Under the Income Tax Act of India, 1961, a capital asset is defined as any kind of property held by an assesses, whether or not connected with business or profession of the assess. It includes:

• Immovable property (land and buildings)
• Movable property (such as jewelry, vehicles, and machinery)
• Shares and securities
• Debentures
• Unit trusts
• Zero coupon bonds
• Any other kind of property held as investment

The following are not considered capital assets:

• Stock-in-trade
• Personal effects
• Agricultural land in rural areas
• Special bearer bonds
• Gold deposit bonds
• Deposit certificates under Gold Monetization Scheme 2015

Capital assets can be classified into two types:

• Long-term capital assets (LTCAs): These are assets held for more than the prescribed holding period. The holding period for different types of assets varies. For example, the holding period for immovable property is 24 months, while the holding period for listed shares is 12 months.
• Short-term capital assets (STCAs): These are assets held for less than or equal to the prescribed holding period.

When you sell a capital asset, you have to pay capital gains tax on the profits you make. The rate of capital gains tax depends on the type of asset and your income tax slab.

Here are some examples of capital assets:

• A house that you own and rent out
• Shares in a company that you bought for investment purposes
• A gold necklace that you bought as an investment
• A piece of land that you bought for investment purposes
• A machine that you use in your business

EXAMPLE

• Immovable property (land or building or both)located in India.
• Shares of Indian companies, listed or unlisted.
• Units of Indian mutual funds.
• Bonds issued by the Indian government or Indian companies.
• Gold and silver held in physical form or in the form of digital gold or silver receipts issued by authorized agencies in India.
• Intellectual propertysuch as patents, trademarks, and copyrights, created or registered in India.
• Good will of a business operating in India.

Here are some specific examples:

• A house located in Mumbai, Maharashtra.
• Shares of Tata Consultancy Services Limited, a listed company headquartered in Mumbai, Maharashtra.
• Units of Axis Blue chip Fund, a mutual fund scheme managed by Axis Asset Management Company Limited, a company based in Mumbai, Maharashtra.
• A 10-year government bond issued by the Reserve Bank of India.
• Physical gold held in a bank locker in Delhi, India.
• A patent for a new invention granted by the Indian Patent Office.
• The goodwill of a restaurant business operating in Chennai, Tamil Nadu.

CASE LAWS

The Income Tax Act, 1961 (ITA) defines a capital asset as any property held by an assesses, whether or not connected with the business or profession of the assesses, including:

• Immovable property (being land or building or both)
• Movable property held for investment, such as shares, securities, bonds, etc.
• Agricultural land in India, not being a land situated within the limits of a municipality or cantonment board

However, certain types of assets are specifically excluded from the definition of a capital asset, such as:

• Stock-in-trade, consumable stores, raw materials held for the purpose of business or profession
• Movable property held for personal use of the taxpayer or for any member of his family dependent upon him
• Specified Gold Bonds and Special Bearer Bonds
• Agricultural land in India, not being a land situated within the limits of a municipality or cantonment board

The following are some case laws related to the type of capital assets with a specific state in India:

Case Law: CIT v. Graphite India Ltd. [2004] 89 ITD 415 (Kolkata. – Trib.)

State: West Bengal

Issue: Whether the right to receive mining lease for a period of 20 years was a capital asset

Held: The right to receive a mining lease for a period of 20 years was a capital asset, even though it was not yet in possession of the assesses.

Case Law: CIT v. Shriram Pistons & Rings Ltd. [2004] 89 ITD 432 (Del.)

State: Delhi

Issue: Whether the right to use a trademark for a period of 10 years was a capital asset

Held: The right to use a trademark for a period of 10 years was a capital asset, even though it was not a tangible property.

Case Law: CIT v. M/s. Asoka Estates Ltd. [2005] 92 ITD 441 (Kol.)

State: West Bengal

Issue: Whether the right to develop a real estate project was a capital asset

Held: The right to develop a real estate project was a capital asset, even though it was not yet in existence.

Case Law: CIT v. M/s. Reliance Industries Ltd. [2006] 100 ITD 346 (Bom.)

State: Maharashtra

Issue: Whether the right to receive a gas supply contract for a period of 20 years was a capital asset

Held: The right to receive a gas supply contract for a period of 20 years was a capital asset, even though it was not a tangible property.