Every property held by a taxpayer, being a movable or immovable asset, is considered as a capital asset. However, some personal assets and agriculture land are not considered as a capital asset. For instance, the capital asset includes house property, a plot of land, Jewellery, shares, etc.
A capital asset has to be bifurcated into the short-term capital asset or long-term capital asset on the basis of its period of holding by the owner. This distinction has been made because there is a higher tax rate on short-term capital gains in comparison to tax on long-term capital gains.
What is not considered as a capital asset?
The following assets are not considered as ‘Capital Assets’:
- Any stock-in-trade, consumable stores or raw material held for the purpose of business or profession are not considered as a capital asset. Thus, any profit arising from its sale is taxable as business income.
- Any agricultural land situated in any rural area in India is not a capital asset.
- Certain Gold Bonds have been excluded from the purview of a capital asset.
- Movable property held for personal use is not treated as a capital asset. For instance, clothes, wearing apparel, furniture, car, scooter, TV, refrigerator, musical instruments, gun, revolver, generator, etc.
Whether all personal assets are exempt from capital gains tax?
Any transfer of the personal asset is exempt from tax. However, following assets, even if they are meant for personal use, shall not be considered as personal assets and any gain arising from their sale shall be charged to tax:
- Jewellery including ornaments made of gold, silver, platinum or any other precious metal, etc.
- Archaeological collections
- Any work of art.
Whether all bonds are exempt from capital gains tax?
Profit arising from the transfer of any bond other than following shall be charged to capital gains tax:
- 6.5% Gold Bonds, 1977
- 7% Gold Bonds, 1980
- National Defense Gold Bonds, 1980
- Special Bearer Bonds, 1991
- Gold Deposit Bonds issued under Gold Deposit Scheme, 1999.
- Deposit certificates issued under the Gold Monetization Scheme, 2015
What are the types of Capital Asset?
For the computation of capital gain, a capital asset is bifurcated into a short-term capital asset or long-term capital asset on the basis of the period for which it was held by the owner before transfer. This distinction is important as the rate of tax is higher on short-term capital gains as compared to the long-term capital gains.
What is the period of holding?
In general, a capital asset is considered as a ‘short-term capital asset’ if it was held for a period of not more than 36 months, immediately before the date of its transfer. However, there are some exceptions to this general rule.
|Type of capital asset||Period of holding so as to treat a capital asset as short-term capital asset|
|Immovable property||Less than 24 months|
|Listed equity shares||Less than 12 months|
|Listed preference shares||Less than 12 months|
|Unlisted equity shares||Less than 24 months|
|Unlisted preference shares||Less than 24 months|
|Listed securities, i.e., debentures, bonds, government securities, etc.||Less than 12 months|
|Units of equity oriented funds (Listed or Unlisted)||Less than 12 months|
|Zero-Coupon Bonds (Listed or Unlisted)||Less than 12 months|
|Debt funds||Less than 36 months|
If a capital asset is treated as a short-term capital asset on the basis of its period of holding then it shall be treated as a long-term capital asset.
Whether capital gains tax is chargeable if I sell my personal car? If a motor car is used for personal purposes and it has never been used for business or profession, it is treated as a personal asset. A personal asset (except gold, jewellery, paintings, etc.) is not treated as a capital asset. Thus, the capital gains tax shall not be levied if a personal car is sold by a person.