Under the Income Tax Act, 1961, a capital asset is defined to include any kind of property held by an assesses, whether or not connected with the business or profession of the assesses. The term “property” includes:

• Immovable property (land and building)
• Movable property (such as machinery, plant, furniture, vehicles, etc.)
• Securities (such as shares, bonds, debentures, etc.)
• Cash or any other form of currency
• Any other right or interest in property

Certain exceptions to the definition of capital assets include:

• Stock-in-trade
• Personal effects (such as clothes, jewelry, etc.)
• Agricultural land
• Agricultural produce
• Gold deposited under the Gold Deposit Scheme, 1999

The classification of a capital asset as short-term or long-term is based on the period of holding of the asset. An asset held for not more than 24 months is considered a short-term capital asset, and an asset held for more than 24 months is considered a long-term capital asset.

Capital gains are taxed differently depending on whether they are short-term or long-term. Short-term capital gains are taxed at the same rate as the taxpayer’s income slab, while long-term capital gains are taxed at a lower rate.

It is important to note that the definition of capital assets under the Income Tax Act is wider than the definition of the term in general law. This means that certain assets that are not generally considered to be capital assets may be considered capital assets for the purposes of income tax.

Here are some examples of capital assets under the Income Tax Act:

• Land and building
• Shares and bonds
• Gold and silver
• Vehicles
• Machinery and plant
• Furniture and fixtures
• Intellectual property (such as patents, copyrights, trademarks, etc.)

EXAMPLES

Examples of capital assets in India:

• Movable property:
  • Land
  • Buildings
  • Machinery
  • Computer hardware
  • Vehicles
  • Furniture and fixtures
  • Jewelry
  • Paintings
  • Antiques
• Immovable property:
  • Agricultural land
  • Residential land
  • Commercial land
• Intangible property:
  • Patents
  • Trademarks
  • Copyrights
  • Goodwill
  • Shares and securities
  • Unit-linked insurance policies

Specific examples of capital assets in India:

• A house in Chennai, Tamil Nadu
• A plot of land in Bangalore, Karnataka
• A factory in Mumbai, Maharashtra
• A fleet of trucks in Delhi
• A portfolio of shares in Indian companies
• A unit-linked insurance policy issued by an Indian insurance company

FAQ QUESTIONS

What are capital assets under income tax?

A: Capital assets are any kind of property held by an assesses, whether or not connected with his business or profession. This includes:

• Immovable property, such as land, buildings, and houses
• Movable property, such as jewelry, vehicles, and machinery
• Securities, such as shares, bonds, and debentures
• Other assets, such as intellectual property and goodwill

Q: What are not considered capital assets under income tax?

A: The following are not considered capital assets under income tax:

• Stock-in-trade
• Personal effects, such as furniture, clothing, and books
• Agricultural land
• Any asset held for a period of less than 36 months (for individuals and HUFs) or 24 months (for other taxpayers)

Q: What is the significance of capital assets under income tax?

A: Capital assets are significant under income tax because any gain or loss arising from the transfer of a capital asset is taxable. This is known as capital gains and losses. Capital gains are taxed at a lower rate than ordinary income. However, there are certain exemptions and deductions available for capital gains.

Q: What are some examples of capital assets under income tax?

A: Some examples of capital assets under income tax include:

• A house
• A car
• A plot of land
• Shares of a company
• Bonds
• Mutual fund units
• Gold
• Antiques
• Artwork
• Intellectual property, such as patents and copyrights

Q: What are some tips for managing capital gains tax?

A: Here are some tips for managing capital gains tax:

• Hold your investments for the long term. Capital gains tax rates are lower for long-term capital gains (assets held for more than 36 months) than for short-term capital gains (assets held for less than 36 months).
• Harvest your capital gains tax losses. If you have a net capital loss in a given year, you can offset it against your other income. You can also carry forward your capital losses to future years to offset your capital gains.
• Invest in tax-efficient assets. Certain assets, such as tax-saving mutual funds and ELSS funds, offer tax benefits on capital gains.
• Consult a tax advisor. A tax advisor can help you develop a tax-efficient investment strategy and manage your capital gains tax liability.

CASE LAWS

• CIT v. Ramakrishna Dalmia (1963) 50 ITR 83 (SC): The Supreme Court held that the term “capital asset” is of wide amplitude and includes all property held by an assesses, whether or not connected with his business or profession.
• Madathil Brothers v. Dy. CIT (2008) 301 ITR 345 (Mad.): The Madras High Court held that the word “held” in the definition of “capital asset” does not necessarily mean ownership. It also includes cases where the assesses has possession and control over the asset.
• CIT v. Shakuntala Devi (2009) 319 ITR 21 (Del.): The Delhi High Court held that a right to construct additional storey on account of increase in available floor space index (FSI) is a capital asset and an assignment of the same is a capital receipt.
• CIT v. S.S. Khan (2017) 376 ITR 1 (SC): The Supreme Court held that the right to receive deferred compensation is a capital asset in the hands of the assesses.
• ACIT v. Dhurandhar Industries Pvt. Ltd. (2021) 443 ITR 497 (Bom.): The Bombay High Court held that a trademark is a capital asset even if it is not registered.