Meaning of Long Term and Short Term Capital Asset: A capital asset possessed by an assessee for more than 36 months immediately preceding the date of its transfer is known as the Long term of a capital asset.
An asset possessed for less than or for precisely 12 or 36 months will be acknowledged as a short term capital asset. However, in the following cases, the Capital asset shall be treated as a long term capital asset if it is retained for more than 12 months.
- Preference or Equity shares held in a company listed in recognised stock exchange in India
- Any other security registered in acknowledged in stock exchange in India
- Units of UTI (whether quoted or not)
- Equity-oriented units of the fund
- Zero-coupon bonds (whether quoted or not)
- Preference shares or Unlisted Equity held in a company (if the transferal of such shares takes place on or before 10th July 2014)
- Under section 10(23D), units of a mutual fund defined other than equity oriented fund (whether quoted or not, if the transferal of such shares happens on or before 10th July 2014)
In calculating the period date of transfer shall be excluded, and the date of purchase will be included.
- Under section 49(1), will be acquired under inheritance, etc. – The period of holding of the previous owner is also included.
- Right Shares – From the date of allotment of such right shares.
- Bonus Shares – From the date of allotment of such bonus shares.
- Sweat Equity Shares/ESOP – Date of allotment of such security.
- Liquidation of the company – The period subsequent to the company’s date goes into liquidation is excluded.
- Shares held in the resulting company or amalgamated – The period of holding in amalgamating/demerged company is included.
- Transfer of security in a Demat account – Period of holding shall be determined on a first-in-first-out basis.
In case the land is possessed by the assessee for more than 36 months, but the building on such land is built for less than 36 months, then there will be short term capital gain on the sale of the building and long term capital gain on the sale of land. Citibank v/s CIT
Suppose the asset is originally not held as a capital asset but is a capital asset at the time of transfer. In that case, the whole period of holding from the date of initial purchase is to be acknowledged.