Period of Holding of a Capital Asset
Introduction
The period of holding is the duration for which a capital asset is held by the owner before its transfer. It determines whether the asset is classified as a short-term or long-term capital asset, which impacts the applicable tax rate.
General Rule
The period of holding is calculated from the date of acquisition to the date of transfer. Special provisions apply in specific cases, as outlined below.
Special Cases for Period of Holding
- Securities and Shares
- Listed Shares:Shares are sold through brokers with delivery, the broker’s note date is treated as the date of transfer, and the holding period is counted up to that date.
- Demat Securities:Determined using the FIFO method (First-In-First-Out).
- Bonus Shares:Period begins on the allotment date.
- Sweat Equity Shares:Starts from the allotment or transfer date.
- Conversion of Shares/Debentures:Includes the period for which the original asset (e.g., preference shares, bonds) was held.
- Rights Shares: Period begins on the allotment date.
- Renouncement of Right: A shareholder’s right to subscribe is a capital asset, and if renounced, its holding period is from the offer date to the date of renouncement.
- Shares of Company in Liquidation: For shares in a company under liquidation, the holding period excludes the time after the liquidation date.
- Amalgamation and Demerger:Period of original shares held in the amalgamating or demerged company is included.
- Shares of Resulting Company: the holding period of resulting co. shares is counted from the date of holding of the shares in the demerged company.
- Acquisition by Operation of Law (Section 49(1))
- Includes the holding period of the previous owner who acquired the asset through purchase.
- Conversion of Stock into Capital Asset
- Holding period is counted from the date of conversion.
- In Case of Unit of Business Trust
- For business trust units allotted against SPV shares, the holding period includes the time the shares were held.
- Conversion of Branch into Subsidiary
- In case of conversion under Section 115JG, the holding period includes the time the asset was held by the branch or the previous owner under Section 49(1).
- Redemption of GDRs
- For non-residents, the holding period of shares received on GDR redemption is counted from the date of redemption request.
- Mutual Fund Consolidation and Segregated Portfolios
- The holding period includes the time the original units were held in the respective original scheme or main portfolio.
- Trading/Clearing Rights
- Includes the period of membership in the stock exchange before demutualisation.
- Declared Assets Under IDS 2016
- For immovable property: From the date of acquisition or June 1, 2016, if registered deed is missing.
- For other assets: From June 1, 2016.
- Electronic Gold Receipts (EGRs)
- Combines the holding period of gold and the EGR.