Capital assets are classified into different categories under the Income Tax Act, 1961, each with unique tax implications. Below is a structured breakdown:
1. Classification Based on Nature
A. Tangible Capital Assets
1. Immovable Property
- Land & buildings (residential/commercial)
- Tax Treatment:
- STCG (≤24 months):Slab rate
- LTCG (>24 months):20% with indexation
2. Movable Assets
- Jewelry, gold, precious stones
- Archaeological collections
- Paintings, sculptures, art
- Tax Treatment:
- STCG (≤36 months):Slab rate
- LTCG (>36 months):20% with indexation
3. Vehicles
- Cars, aircraft, ships (if not stock-in-trade)
- Tax Treatment:
- STCG (≤36 months):Slab rate
- LTCG (>36 months):20% with indexation
B. Intangible Capital Assets
1. Financial Securities
- Equity shares, bonds, debentures
- Mutual fund units
- Tax Treatment:
- STCG (≤12 months for equity):15% (if STT paid)
- LTCG (>12 months for equity):10% over ₹1 lakh
2. Intellectual Property
- Patents, copyrights, trademarks
- Goodwill of a business
- Tax Treatment:
- STCG (≤36 months):Slab rate
- LTCG (>36 months):20% with indexation
2. Classification Based on Holding Period
| ASSET TYPE | SHORT-TERM (STCG) | LONG-TERM (LTCG) |
| Immovable Property | ≤24 months | >24 months |
| Listed Equity Shares | ≤12 months | >12 months |
| Debt Funds, Gold | ≤36 months | >36 months |
| Unlisted Shares | ≤24 months | >24 months |
3. Special Categories of Capital Assets
A. Agricultural Land
- Rural Agricultural Land: Not a capital asset(no tax on sale)
- Urban Agricultural Land: Taxable if located within:
- Municipal limits (population ≥10,000)
- 8 km from municipal limits
B. Business vs. Investment Assets
- Business Assets(e.g., machinery): Treated as capital assets unless depreciable (Section 50 applies)
- Personal Use Assets: Only jewelry, art, and securities are taxable
C. Self-Generated Assets
- Goodwill of a business: No acquisition cost → Taxable as LTCG
- Right to Manufacture: Treated as an intangible capital asset
4. Tax Rates on Capital Gains (FY 2024-25)
| ASSET TYPE | STCG RATE | LTCG RATE |
| Listed Equity (STT Paid) | 15% | 10% (>₹1 lakh) |
| Debt Mutual Funds | Slab Rate | 20% with indexation |
| Real Estate | Slab Rate | 20% with indexation |
| Gold/Jewelry | Slab Rate | 20% with indexation |
| Unlisted Shares | Slab Rate | 20% with indexation |
5. Key Exemptions
- Section 54: Reinvest LTCG from property sale into 1 residential house(save tax).
- Section 54EC: Invest in REC/NHAI bonds (₹50L max)within 6 months (tax-free).
- Section 10(38): LTCG on equity shares (STT paid)was tax-free before FY 2018 (now 10%).
6. Compliance & Reporting
- ITR Forms: ITR-2 (individuals) / ITR-3 (businesses)
- TDS: 1% on property sale if value > ₹50L
- Capital Gains Disclosure: Mandatory in ITR
TIPS:
Capital assets are broadly categorized into tangible, intangible, and financial assets, with tax treatment varying based on:
✔ Holding period (STCG vs. LTCG)
✔ Nature of asset (equity, property, gold, etc.)
✔ Applicable exemptions (Sections 54, 54EC, 54F)
