Meaning of Capital Asset [Section 2(14)] and exclusions
# Meaning of 'Capital Asset' — Section 2(14)
A capital asset means:
Property of any kind held by an assessee, whether or not connected with business or profession;
Securities held by FIIs and Investment Funds u/s 115UB (per Finance Act 2025);
Any ULIP to which the exemption u/s 10(10D) does NOT apply (i.e. where annual premium exceeds ₹2,50,000 in any previous year).
## What is NOT a capital asset (exclusions)
1. Stock-in-trade, consumable stores or raw materials held for business/profession (other than securities held by FIIs).
2. Personal effects — movable assets held for personal use by the assessee or a dependent family member.
BUT the following 'personal effects' ARE treated as capital assets (i.e. taxable):
Jewellery, archaeological collections, drawings, paintings, sculptures, or any work of art.
3. Rural agricultural land in India.
4. Specified Gold Bonds issued in 1977 and 1980.
5. Special Bearer Bonds, 1991.
6. Gold Deposit Bonds, 1999.
7. Certificates under the Gold Monetisation Scheme, 2015 / 2019.
## Meaning of 'Jewellery'
Jewellery includes:
Ornaments made of gold, silver, platinum or other precious metals — with or without precious/semi-precious stones — and whether or not worked or sewn into apparel; and
Precious or semi-precious stones, whether or not set in furniture.
Worked example
### Example 1
Personal car vs jewellery. A personal-use motor car sold at a gain is a 'personal effect' and NOT a capital asset — no capital gains arise. However, if the same person sells personal jewellery at a gain, jewellery is expressly a capital asset and the gain IS taxable.
### Example 2
Rural agricultural land. Sale of agricultural land situated in a rural area (outside the specified municipal limits/distances) is not a transfer of a capital asset, so no capital gains tax arises — unlike urban agricultural land, which is a capital asset.
### Example 3
High-premium ULIP. A ULIP with annual premium of ₹3,00,000 (>₹2,50,000) does not get the 10(10D) exemption, so it is a capital asset and gains on its maturity/transfer are taxable as capital gains.
⚠️ Common exam mistakes
Treating jewellery, paintings, drawings, sculptures and works of art as exempt 'personal effects' — they are expressly carved out and ARE capital assets.
Assuming all agricultural land is excluded — only RURAL agricultural land is outside the definition; urban agricultural land is a capital asset.
Treating every ULIP as exempt — a ULIP loses capital-asset exclusion where annual premium exceeds ₹2,50,000 (10(10D) not applicable).
Forgetting that stock-in-trade is excluded EXCEPT securities held by FIIs.
Bare-Act text Section 2(14) · Income-tax Act, 1961 · click to expand
Section 2(14): 'capital asset' means property of any kind held by an assessee, whether or not connected with his business or profession; and any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with SEBI regulations; but does not include — (i) any stock-in-trade (other than securities referred to above), consumable stores or raw materials held for the purposes of business or profession; (ii) personal effects, that is to say, movable property (including wearing apparel and furniture) held for personal use by the assessee or any dependent member of his family, but excludes jewellery, archaeological collections, drawings, paintings, sculptures or any work of art; (iii) agricultural land in India which is not situated within specified municipal limits/distances; (iv) specified Gold Bonds, Special Bearer Bonds 1991, Gold Deposit Bonds and Gold Monetisation Scheme certificates.