1. Legal Definition (Section 2(14))
A capital asset means:
- Property of any kind held by an assessee (whether connected with business/profession or not)
- Includes:
- Real estate (land, buildings)
- Securities (shares, bonds, mutual funds)
- Jewelry, art, antiques
- Vehicles (if not stock-in-trade)
- Intangible assets (goodwill, patents, copyrights)
Exclusions (Not treated as capital assets):
- Stock-in-trade (business inventory)
- Personal effects (clothing, furniture) except:
- Jewelry
- Archaeological collections
- Drawings/paintings/sculptures
- Bullion
- Agricultural land in rural areas (outside municipal limits)
2. Classification for Capital Gains Tax
| ASSET TYPE | HOLDING PERIOD | TAX TREATMENT |
| Immovable Property | >24 months = LTCG ≤24 months = STCG |
LTCG: 20% with indexation STCG: Slab rate |
| Listed Shares/Equity MF | >12 months = LTCG ≤12 months = STCG |
LTCG: 10% (>₹1L) STCG: 15% (STT paid) |
| Debt Instruments | >36 months = LTCG ≤36 months = STCG |
LTCG: 20% with indexation STCG: Slab rate |
| Jewelry | >36 months = LTCG ≤36 months = STCG |
LTCG: 20% with indexation |
3. Special Categories
- Business vs Investment:Assets used in business are capital assets unless treated as stock
- Self-generated Assets:Goodwill of business (no acquisition cost = special valuation)
- Gifted Assets:Cost basis = market value on gift date
- Inherited Assets:Original cost + holding period includes predecessor’s tenure
4. Tax Planning Considerations
- Strategic Holding:Time sales to qualify for LTCG benefits
- Exemption Planning:Use Sections 54/54F for property reinvestment
- Indexation:Crucial for assets held long-term to reduce tax liability
- Business Restructuring:Conversion of capital asset to stock-in-trade triggers deemed transfer
5. Compliance Requirements
- Documentation:Maintain purchase/sale agreements, improvement receipts
- Valuation Reports:Needed for jewelry/art above ₹50,000
- ITR Reporting:Separate schedules for STCG and LTCG
Practical Example:
An investor buys ₹10L worth of equity shares on 1/4/2022 and sells on 1/6/2023 for ₹15L:
- Holding period = 14 months → LTCG
- Taxable gain = ₹5L – ₹1L exemption = ₹4L @10% = ₹40,000 tax
