Capital assets1 are property of any kind that a taxpayer holds, regardless of whether or not it is related to the business or profession that he practices. The following are not included under capital assets:
- Consumables or raw materials, possessed by a taxpayer for the purpose of his business or profession.
- Movable property like clothes and furniture that count as personal effects of the taxpayer or his family, valuables like jewellery, archaeological collections and artworks are considered as capital assets.
- Agricultural land
- Gold bonds
- Special bearer bonds
- Gold deposit bond
Depending on how long they are held by the taxpayer, capital assets may be classified as –
- Short-term capital asset: An asset held for 36 months or less, right before it is transferred. For immovable property, this time limit is 24 months. 2
- Long-term capital asset: An asset held for any time longer than 36 months is considered so. 3
- Section 2(14), Income Tax Act, 1961
- Section 2 (42A), Income Tax Act, 1961
- Section 2(29A), Income Tax Act, 1961