There are two types of capital assets:
- Short Term Capital Assets
- Long Term Capital Assets
As per period of holding tax payer need to determine its type of asset and accordingly determine the taxation rues.
Period of Holding for Capital Assets Classification (Long Term / Short Term)
| Description of Asset | Before AY 2017-18 | AY 2017-18 onwards |
| Securities listed on recognised stock exchange (Other than units), unit of equity-oriented funds, Unit of UTI and Zero Coupon Bonds | Short term capital asset if held for less than 12 months | Short term capital asset if held for less than 12 months |
| Long term capital asset if held for more than 12 months | Long term capital asset if held for more than 12 months | |
| Unlisted shares, Land and Building or Both | Short term capital asset if held for less than 36 months | Short term capital asset if held for less than 24 months |
| Long term capital asset if held for more than 36 months | Long term capital asset if held for more than 24 months | |
| Units of Debt oriented fund, Unlisted securities other than shares and | Short term capital asset if held for less than 36 months | Short term capital asset if held for less than 36 months |
| Long term capital asset if held for more than 36 months | Long term capital asset if held for more than 36 months | |
| Immovable properties such as land, building and house property | Short term capital asset if held for less than 36 months | Short term capital asset if held for less than 24 months |
| Long term capital asset if held for more than 36 months | Long term capital asset if held for more than 24 months | |
| Other remaining capital assets | Short term capital asset if held for less than 36 months | Short term capital asset if held for less than 36 months |
| Long term capital asset if held for more than 36 months | Long term capital asset if held for more than 36 months |
Tax implication of Capital Assets
- Short Term Capital Gains
a. Where STT is charged on sale of asset Section 111A applies
Tax @15% is applicable.
b. Where STT is not Charged or is not applicable –
Amount of capital gains added to the other income tax return items and tax as per the tax slab of that tax payer.
2. Long Term Capital Gains –
a. Where STT is charged on sale of asset Section 111A applies
Gain arises from sale of Equity shares or unit of equity oriented bonds
Tax @ 10% is applicable on the capital gains exceeding Rs100000/-
b. Where STT is not Charged or is not applicable –
Gain arises from sale of capital assets other than Equity shares or unit of equity oriented bonds
Tax at 20% is applicable.
Important Amendment of Finance Act, 2020 regarding Segregated Portfolio of Mutual Fund
SEBI has, vide circular SEBI/HO/IMD/DF2/CIR/P/2018/160 dated December 28, 2018, permitted creation of segregated portfolio of debt and money market instruments by Mutual Fund schemes. As per the SEBI circular, all the existing unit holders in the affected scheme as on the day of the credit event shall be allotted equal number of units in the segregated portfolio as held in the main portfolio. On segregation, the unit holders come to hold same number of units in two schemes –the main scheme and segregated scheme.
Two Situation arises after the circular issued:-
- Period of holding for segregated units and
- Cost of acquisition for segregated and original units.
- Period of Holding for segregated units
Section 2(42A) specify the methods of calculation of period of holding. But this section does not have any clause regarding period of holding of segregated units. Hence Finance Act, 2020 amended Section 2(42A) and inserted clause that ‘the period of holding of a capital asset being unit or units in a segregated portfolio shall include the period for which the original unit or units in the main portfolio were held by the assessee.’
- Cost of acquisition for segregated and original units
Finance Act, 2020 inserted Section 49(2AG) and 49(2AH) for determination of cost of acquisition in case of segregated and original units.
Section 49(2AG) state that, The cost of acquisition of a unit in the segregated portfolio shall be the amount which bears to the cost of acquisition of a unit held by the assessee in the total portfolio, the same proportion as the net asset value of the asset transferred to the segregated portfolio bears to the net asset value of the total portfolio immediately before the segregation of portfolios.’
Further Section 49(2AH) state that, the cost of the acquisition of the original units held by the unit holder in the main portfolio shall be deemed to have been reduced by the amount so arrived as per Section 49(2AG).
Formula –
| (No of Units * Purchase price of Original Unit * NAV segregated portfolio) ÷ |
| (NAV of Main Portfolio + Segregated Portfolio) |
Wrtten by Kanuj Gupta
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