Capital Assets & Capital Tax


Capital Assets & Capital Tax

A capital asset encompasses any form of asset or property owned by an individual, regardless of its association with their business or profession. This category includes various items such as land, real estate properties like residential and commercial buildings, shares, stocks, securities, bonds, mutual funds, vehicles, trademarks, patents, machinery, jewelry, historical artifacts, and artworks like paintings and sculptures.

• Inventory used in business operations, consumable supplies, and raw materials
• Personal items like furniture and clothing
• Agricultural land located in rural areas
• Specific types of bonds such as 6.5% gold bonds, national defense gold bonds, special bearer bonds, defense gold bonds, and special bearer bonds
• Gold deposit bonds held under the Gold Deposit Scheme 1999.

When you dispose of a capital asset, the profit or loss resulting from the transaction is referred to as a capital gain or capital loss, respectively. In India, these gains are subject to taxation under the category of ‘Capital Gain tax’ in the year of the sale. The classification of the gain as either ‘Long Term’ or ‘Short Term’ depends on the duration for which the capital asset has been held by the taxpayer. Below are the key rules regarding this:

Asset Type

Long Term Capital Asset

Short Term Capital Asset

Immovable property (including land and buildings)

Held for more than 24 months

Held for upto 24 months

Shares & Securities (including equity or preference shares of a company listed on a recognized stock exchange, debentures, bonds, Government securities, equity oriented mutual funds, zero coupon bonds)

Held for more than 12 months

Held for upto 12 months

Any other capital asset

Held for more than 36 months

Held for upto 36 month


Long-term capital gains (LTCG) are subject to a 20% tax rate, and the acquisition cost of the asset is adjusted based on its current value using the ‘Cost Inflation Index.’ Additionally, the Income Tax Act offers various tax-exempt reinvestment options for LTCG, providing opportunities to reduce the tax liability.

Short-term capital gains (STCG) are subject to taxation at either 15% or the applicable slab rates, depending on the type of asset being sold.

To calculate capital gains, you should determine the Full Value of Consideration (FVC). From the FVC, you can deduct the following expenses:

  • Expenditure related to the transfer
  • Cost of acquisition (indexed if it’s a long-term capital asset)
  • Cost of improvement (indexed if it’s a long-term capital asset)

You can claim exemptions under various sections to reduce the capital gains tax liability from the resulting amount.

Our specialized services focus on helping NRIs compute capital gains from property sales, provide guidance on lower tax certificates, and assist with tax filing