Capital Assets

Land, building, house property, vehicles, patents, trademarks, leasehold rights, machinery, and jewellery are a few examples of capital assets. This includes having rights in or in relation to an Indian company. It also includes the rights of management or control or any other legal right.

Capital Assets Two Types:

1. Short-term capital asset An asset held for a period of 36 months or less is a short-term capital asset. The criteria of 36 months have been reduced to 24 months for immovable properties such as land, building and house property from FY 2017-18.

For instance, if you sell house property after holding it for a period of 24 months, any income arising will be treated as long-term capital gain provided that property is sold after 31st March 2017.

2. Long-term capital asset An asset that is held for more than 36 months is a long-term capital asset. The reduced period of the aforementioned 24 months is not applicable to movable property such as jewellery, debt-oriented mutual funds etc. They will be classified as a long-term capital asset if held for more than 36 months as earlier.

Some assets are considered short-term capital assets when these are held for 12 months or less. This rule is applicable if the date of transfer is after 10th July 2014 (irrespective of what the date of purchase is).

The assets are:

a. Equity or preference shares in a company listed on a recognized stock exchange in India

b. Securities (like debentures, bonds, govt securities etc.) listed on a recognized stock exchange in India

c. Units of UTI, whether quoted or not

d. Units of equity oriented mutual fund, whether quoted or not

e. Zero coupon bonds, whether quoted or not

When the above-listed assets are held for a period of more than 12 months, they are considered as long-term capital asset.

In case an asset is acquired by gift, will, succession or inheritance, the period for which the asset was held by the previous owner is also included when determining whether it's a short term or a long-term capital asset. In the case of bonus shares or rights shares, the period of holding is counted from the date of allotment of bonus shares or rights shares respectively.

Tax on Short-Term and Long-Term Capital Gains

Tax Type	Condition	Tax applicable
Long-term capital gains tax	Except on sale of equity shares/ units of equity oriented fund	20%
Long-term capital gains tax	On sale of Equity shares/ units of equity oriented fund	10% over and above Rs 1 lakh
Short-term capital gains tax	When securities transaction tax is not applicable	The short-term capital gain is added to your income tax return and the taxpayer is taxed according to his income tax slab.
Short-term capital gains tax	When securities transaction tax is applicable	15%.

Tax on Equity and Debt Mutual Funds

Gains made on the sale of debt funds and equity funds are treated differently. Any fund that invests heavily in equities (more than 65% of their total portfolio) is called an equity fund.

Funds	Effective 11 July 2014	On or before 10 July 2014
Debt Funds	Short-Term Gains Long-Term Gains At tax slab rates of the individual At 20% with indexation 15% Nil
Equity Funds	Short-Term Gains Long-Term Gains At tax slab rates of the individual 10% without indexation or 20% with indexation whichever is lower 15% Nil

Change in Tax Rules for Debt Mutual Funds

Debt mutual funds have to be held for more than 36 months to qualify as a long-term capital asset. It means you need to remain invested in these funds for at least three years to get the benefit of long-term capital gains tax. If redeemed within three years, the capital gains will be added to your income and will be taxed as per your income tax slab rate.

The following do not come under the category of capital asset:

a. Any stock, consumables or raw material, held for the purpose of business or profession

b. Personal goods such as clothes and furniture held for personal use

c. Agricultural land in rural India

d. 6½% gold bonds (1977) or 7% gold bonds (1980) or national defence gold bonds (1980) issued by the central government

e. Special bearer bonds (1991)

f. Gold deposit bond issued under the gold deposit scheme (1999) or deposit certificates issued under the Gold Monetisation Scheme, 2015

Definition of rural area (from AY 2014-15) – Any area which is outside the jurisdiction of a municipality or cantonment board, having a population of 10,000 or more is considered a rural area. Also, it should not fall within a distance (to be measured aerially) given below – (population is as per the last census).

Distance	Population
2 kms from local limit of municipality or cantonment board	If the population of the municipality/cantonment board is more than 10,000 but not more than 1 lakh
6 kms from local limit of municipality or cantonment board	If the population of the municipality/cantonment board is more than 1 lakh but not more than 10 lakh
8 kms from local limit of municipality or cantonment board	If the population of the municipality/cantonment board is more than 10 lakh

Capital gains are calculated differently for assets held for a longer period and for those held over a shorter period.

Would you like a CA help you with your Income Tax Returns ,Cyfrifpro ready to serve you doorstep service

For more details