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📚 Learn/ Paper 3 — Taxation/ Capital Gains
Microlesson · 5-min read

Types of Capital Assets — Short Term vs Long Term

# Short-Term vs Long-Term Capital Assets

Whether a capital asset is Short Term (STCA) or Long Term (LTCA) depends on its period of holding — and the threshold varies by the type of asset.

## Holding Period Table

Type of Capital AssetShort Term if held ≤Long Term if held >
Listed Shares & Securities; Units of Equity Oriented Funds; Units of Business Trust; Zero Coupon Bonds1 year1 year
Slump Sale of an Undertaking3 years3 years
All Other Capital Assets (incl. unlisted shares, immovable property, jewellery, etc.)2 years2 years

## Why the Distinction Matters

  • LTCG enjoys concessional tax rates (e.g., 12.5% / 20% with indexation as applicable) and indexation benefit (in certain cases).
  • STCG is typically taxed at slab rates (or 20% under 111A for listed equity etc.).
  • Set-off rules also differ.

## Meaning of 'Equity Oriented Fund'

A mutual fund where minimum 65% of its total proceeds is invested in listed equity shares of domestic companies. Additionally:

  • Units of UTI are included.
  • ULIP is also classified here (when treated as capital asset).

Worked example

### Example 1

Example 1 — Listed shares: Mr. A buys listed shares on 1.7.2025 and sells on 5.8.2026. Holding period = 13 months > 12 months → Long Term Capital Asset.

### Example 2

Example 2 — Unlisted shares: Ms. B buys unlisted shares on 1.7.2024 and sells on 1.6.2026. Holding period = 23 months. For unlisted shares, the threshold is 2 years (24 months). Since ≤ 24 months → Short Term Capital Asset.

### Example 3

Example 3 — Immovable property: Mr. C buys a flat on 10.4.2023 and sells on 30.5.2026. Holding period > 24 months → Long Term.

### Example 4

Example 4 — Slump sale: A company transfers an undertaking via slump sale, held since 2022 (3 years 6 months). Since > 36 months → Long Term.

⚠️ Common exam mistakes

  • Using 36 months for all capital assets — that's only for slump sale (and a few historical cases).
  • Treating debt mutual funds as 'Equity Oriented' — the 65% test is on LISTED EQUITY of DOMESTIC COMPANIES.
  • Applying the 1-year limit to unlisted shares — the limit is 2 years for unlisted shares.
  • Forgetting that zero coupon bonds get the favourable 1-year threshold.
  • Computing holding period as the difference of dates without including the day of purchase.
Bare-Act text Sections 2(42A) and 2(29A) · Income Tax Act, 1961 · click to expand
Section 2(42A): 'Short-term capital asset' means a capital asset held by an assessee for not more than thirty-six months (or twenty-four months for unlisted shares and immovable property being land/building/both; or twelve months for listed securities, units of UTI/equity-oriented fund, zero coupon bonds, units of business trust) immediately preceding the date of its transfer. Section 2(29A): 'Long-term capital asset' means a capital asset which is not a short-term capital asset.
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