Period of Holding — Normal & Special Cases [Section 2(42A)]
# Period of Holding
The period of holding (POH) decides whether the asset is short-term or long-term. The starting and ending points depend on the case.
## Normal Case
POH = Date of purchase → Date of sale/transfer.
## Special Cases
### (i) Asset Received via Non-Transfer Mode (Section 47 / Gift / Will / etc.)
Include the period of the previous owner / previous asset.
Case A: Mr. Shyam bought a building on 10.8.2011 for ₹50 lacs and gifted it to his son Mr. Mohan on 5.7.2015. Mr. Mohan sold it to Mr. Rohit on 30.4.2026 for ₹2 crore.
→ POH = 10.8.2011 to 30.4.2026 (includes father's holding period).
Case B: Mr. A bought debentures on 10.10.2018 for ₹20 lacs and converted them into shares on 1.7.2025. He sold the shares to Mr. B on 30.4.2026 for ₹30 lacs.
→ POH = 10.10.2018 to 30.4.2026 (period of previous asset — debentures — counted).
### (ii) Asset Destroyed
POH = Date of purchase → Date of destruction.
### (iii) Capital Asset Converted into Stock-in-Trade
POH for capital gains purposes = Date of purchase → Date of conversion (not date of sale of stock).
### (iv) Compulsory Acquisition
POH = Date of purchase → Date of compulsory acquisition (not date of receipt of compensation).
### (v) Shares in a Company in Liquidation
POH = Date of purchase → Date of liquidation of the company.
## Why It Matters
The POH affects whether STCG or LTCG rates apply, and the indexation benefit available.
Worked example
### Example 1
Example 1 — Inherited property: Father bought land on 1.4.2010 for ₹2 lacs. He died on 5.5.2020 and the property passed to son. Son sold it on 30.6.2026 for ₹1 crore. POH = 1.4.2010 to 30.6.2026 ≈ 16 years → LTCA. Cost in son's hands = ₹2 lacs (cost of previous owner).
### Example 2
Example 2 — Conversion of debentures to shares: An investor bought debentures on 1.1.2018, converted them into shares on 1.6.2025, and sold the shares on 1.7.2026. POH = 1.1.2018 to 1.7.2026 (includes the debenture period) → LTCA.
### Example 3
Example 3 — Compulsory acquisition: Government acquires a plot on 15.6.2022 (purchased on 1.1.2019). Compensation received on 1.4.2026. POH ends on the date of acquisition (15.6.2022), not on the date compensation is received. Capital gain is computed using POH from 1.1.2019 to 15.6.2022, but the gain is taxed in the P.Y. of receipt of compensation (under section 45(5)).
### Example 4
Example 4 — Asset destroyed: Asset purchased on 1.4.2020 destroyed by fire on 1.10.2025. Insurance received in March 2026. POH = 1.4.2020 to 1.10.2025.
⚠️ Common exam mistakes
Computing POH for inherited / gifted property only from the date the assessee got it — must include the previous owner's holding period.
Ending POH at the date of sale of stock when a capital asset was earlier converted into stock — POH ends at the date of conversion.
Ending POH at the date of receipt of compensation in compulsory acquisition — POH ends at the date of acquisition.
For destroyed assets, treating POH as ending at date of insurance receipt — it ends at the date of destruction.
Excluding the period of the previous form of the asset in conversion cases (e.g., debentures → shares).
Bare-Act text Section 2(42A) Explanation 1 · Income Tax Act, 1961 · click to expand
Explanation 1 to section 2(42A): In determining the period for which any capital asset is held by an assessee, in the case of a capital asset which becomes the property of the assessee in the circumstances mentioned in clauses (i)/(ii)/(iii)/(iv) of section 49(1) (gift, will, inheritance, partition of HUF, transfer to wholly-owned subsidiary, etc.), there shall be included the period for which the asset was held by the previous owner. In case of a capital asset being a share allotted on conversion of debentures/preference shares, the period for which the bond/debenture/preference share was held shall be included. In the case of a share held in a company in liquidation, there shall be excluded the period subsequent to the date on which the company goes into liquidation.