Capital Asset AY 2026-27

Capital Asset

Introduction
A capital asset includes movable and immovable property held by an assessee, excluding certain personal assets and rural agricultural land.

Definition [Section 2(14)]

A capital asset includes:

• Any kind of property held by an assessee (movable, immovable, tangible, or intangible), whether used for business purposes or not.
• Securities held by FIIs or Category I/II AIFs as per SEBI/IFSC regulations.
• ULIPs not exempt under Section 10(10D) on account of the applicability of the fourth and fifth provisos thereof.

Exclusions

• Stock-in-trade:Treated as business income when sold.
• Personal Effects:Excludes movable property held for personal or family use except jewellery, archaeological collections, drawings, paintings, sculptures, or works of art.
• Rural Agricultural Land:An agricultural land situated in any rural area in India is not treated as capital asset.
• Specified Bonds:Includes 6.5% Gold Bonds 1977, 7% Gold Bonds, 1980, National Defence Gold Bonds, 1980, Special Bearer Bonds (1991), Gold Deposit Bonds issued under Gold Deposit Scheme, 1999; and Deposit certificates issued under the Gold Monetisation Scheme, 2015.

Agriculture Land:

The Income-tax Act does not specifically define “agricultural land”, but Section 2(14)(iii) lays down conditions to determine when such land is treated as a capital asset and when it is excluded. Exemption from capital gains tax applies only to rural agricultural land.

• When Treated as a Capital Asset

Agricultural land is considered a capital asset in the following cases:

• It is situated outside India.
• It is located within the limitsof a municipality or cantonment board with a population* of 10,000 or more.
• It is situated within certain distancesfrom such municipalities or cantonment boards (based on population):
  • Within 2 km: If population is more than 10,000 but not more than 1,00,000
  • Within 6 km: If population is more than 1,00,000 but not more than 10,00,000
  • Within 8 km: If population is more than 10,00,000

*The population of the entire municipality or cantonment board is considered based on the most recent Census (e.g., 2011 Census).

Classification of Capital Assets

For capital gain computation, assets are classified as short-term or long-term based on the holding period. This distinction is important since short-term gains are taxed at higher rates than long-term gains.

The holding period for classification of an asset into short-term and long-term has been enumerated in the below table.