cases:-
| Acquired under inheritance,will etc under section 49(1) | The period of holding of previous owner is also included. |
| Right Shares | From the date of allotment of such right shares. |
| Bonus Shares | From the date of allotment of such bonus shares. |
| Sweat Equity Shares/ESOP | Date of allotment of such security. |
| Liquidation of company | The period subsequent to date on which company goes into liquidation is excluded. |
| Shares held in amalgamated/ resulting company | The period of holding in amalgamating/demerged company is included. |
| Transfer of security in a demat account | Period of holding shall be determined on first-in-first-out basis. |
In case, a land is held by assesse for more than 36 months but the building on such land is constructed for less than 36 months, then there will be long term capital gain on sale of land and short term capital gain on sale of building. CIT v/s Citibank
If the asset is initially not held as capital asset but is a capital asset at the time of transfer then the entire period of holding from date of initial purchase is to be considered. Cit vs keshavji karsondas (1994)
Rohit Pithisaria
I am a Indian Tax Expert based in Jaipur (Rajasthan). Started TaxAdda in 2011 as a tax blog and now providing all types services related to GST and Income Tax to the client all over India. You can connect with us 82396-85690.
Read More Articles
Rohit Pithisaria 02/12/2023
Rohit Pithisaria 12/10/2023
Rohit Pithisaria 28/06/2023
Rohit Pithisaria 07/06/2023
Greetings, I am Rohit Pithisaria, an Indian Tax Expert based in Jaipur, Rajasthan, with a profound understanding of tax regulations and expertise in providing services related to GST and Income Tax. I initiated TaxAdda in 2011 as a tax blog and have since expanded to offer a wide range of services to clients throughout India.
In the realm of capital gains taxation, particularly in the context of long-term and short-term capital assets, my knowledge is not only theoretical but also grounded in practical experience. My expertise is substantiated by a track record of assisting clients in navigating the complexities of Indian tax laws. I've actively contributed to discussions on taxation matters, and my commitment to staying abreast of the latest developments ensures that my insights are both comprehensive and current.
Now, let's delve into the key concepts mentioned in the article regarding the meaning of long-term and short-term capital assets, as well as various considerations related to the calculation of the holding period:
Long Term Capital Asset:
A long-term capital asset is one held by an assessee for more than 36 months preceding the date of transfer. However, certain exceptions exist where if a capital asset is held for more than 12 months, it is treated as a long-term capital asset. These exceptions include:
- Equity or preference shares in a listed company.
- Any other security listed on a recognized stock exchange.
- Units of UTI.
- Units of an equity-oriented fund.
- Zero coupon bonds.
- Unlisted equity or preference shares (if transferred before July 10, 2014).
- Units of specified mutual funds (if transferred before July 10, 2014).
Short Term Capital Asset:
An asset held for less than or exactly 36 or 12 months is considered a short-term capital asset. The period of holding is calculated from the date of purchase (included) to the date of transfer (excluded).
Period of Holding in Specific Cases:
- Inherited assets: The period of the previous owner is included.
- Right Shares: Holding period starts from the date of allotment.
- Bonus Shares: Holding period starts from the date of allotment.
- Sweat Equity Shares/ESOP: Holding period starts from the date of allotment.
- Liquidation of company: Period after the company goes into liquidation is excluded.
- Shares in amalgamated/resulting company: Period of holding in the amalgamating/demerged company is included.
- Transfer of security in a demat account: Holding period determined on a first-in-first-out basis.
Special Considerations:
- Land held for more than 36 months, but the building on it is constructed for less than 36 months results in a long-term capital gain on land and short-term capital gain on the building.
- If the asset was not initially held as a capital asset but becomes one at the time of transfer, the entire period of holding from the date of initial purchase is considered.
This comprehensive understanding of capital gains taxation is essential for individuals and businesses alike, ensuring compliance with Indian tax laws and optimizing financial strategies. For further insights and assistance, feel free to connect with TaxAdda at 82396-85690.
