A long-term capital asset is an asset held for more than 36 months before the date it is transferred. However, an asset is known as a capital asset even when it is held for more than 12 months in the following cases -

• Equity shares or preference shares that are listed on a recognized Indian stock exchange.
• Other securities listed on the Indian Stock Exchange
• Units of UTI
• Units of an equity-oriented fund
• Zero coupon bond
• Unlisted preference shares or equity shares held in a company (if these shares were transferred on or before 10th July 2014.
• Mutual fund units as specified under section 10(23D), except the equity-oriented fund.

Any asset that is held for less than or exactly for 36 months or 12 months is termed a short-term capital asset and is charged to tax at a different rate.

Capital assets are significant pieces of property like investments, stocks, bonds, homes, cars, and art collectibles. Capital assets generally have a useful life of more than one year and are not intended for sale in the due course of a business. For example, a car purchased for the purpose of reselling and not for use will be considered an inventory. However, a car purchased by a individual or a business for the purpose of use in the business is considered a capital asset.

Section 2(14) of the IT Act 1961 defines the capital asset as -

• Any kind of property held by the assessee, whether related to his/her business or not.
• Securities held by Foreign Institutional Investors (FIIs) who have invested in securities as specified by the SEBI Act, 1992.
• Any Unit Linked Insurance Policy (ULIP) that is not covered under the exemptions on clause 10D of section 10

Capital assets do not include the following -

• Any stock in trade except securities specified in sub-clause (b), raw materials, or consumable stores held for a business profession.

• Personal assets held by an individual for his/her use or for the use of dependants. However, assets like jewelry, drawings, paintings, sculptures, artwork, and archaeological collections.

Income that arises from selling a capital asset is known as capital gains. A capital asset includes any type of property that an assessee holds for any purpose. The capital assets are taxable in the hands of the receiver in the year of transfer of the capital asset. Such tax is known as capital gains tax. Capital gains tax is of two types - short-term capital gains and long-term capital gains.

The sale value of the asset is reduced by the cost of acquisition, and the profit from the sale is charged to tax as capital gains.

Given below are a few examples of capital assets -

• Land
• Building
• House property
• Patents
• Trademarks
• Vehicles
• Leasehold Property
• Machinery
• Jewellery