What are capital assets? A capital asset includes any property or security owned by an individual, regardless of its connection to his/her business. Securities which adhere to rules under the SEBI Act of 1992 classified as capital assets in India. The profits an individual makes from sale or transfer of a capital asset is termed Capital Gains and they attract a capital gains tax. Here are some examples of capital assets: land, building, house property, vehicles, patents, trademarks, leasehold rights, machinery, and jewellery. This includes having rights in or in relation to an Indian company. It also includes rights of management or control or any other legal right. The following are not considered capital assets :

• Any stock, consumables or raw material held for the purpose of business or profession.
• Personal goods such as clothes and furniture held for personal use.
• Agricultural land in rural India.
• 6½% gold bonds (1977) or 7% gold bonds (1980) or national defence gold bonds (1980) issued by the central government.
• Special bearer bonds (1991).
• Gold deposit bond issued under the gold deposit scheme (1999).

• Definition of the rural area (from AY 2014-15) – Any area which is outside the jurisdiction of a municipality or cantonment board, having a population of 10,000 or more is considered the rural area. Also, if it does not fall within a distance (to be measured aerially) given below – (population is as per the last census).

2 km from the local limit of municipality or cantonment board	If the population of the municipality/cantonment board is more than 10,000 but not more than 1 lakh
6 km from the local limit of municipality or cantonment board	If the population of the municipality/cantonment board is more than 1 lakh but not more than 10 lakh
8 km from the local limit of municipality or cantonment board	If the population of the municipality/cantonment board is more than 10 lakh

What are Long-Term and Short-Term Capital Assets? Short-term capital asset – An asset which is held for not more than 36 months or less is a short-term capital asset. Long-term capital asset – An asset that is held for more than 36 months is a long-term capital asset. From FY 2017-18 onwards – The criteria of 36 months has been reduced to 24 months in the case of immovable property being land, building, and house property. For instance, if you sell house property after holding it for a period of 24 months, any income arising will be treated as long-term capital gain provided that property is sold after 31st March 2017. But this change is not applicable to movable property such as jewellery, debt-oriented mutual funds etc. They will be classified as a long-term capital asset if held for more than 36 months as earlier. Some assets are considered short-term capital assets when these are held for 12 months or less. This rule is applicable if the date of transfer is after 10th July 2014 (irrespective of what the date of purchase is). The assets are:

• Equity or preference shares in a company listed on a recognized stock exchange in India
• Securities (like debentures, bonds, govt securities etc.) listed on a recognized stock exchange in India
• Units of UTI, whether quoted or not
• Units of equity oriented mutual fund, whether quoted or not
• Zero coupon bonds, whether quoted or not

When the above-listed assets are held for a period of more than 12 months, they are considered the long-term capital asset. In case an asset is acquired by gift, will, succession or inheritance, the period this asset was held by the previous owner is also included when determining whether it’s a short-term or a long-term capital asset. In the case of bonus shares or rights shares, the period of holding is counted from the date of allotment of bonus shares or rights shares respectively.