Capital Asset – Definition and Types

The most important thing you should know about taxes is the “Capital Gain Tax“. Capital gains are the gains that you have made by ‘transferring’ a capital asset. The transfer could be in the form of selling, exchanging, converting, maturing, or extinguishing the asset. These gains will be chargeable to tax in the year in which the transfer of Capital assets takes place.

What is a Capital Asset?

Capital Asset means any kind of property owned by you, whether or not connected with your business or profession. It includes movable assets, immovable assets, tangible/intangible assets, rights and choices in actions, etc.

ITR for Capital Gains from Investment in Stocks
CA Assisted Income Tax Return filing for Individuals having income from sale of securities
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ITR for Capital Gains from Investment in Stocks
CA Assisted Income Tax Return filing for Individuals having income from sale of securities
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Some of the examples of Capital Assets are House Property, land, building, goodwill, patent, trademark rights, machinery, vehicles, jewelry, etc. whether or not connected with the business or profession of the assessee.

However, the following assets shall not be considered as Capital Assets:

  • ​Any stock in trade, consumables, or raw material held for the purpose of business or profession.
  • Any personal effects like clothes or furniture etc. Which is held for your personal use.
  • Agricultural land not situated within:
    • Jurisdiction of the municipality, notified area committee, town area committee, cantonment board and which has a population of not less than 10,000
    • Range of following distance measured aerially from the local limits of any municipality or cantonment board within:
      • 2 KMs of the municipality or cantonment board which has a population between 10,000 and 1,00,000
      • 6 KMs of municipality or cantonment board which has a population between 1,00,000 and 10,00,000
      • 8 KMs of municipality or cantonment board which has a population of more than 10,00,000
  • Gold Bonds, Special Bearer Bonds & Gold Deposit Bonds issued by Government of India

What are Long Term Capital Asset and Short Term Capital Asset?

If a Capital Asset is held by the assessee for more than 36 months prior to its sale, then it is a Long Term Capital Asset. On the other hand, Short Term Capital Asset means the asset held by an assessee for not more than 36 months prior to its sale. However, in the following cases, the assets will be considered Short Term if they are held for 12 months or less instead of 36 months:

  • Equity or Preference shares
  • ​Debentures or Government securities
  • Units of UTI
  • Units of the equity-oriented mutual fund
  • Zero-coupon bonds

If the above mentioned assets are held for more than 12 months, they will be considered as Long Term Capital Assets.

FAQ

How are capital gains taxed?

Capital gains are profits from the sale of a capital asset, such as shares of stock, a piece of land, or a work of art. Capital gains are generally included in taxable income. But in most cases, are taxed at a lower rate.

Why is period of holding important?

Determination of period of holding is important because it impacts the method of calculating Capital Gains and also the tax rates.

Got Questions? Ask Away!

  1. Hey Kunal,

    For capital assets like Equity & preference share, Debentures & Government securities, Units of UTI and equity-oriented mutual funds and Zero-Coupon Bonds where STT is paid

    • If such assets are sold within 12 months of purchase, it is considered short term capital gains
    • If assets are held for more than 12 months, it is considered long term capital gains

    However, the holding period is 36 months for other capital assets like house property, machinery, vehicles, etc

    You can refer to Capital Gains guide on our learn center.

  2. Hi @Ridhima_Sharma @TeamQuicko

    I bought 500 shares at 100 rupees each on May 05, 2020, thereby investing 50,000 in a company. When the share price appreciated to Rs. 200 each, I sold 250 shares on Feb 15, 2021, thereby taking my initial investment of 50k.

    As I have ONLY taken my initial investment out & not profit, will I be taxable under STCG ?

    Pl advise

  3. Hey @Abdul_Kaleem_shah, yes, you will have to file ITR 2 as the income you have received from selling the shares is considered as capital gains income and since you have sold it before holding them for 12 months it will be considered as STCG. You can read more about capital gains from here:

  4. If my Long term capital gains is below 1Lakh in a year, do I need to file ITR2 or I can just file ITR1 as usual (simple salaried with some interests). I read in few places, only over 1Lakh LTCG I’m liable to pay 10% taxes.

    My Scenario: I have few old shares, which are very good priced at the current bull market. Now if I sell them, I might make a bit profit. But my investment is so low, I don’t want to take the headache by going into ITR2 for the next 8 years. I have no intraday or short term share trades. Maybe the overall gain will be just a mere 3-4 thousands (even amount to withdraw is just 14k or so).

  5. Hey @sajalb, it is required that you file ITR 2 since you need to disclose the source of the income even though your profits are not taxable. Also, you do not have to file ITR 2 for 8 years in order to keep carry forwarding your losses.

  6. Thanks for the prompt reply. I understand it now. I hope I can cope up with the ITR2, feel very daunting to leave the comfort of ITR1.