Short Term and Long Term Capital Assets and Gains under Income Tax
In this post, we will look at what is short term and long term capital gains under Income Tax in India. These are very relevant concepts as the taxation rate and treatment of both are different.
To arrive at what is Short Term/Long Term capital gains, first, we have to look at what is Short Term Capital Asset and what is Long Term Capital Asset under Income Tax.
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Definition of Short-Term Capital Asset :
Section 2(42A) of the Income Tax Act defines what is short-term capital asset. We summarize the definition under the following heads :
There are three types of short-term capital Assets based on the period of holding of the same :
(a) Assets held for one year or less:
Shares (listed in recognized stock exchange) or Units of Unit Trust of India or units of Equity oriented funds or Zero coupon bonds if held for 1 year or less will fall under the category of short-term capital assets.
(b) Assets held for 2 years or less :
Shares of any Unlisted company or any land or building if held for 2 years or less will come under the definition of short-term capital assets.
(c) Assets held for 3 years or less :
All the capital assets (other than as mentioned in (a) & (b) will come under this category such as units of Debt mutual funds etc.
Definition of Long-Term Capital Asset :
Long Term Capital Asset is defined under section 2(29AA) of the Income Tax Act which states that any asset that is not a short-term capital asset will be termed as Long Term Capital Asset.
Thus in the case of Shares (listed), UTI units and zero coupon bonds, if held for more than a year will be long-term capital assets.
Similarly, unlisted shares and land and buildings, if held for 2 years or more will be long-term capital assets.
Any other asset will be long-term if it is held for more than 3 years.
Short-Term and Long-Term Capital Gains :
Any gain resulting from the sale of short-term capital assets will be termed and treated as Short Term Capital gains.
Any gain resulting from sale of long-term capital assets will be termed and treated as Long Term Capital gains.
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