Meaning of Capital Assets- Definition, Example, and its Types

Under the Income Tax Act, the capital gain is calculated on the sale or transfer of capital assets, the same is defined u/s 2(14) of the Income Tax Act, 1961. In this post, we will discuss the Meaning of Capital Assets with definitions, examples, etc.

Meaning of Capital Assets

Meaning of Capital Assets- In General, Land, building, house property, vehicles, patents, trademarks, leasehold rights, machinery, and jewelry are some of the examples of capital assets. This also includes having rights in or in relation to an Indian Company and includes the right of management or control or any other legal rights.

Definition of Capital Assets

As per section 2(14) of the Income Tax Act, 1961, the definition of capital assets is described as under-

Capital asset” means—

(a) property of any kind held by an assessee, whether or not connected with his business or profession;

(b) any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992 (15 of 1992),

but does not include—

(i) any stock-in-trade [other than the securities referred to in sub-clause (b)], consumable stores or raw materials held for the purposes of his business or profession ;

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(ii) personal effects, that is to say, movable property (including wearing apparel and furniture) held for personal use by the assessee or any member of his family dependent on him, but excludes—

(a) jewellery;

(b) archaeological collections;

(c) drawings;

(d) paintings;

(e) sculptures; or

(f) any work of art.

Explanation 1.—For the purposes of this sub-clause, “jewelry” includes—

(a) ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stone, and whether or not worked or sewn into any wearing apparel;

(b) precious or semi-precious stones, whether or not set in any furniture, utensil, or other article or worked or sewn into any wearing apparel.

Explanation 2.—For the purposes of this clause—

(a) the expression “Foreign Institutional Investor” shall have the meaning assigned to it in clause (a) of the Explanation to section 115AD;

(b) the expression “securities” shall have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956);

(iii) agricultural land in India, not being land situate—

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(a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand; or

(b) in any area within the distance, measured aerially,—

(I) not being more than two kilometers, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten thousand but not exceeding one lakh; or

(II) not being more than six kilometers, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than one lakh but not exceeding ten lakh; or

(III) not being more than eight kilometers, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten lakh.

Explanation.For the purposes of this sub-clause, “population” means the population according to the last preceding census of which the relevant figures have been published before the first day of the previous year;

(iv) 6½ percent Gold Bonds, 1977, or 7 percent Gold Bonds, 1980, or National Defence Gold Bonds, 1980, issued by the Central Government;

(v) Special Bearer Bonds, 1991, issued by the Central Government ;

(vi) Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 1[or deposit certificates issued under the Gold Monetisation Scheme, 2015] notified by the Central Government.

Explanation.— For the removal of doubts, it is hereby clarified that “property” includes and shall be deemed to have always included any rights in or in relation to an Indian company, including rights of management or control or any other rights whatsoever;

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Types of Capital Assets Under Income Tax

Under Income Tax, Capital Assets are of two types-

  1. Short Term Capital Assets
  2. Long Term Capital Assets

Short Term Capital Asset

Short Term Capital Asset, defined under section 2(42A) of the Income Tax Act. According to this capital asset held by an assessee for not more than 36 months immediately preceding the date of transfer is known as a Short Term Capital Asset.

Exception:-

The following are two exceptions for the period of Short Term Capital Asset.

1) The following assets shall be treated as short term capital assets if they are held for not more than 12 months (instead of 36 months mentioned above) immediately preceding the date of its transfer.

a) security including shares (other than units) listed in a recognized stock exchange.

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b) a unit of an equity oriented fund

c) a zero coupon bond

2) The following assets shall be treated as short term capital assets if they are held for not more than 24 months (instead of 12/36 months mentioned above) immediately preceding the date of its transfer.

a) Share of a company (not being a share listed in a recognized stock exchange)

b) An immovable property being land and building or both.

Long Term Capital Asset

Long Term Capital Assets, defined under section 2(29A) of the Income Tax Act. According to this, it means a capital asset that is not a Short term capital asset.

Frequently Asked Questions- FAQs

  1. What is the meaning of capital assets?

    In General, Land, building, house property, vehicles, patents, trademarks, leasehold rights, machinery, and jewelry are some of the examples of capital assets. This also includes having rights in or in relation to an Indian Company and includes the right of management or control or any other legal rights.

  2. What is an example of capital assets?

    In General, Land, building, house property, vehicles, patents, trademarks, leasehold rights, machinery, and jewelry are some of the examples of capital assets.

  3. What is the capital assets and its type?

    Meaning of Capital Assets
    In General, Land, building, house property, vehicles, patents, trademarks, leasehold rights, machinery, and jewelry are some of the examples of capital assets. This also includes having rights in or in relation to an Indian Company and includes the right of management or control or any other legal rights.

    Under Income Tax, Capital Assets are of two types-
    1)
    Short Term Capital Assets
    2) Long Term Capital Assets

  4. What is capital assets in Income Tax?

    As per Income Tax Act, Capital asset” means—
    (a) property of any kind held by an assessee, whether or not connected with his business or profession;
    (b) any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992 (15 of 1992),

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Disclaimer: The information contained in the above article are solely for informational purpose after exercising due care. However, it does not constitute professional advice or a formal recommendation. The author does not own any responsibility for any loss or damage caused to any person, directly or indirectly, for any action taken on the basis of the above article.

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Compiled by- CA Chirag Agarwal (Practicing Chartered Accountants)

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