Types of Capital Assets and Period of Holding (STCA vs LTCA)
# Types of Capital Assets — Short-Term vs Long-Term
Capital gains are classified as Short-Term Capital Gains (STCG) or Long-Term Capital Gains (LTCG) based on the Period of Holding (POH) of the asset.
## Statutory definitions
Section 2(42A) — Short-Term Capital Asset (STCA): an asset held for not more than 24 months / 12 months (as applicable) immediately preceding the date of transfer.
Section 2(29A) — Long-Term Capital Asset (LTCA): any capital asset that is not a short-term capital asset.
## Period-of-holding thresholds (transfers on or after 23.7.2024)
Nature of capital asset
STCA
LTCA
Highly volatile assets: Listed securities (other than units), units of Equity Oriented Fund, units of UTI, Zero Coupon Bonds
≤ 12 months
> 12 months
All other capital assets
≤ 24 months
> 24 months
## Overriding rules — always STCG regardless of POH
Provision
Assets always treated as STCG
Section 50AA
Units of a specified mutual fund acquired on/after 1.4.2023; market-linked debentures; unlisted bonds and unlisted debentures
Section 50
Depreciable assets forming part of a block — gain is always STCG, irrespective of POH
## Key definitions
Equity Oriented Fund (EOF) — a mutual fund / ULIP scheme that:
(i) invests in another fund: ≥90% of total proceeds in listed units of another fund, and that other fund invests ≥90% of proceeds in listed equity shares of domestic companies; or
(ii) other cases: ≥65% of total proceeds in listed equity shares of domestic companies.
The percentage is computed on the annual average of monthly averages of opening and closing figures.
Zero Coupon Bond — Section 2(48): a bond issued by infrastructure capital companies/funds, infrastructure debt funds, PSUs or scheduled banks; on which no payment/benefit is received before maturity/redemption; and notified by the Central Government. Its transfer (including maturity/redemption) gives rise to capital gains if not held as stock-in-trade.
Worked example
### Example 1
Listed shares. Listed equity shares purchased on 1.5.2024 and sold on 1.10.2025 are held for ~17 months. Since they are listed securities (12-month threshold), POH > 12 months ⇒ Long-Term Capital Asset / LTCG.
### Example 2
Unlisted shares / other assets. Unlisted shares bought on 1.6.2023 and sold on 1.10.2024 are held ~16 months. As 'other' capital assets carry a 24-month threshold, POH ≤ 24 months ⇒ Short-Term Capital Asset / STCG.
### Example 3
Depreciable asset (Section 50). A factory machine held for 5 years is sold from the block. Although held >24 months, gain on a depreciable asset in a block is ALWAYS treated as STCG u/s 50.
### Example 4
Specified mutual fund (Section 50AA). Units of a specified mutual fund acquired on 1.5.2023 and sold after 30 months still produce STCG because 50AA overrides the period-of-holding test.
⚠️ Common exam mistakes
Applying the 24-month rule to listed securities/EOF units/UTI units/ZCBs — these use a 12-month threshold.
Treating a long-held depreciable asset as long-term — Section 50 makes it STCG regardless of POH.
Forgetting Section 50AA: specified mutual funds (acquired on/after 1.4.2023), market-linked debentures and unlisted bonds/debentures are always STCG.
Using the pre-amendment thresholds for transfers on or after 23.7.2024.
Bare-Act text Sections 2(42A), 2(29A), 2(48), 50 and 50AA · 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 24 months (12 months in the case of a security listed on a recognised stock exchange, a unit of an equity oriented fund, a unit of UTI, or a zero coupon bond) 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. Section 50AA: gains on units of a specified mutual fund acquired on or after 1.4.2023, market linked debentures, and unlisted bonds/debentures are deemed to be short-term capital gains irrespective of the period of holding.