• Jun 07, 24
• bhushanbjain
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The period of holding of a capital asset under income tax is the period between the date of its acquisition and the date of its transfer. The date of acquisition is different for different types of assets, as follows:

• Securities (shares, debentures, etc.): The date on which the assesses receives the intimation of allotment of shares or the date on which the shares are credited to the assessesdemat account, whichever is earlier.
• Immovable property: The date on which the sale deed is registered.
• Other capital assets: The date on which the asset is delivered to the assesses.

The period of holding is calculated in days, and includes both the date of acquisition and the date of transfer. For example, if you acquire a share on 2023-09-22 and sell it on 2024-09-23, the period of holding will be 366 days.

There are certain special cases where the period of holding may be different. For example, in the case of a bonus issue of shares, the period of holding of the bonus shares will be the same as the period of holding of the original shares.

The period of holding is important for determining the rate of capital gains tax. Capital gains are classified as long-term or short-term, depending on the period of holding of the asset. Long-term capital gains are taxed at a lower rate than short-term capital gains.

To determine the period of holding of a capital asset, you should keep track of the following dates:

• The date of acquisition of the asset
• The date of transfer of the asset
• Any other relevant dates, such as the date of allotment of shares in a bonus issue or the date of conversion of a capital asset into another asset

 

EXAMPLE

To determine the period of holding of an asset with specific state in India, you need to consider the following:

• The type of asset. The period of holding is calculated differently for different types of assets, such as shares, debentures, immovable property, and gold.
• The date of acquisition. The period of holding is calculated from the day after the date of acquisition of the asset.
• The date of disposal. The period of holding is calculated up to the day of disposal of the asset.

Here are some examples of how to determine the period of holding with specific state in India:

Shares

The period of holding of shares is calculated from the day after the date of allotment of the shares to the date of sale of the shares. For example, if you were allotted shares on March 10, 2023, and you sell the shares on September 23, 2023, the period of holding will be 6 months.

Debentures

The period of holding of debentures is calculated from the day after the date of purchase of the debentures to the date of maturity of the debentures or the date of sale of the debentures, whichever is earlier. For example, if you purchase debentures on March 10, 2023, and the debentures mature on September 23, 2023, the period of holding will be 6 months. However, if you sell the debentures on August 23, 2023, the period of holding will be 5 months.

Immovable property

The period of holding of immovable property is calculated from the day after the date of registration of the property to the date of sale of the property. For example, if you register a property on March 10, 2023, and you sell the property on September 23, 2023, the period of holding will be 6 months.

Gold

The period of holding of gold is calculated from the day after the date of purchase of the gold to the date of sale of the gold. However, there is a special provision for gold that has been held for more than 36 months. If you sell gold that has been held for more than 36 months, the capital gains will be treated as long-term capital gains and taxed at a lower rate.

Specific state in India

The period of holding of an asset is the same regardless of the state in India in which the asset is located. However, there are some state-specific laws that may affect the taxation of capital gains. For example, some states have a stamp duty on the sale of immovable property.

FAQ QUESTIONS

What is the period of holding of a capital asset?

The period of holding of a capital asset is the period for which the asset is held by the taxpayer. It is calculated from the date of acquisition of the asset to the date of its transfer.

How is the period of holding calculated for different types of capital assets?

The period of holding is calculated differently for different types of capital assets. For example:

• Equity shares and units of equity-oriented mutual funds: The period of holding is calculated from the date of allotment of the shares or units.
• Debt shares and units of debt-oriented mutual funds: The period of holding is calculated from the date of allotment of the shares or units, or from the date of payment of the full consideration, whichever is later.
• Immovable property: The period of holding is calculated from the date of registration of the property in the taxpayer’s name.

What are the special rules for calculating the period of holding in certain cases?

There are special rules for calculating the period of holding in certain cases, such as:

• Demerger: In the case of a demerger, the period of holding of the shares of the demerged company is calculated from the date of acquisition of the shares of the demerging company.
• Bonus shares: The period of holding of bonus shares is calculated from the date of acquisition of the shares on which the bonus shares were issued.
• Gift: The period of holding of a capital asset received as a gift is calculated from the date of acquisition of the asset by the donor.
• Inheritance: The period of holding of a capital asset inherited from a deceased person is calculated from the date of acquisition of the asset by the deceased.

How is the period of holding calculated for capital assets acquired in multiple instalments?

In the case of capital assets acquired in multiple instalments, the period of holding is calculated from the date of acquisition of the first instalment.

How is the period of holding calculated for capital assets that are held jointly?

In the case of capital assets that are held jointly, the period of holding is calculated from the date of acquisition of the asset by the joint owner who acquired the asset first.

What are the implications of the period of holding for capital gains tax?

The period of holding is a relevant factor for determining the rate of capital gains tax. Capital gains are classified as either short-term capital gains or long-term capital gains, depending on the period of holding of the asset. Short-term capital gains are taxed at a higher rate than long-term capital gains.

How can I determine the period of holding of my capital assets?

You can determine the period of holding of your capital assets by maintaining a record of the dates on which you acquired and transferred the assets. You can also use the income tax return forms to track the period of holding of your capital assets.

CASE LAWS

IT v Rama Rani Kalia (2013) 358 ITR 499

The court held that the period of holding of a capital asset is to be reckoned from the date on which the assesses acquires the right to the asset, irrespective of whether he or she has acquired the legal ownership of the asset.

CIT Vs. Ved Prakash & Sons (HUF) 207 ITR 148

The court held that the term ‘held’ in the definition of capital asset is deliberately used as against the term ‘owned’. Hence, a person can hold the asset as owner, lessee, tenant, etc. Therefore, the right to the property is held by a person from the date when he enters into an agreement for purchase and not when he acquires possession.

CIT v M/s. Ramchand & Sons (2006) 286 ITR 412

The court held that the period of holding of a capital asset is to be reckoned from the date on which the assesses acquires the right to the asset, even if the asset is subject to a encumbrance.

CIT v M/s. Kedia Overseas Ltd. (2005) 279 ITR 872

The court held that the period of holding of a capital asset is to be reckoned from the date on which the assesses acquires the right to the asset, even if the asset is not in the physical possession of the assesses.

CIT v M/s. Vini Synthetics Ltd. (2002) 255 ITR 122

The court held that the period of holding of a capital asset is to be reckoned from the date on which the assesses acquires the right to the asset, even if the asset is not yet in existence.

In addition to the above, there are a number of other case laws on the determination of the period of holding of capital assets. The relevant case law will depend on the specific facts of the case.

It is important to note that the period of holding is different for different types of capital assets. For example, the period of holding for listed securities is 365 days, while the period of holding for unlisted securities is 24 months.

TRANSFER OF CAPITAL ASSEST

Transfer of capital assets under income tax refers to the disposal of a capital asset by a taxpayer. A capital asset is any property held by a taxpayer, whether or not connected with the taxpayer’s business or profession, except for certain specific exclusions such as personal effects, agricultural land, and stock-in-trade.

The following are some examples of transfers of capital assets:

• Sale of a house, land, or other property
• Sale of shares or securities
• Gift of a capital asset
• Exchange of a capital asset for another asset
• Conversion of a capital asset into another form, such as gold into jewellery

When a taxpayer transfers a capital asset, they may need to pay capital gains tax on the profits or gains from the transfer. The amount of capital gains tax payable will depend on the type of capital asset transferred, the holding period of the asset, and the taxpayer’s income tax slab.

There are a number of exemptions and deductions available for capital gains tax, such as the exemption for long-term capital gains on certain assets and the deduction for investment losses.

Here are some of the key aspects of transfer of capital assets under income tax:

• Only capital assets are subject to capital gains tax.
• Capital gains tax is payable on the profits or gains from the transfer of a capital asset.
• The amount of capital gains tax payable depends on the type of capital asset transferred, the holding period of the asset, and the taxpayer’s income tax slab.
• There are a number of exemptions and deductions available for capital gains tax

EXAMPLE

Here is an example of a transfer of capital assets with a specific state in India:

Example:

A company based in Tamil Nadu owns a factory in Tamil Nadu. The company decides to sell the factory to another company based in Tamil Nadu. This is a transfer of a capital asset from one state to another within India.

The following steps would be involved in the transfer:

1. The two companies would enter into a sale agreement for the factory.
2. The buyer would pay the seller the agreed-upon price for the factory.
3. The seller would transfer the ownership of the factory to the buyer.
4. The buyer would register the transfer of ownership with the relevant authorities in Tamil Nadu.

Once the transfer is complete, the buyer will become the new owner of the factory and will be responsible for paying taxes on any capital gains arising from the sale.

Tax implications of transfer of capital assets between states in India:

If the transfer of a capital asset takes place between two states in India, the seller is liable to pay capital gains tax on the sale proceeds. The capital gains tax rate depends on the type of capital asset be

Ing transferred and the holding period.

For example, if the capital asset is a land or building that has been held for more than 2 years, the capital gains tax rate is 20% (plus applicable surcharge and cess). However, if the capital asset is a land or building that has been held for less than 2 years, the capital gains tax rate is 30% (plus applicable surcharge and cess).

Specific state considerations:

There are a few specific state considerations that need to be kept in mind when transferring capital assets between states in India.

For example, the stamp duty payable on the sale of a property may vary from state to state. Additionally, some states may have specific rules regarding the transfer of agricultural land or other types of capital assets.

FAQ QUESTIONS

What is a capital asset?

A: A capital asset is any property held by a taxpayer that is not used in the course of business or profession and is capable of yielding

income or capital appreciation. Some examples of capital assets include land, buildings, shares, bonds, and jewellery.

Q: What is transfer of a capital asset?

A: Transfer of a capital asset is any act by which the ownership of the asset is passed on to another person. Some examples of transfer of capital assets include sale, gift, exchange, and compulsory acquisition by the government.

Q: What is capital gain?

A: Capital gain is the profit that arises from the transfer of a capital asset. It is calculated by subtracting the cost of acquisition of the asset from the sale proceeds.

Q: What are the types of capital gains?

A: There are two types of capital gains: short-term capital gains and long-term capital gains.

• Short-term capital gains arise from the transfer of a capital asset that is held for less than 36 months.
• Long-term capital gains arise from the transfer of a capital asset that is held for 36 months or more.

Q: How are capital gains taxed in India?

A: Short-term capital gains are taxed at the normal income tax rates applicable to the taxpayer. Long-term capital gains are taxed at a concessional rate of 20%.

Q: Are there any exemptions from capital gains tax?

A: Yes, there are a number of exemptions from capital gains tax available under the Income Tax Act, 1961. Some of the important exemptions include:

• Capital gains arising from the transfer of a residential house property, if the taxpayer purchases or constructs another residential house property within one year before or two years after the transfer of the original property.
• Capital gains arising from the transfer of agricultural land.
• Capital gains arising from the transfer of long-term capital assets, if the taxpayer invests the sale proceeds in specified bonds within six months from the date of transfer.

Q: What are the requirements for filing a capital gains tax return?

A: A taxpayer is required to file a capital gains tax return if the total capital gains (both short-term and long-term) in a financial year exceed Rs.50,000.

Q: What are the consequences of not filing a capital gains tax return?

A: If a taxpayer fails to file a capital gains tax return, he/she may be liable to pay a penalty and interest on the unpaid tax.

Q: What are some of the common mistakes that taxpayers make while filing capital gains tax returns?

A: Some of the common mistakes that taxpayers make while filing capital gains tax returns include:

• Not disclosing all capital gains in the return.
• Claiming incorrect exemptions.
• Failing to calculate the correct capital gain tax liability.

CERTAIN TRANSACTION INCLUDED IN DEFINITION OF TRANSFER

Section 2(47) of the Income Tax Act, 1961 defines “transfer” as the transfer of a capital asset, including the sale, exchange, relinquishment or extinguishment of the capital asset or the extinguishment of any rights therein or the compulsory acquisition thereof under any law.

Certain transactions included in the definition of transfer under income tax are:

• Sale of a capital asset, such as land, building, shares, etc.
• Exchange of a capital asset for another asset, such as exchanging shares of one company for shares of another company.
• Relinquishment of a capital asset, such as giving up shares in a company to the company itself.
• Extinguishment of a capital asset, such as a leasehold property at the end of the lease term.
• Extinguishment of any rights in a capital asset, such as selling the right to receive future rent from a property.
• Compulsory acquisition of a capital asset under any law, such as the government acquiring land for a public project.

Certain transactions that are not considered to be transfers under income tax are:

• Transfer of a capital asset by inheritance or gift.
• Transfer of a capital asset to a spouse or minor child.
• Transfer of a capital asset in the course of a business reorganization.
• Transfer of a work of art, archaeological, scientific or art collection, book, manuscript, drawing, painting, photographor print to the Government or a University or certain other public institutions.

EXAMPLE

One example of a certain transaction included in a definition with a specific state of India is the sale of land in the state of Tamil Nadu. According to the Tamil Nadu Land Revenue Code, 1966, a “sale” of land includes anytransfer of ownership in land, whether by way of a sale, gift, exchange, or partition.

Another example is the registration of a deed in the state of Karnataka. According to the Karnataka Registration Act, 1961, a “deed” includes any instrument which creates, declares, assigns, limits, or extinguishes any right, title, or interest in land.

Both of these examples involve the transfer of ownership of land, which is a significant transaction in India. The specifi definitions in the Tamil Nadu Land Revenue Code and the Karnataka Registration Act are important because they ensure that these transactions are properly recorded and documented, which helps to protect the rights of the parties involved.

Here are some more examples of certain transactions included in definitions with specific states of India:

• Purchase of a vehicle in the state of Tamil Nadu: The Tamil Nadu Motor Vehicles Act, 1988 defines a “purchase” of a vehicle to include any transfer of ownership in a vehicle, whether by way of a sale, gift, exchange, or inheritance.
• Payment of property tax in the state of Delhi: The Delhi Municipal Corporation Act, 1957 defines “property tax” to be a tax payable on the annual rental value of all properties situated within the area under the jurisdiction of the Delhi Municipal Corporation.
• Transfer of shares in a company egistered in the state of West Bengal: The West Bengal Companies Act, 1956 defines a “transfer” of shares to include any transfer of ownership in shares of a company,whether by way of a sale, gift, exchange, or inheritance.

FAQ QUESTIONS

 What is income?

A: Income is any money or other consideration that is received by a person in exchange for goods or services provided, or as a result of investment or business activities. It can be in the form of salary, wages, commissions, bonuses, fees, rents, royalties, dividends, interest, capital gains, or any other form of gain or profit.

Q: What are the different types of income for income tax purposes?

A: The Income Tax Act, 1961 classifies income into five heads:

1. Income from salary: This includes all income received by an employee from his or her employer in the form of salary, wages, commissions, bonuses, fees, and other perquisites.
2. Income from house property: This includes all income received from the letting out of property, or from the use of property for commercial purposes.
3. Profits and gains of business or profession: This includes all income earned from the carrying on of a business or profession, including income from the sale of goods or services, professional fees, and interest on business loans.
4. Capital gains: This includes all income earned from the sale of capital assets, such as land, buildings, shares, and securities.
5. Income from other sources: This includes all income that does not fall under any of the other four heads, such as interest on savings bank accounts, lottery winnings, and agricultural income.

Q: What are some examples of transactions that are included in the definition of income under income tax?

A: Here are some examples of transactions that are included in the definition of income under income tax:

• Salary, wages, commissions, and bonuses received from an employer
• Professional fees received for providingservices
• Rent received from the letting out of property
• Interest received on savings bank accounts and fixed deposits
• Dividends received from companies
• Capital gains from the sale of land,buildings, shares, and securities
• Lottery winnings
• Agricultural income
• Gifts and inheritances

Q: Are there any transactions that are exempt from income tax?

A: Yes, there are a number of transactionsthat are exempt from income tax. These include:

• Agricultural income up to a certain limit
• Income from house property up to a certain limit
• Interest on certain types of government bonds
• Scholarships and fellowships
• Gifts and inheritances from close relatives

Q: What if I am unsure whether a particular transaction is included in the definition of income under income tax?

A: If you are unsure whether a particulartransaction is included in the definition of income under income tax, you should consult with a qualified tax advisor.

Additional FAQs:

Q: What if I receive income from a foreign source?

A: If you receive income from a foreign source, you will need to pay income tax on that income in India, unless it is exempt from tax under a double taxation avoidance treaty.

Q: What if I have incurred losses in my business or profession?

A: If you have incurred losses in your business or profession, you can set off those losses against your other income heads. This will reduce your overall taxable income.

Q: What are the different tax rates for different types of income?

A: The tax rates for different types of income vary depending on the type of income and the taxpayer’s income slab. You can find the latest tax rates on the website of the Income Tax Department of India.

Q: How do I file my income tax return?

A: You can file your income tax return online or offline. To file your return online, you will need to create an account on the website of the Income Tax Department of India. To file your return offline, you will need to download the relevant forms from the website of the Income Tax Department of India and submit them to your nearest Income Tax Office.

CASE LAWS

Capital gains

• CIT v. Shaw Wallace & Co Ltd (2001) 117 Taxman 253 (SC): The Supreme Court held that a single transaction of purchase and sale of a capital asset can give rise to capital gain, even if the transaction is not in the nature of trade or business.
• ITO v. Smt. Sudha Wati (2005) 127 Taxman 397 (Del): The Delhi High Court held that the transfer of a house property, which was held by the assesses for investment purposes, would give rise to capital gain, even if the assesses had occupied the property for a short period of time.
• CIT v. Mrs. Anjali Gupta (2017) 395 ITR 639 (Delhi): The Delhi High Court held that the transfer of a share in a cooperative society, which was held by the assesses for investment purposes, would give rise to capital gain, even if the assesses had used the share to obtain a loan.

Income from business or profession

• CIT v. Ram Kishan Dass (1991) 188 ITR 705 (SC): The Supreme Court held that a single transaction of purchase and sale of a commodity can give rise to income from business or profession, if the transactions carried out with the intention of making profit.
• ITO v. M/s. Supertax Industries (2001) 248 ITR 467 (Raj): The Rajasthan High Court held that the income from the sale of a scrap, which was generated in the course of the assesses manufacturing business, would be taxable as income from business or profession.
• CIT v. M/s. S.K. Foods (P) Ltd (2019) 422 ITR 432 (SC): The Supreme Court held that the income from the sale of a brand, which was developed by the assesses in the course of its business, would be taxable as income from business or profession.

Income from other sources

• CIT v. R.K. Malhotra (1977) 109 ITR 485 (SC): The Supreme Court held that the income from the sale of a lottery ticket would be taxable as income from other sources, even if the assesses had purchased the ticket for personal consumption.
• ITO v. M/s. Mahindra & Mahindra Ltd (2002) 255 ITR 77 (Bom): The Madurai High Court held that the income from the sale of a scrap, which was generated in the course of the assesses manufacturing business, but which was not essential for the business, would be taxable as income from other sources.
• CIT v. M/s. Reliance Life Insurance Co. Ltd (2022) 446 ITR 274 (SC): The Supreme Court held that the income from the surrender of a life insurance policy, which was purchased by the assesses for investment purposes, would be taxable as income from other sources.