What is Capital Assets?: Types, Taxation & Exemptions

If you are new to taxes, one of the most important things you should know about is capital gains tax . Apart from your income, you are required to pay taxes on your capital gains too. Capital gains are the gains that you have made by ‘transferring’ a capital asset.This transfer could be in the form of selling, exchanging, converting, maturing, or extinguishing the asset. But what are the different types of capital assets whose transfer leads to capital gains? Let us have a look-

A capital asset can be defined as a property which could be-

• House
• Land
• Security
• Machinery
• Vehicle
• Trademark and Patent
• Leasehold rights

Having relation or right in any Indian company is also considered a capital asset.

Capital assets can be of two kinds- LTCA (Long-Term Capital Asset) and STCA (Short-Term Capital Asset). LTCA are assets that are held for a period longer than the prescribed holding period. STCA are assets held for a duration lesser than the prescribed holding period.The holding period varies for different types of assets. Similarly, the capital gains tax also varies for LTCAs, which attract LTCG (Long-Term Capital Gains) tax and STCAs that attract STCG (Short-Term Capital Gains) tax .

Here is a list of holding period for defining LTCA and STCA-

For STCAs, the STCG is added to the taxable income of the taxpayer and is then taxed as per the income tax bracket. The only exception here is listed equity shares and equity-oriented mutual funds that attract STCG tax at 15%.The LTCG tax varies based on the type of asset held. Here is a list of LTCG tax on common LTCAs-

The profits earned under assets can be claimed for Tax exemption under Section 54, Section 54F and Section 54EC.

Section 54-

The capital gains earned by transferring the ownership of the property is liable for tax exemption undercondition that the capital gains used to purchase the second property should be done within 2 years.

Section 54F-

One can claim an exemption under this section when capital gains are earned on Long term assets excluding residential properties.

Section 54EC

Under this section, exemptions can be claimed if the amount earned by selling a property is invested into specific bonds from where capital gains are earned.

If you have capital assets and are planning to transfer or sell the same soon, do understand the applicable capital gains tax for your asset in detail. Some capital assets, like property and land, also come with deductions. Make use of such deductions to reduce your income tax liability.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.