Capital Asset, short-term and long-term, Capital gains

Capital Asset- Sec2(14) Capital asset means property of any kind held by an assessee, whether or not connected with his business or profession. Hence all the movable or immovable property including leasehold rights, partners share in a firm, a manufacturing right, etc are treated as capital assets.

 But the following assets are not included in the above definition. (a) Any stock-in-trade, consumable stores or raw materials held for the purpose of business. (b) Personal movable properties held for the personal use of the assessee, but excluding jewellery, archaeological collections, drawings, paintings, sculptures or any work of art. (c) Agriculture land in India not being situated in an Urban Area.

 (d) Some of the gold bonds, IDBI capital bonds (e) Gold deposit bonds issued by central government. The importance of this definition is that the gain made on transfer of any capital asset is liable to tax under the head Capital Gains. Capital assets are divided into short-term capital assets and long-term assets.

 Short-term capital asset- Sec 2(42A) To ascertain whether a particular asset is a short-term capital asset or a long-term asset, all such assets have been classified into two categories. (1) Share held in a company, any other listed security, a unit of UTI and units of mutual funds specified u/s 10(23D) or a zero coupon bond. (2) Other capital assets

 In the case of first category of capital assets, if they are held by an assessee for a period of less than 1 year, they are called short-term capital assets. In the case of second category of capital assets, if they are held for not more than 36 months, they are called short-term capital assets. The gain arising from the transfer of such short-term capital assets is called shortterm capital gains.

 Long-term capital asset- Sec 2(29A) If the capital asset is held by an assessee for more than 12 months in case of shares in a company or any other listed security, and for more than 36 months in case of other types of capital assets, they are called long-term assets. The gain arising from such long-term assets is called the long-term capital gains.

 Capital Gain Sec 45 The term capital gain means, any profit arising from the transfer of a capital asset. Such profits are treated as incomes of previous year in which the transfer took place and are taxable subject to certain exemptions.