December 22, 2023

Any profit or gain that arises from the sale of a ‘capital asset’ is known ‘income from capital gains’. Such capital gains are taxable in the year in which the transfer of the capital asset takes place. This is called capital gains tax. There are two types of Capital Gains: short-term capital gains (STCG) and long-term capital gains(LTCG). What is Capital Gains Tax In India? Investment in a house property is one of the most sought out investments primarily because you get to own a house. While others may invest with the intention of earning a profit upon selling the property in the future. It is important to note that a house property is regarded as a capital asset for income tax purposes. Consequently, any gain or loss incurred from the sale of a house property may be subject to tax under the ‘Capital Gains’ head. Similarly, capital gains or losses may arise from sale of different types of capital assets.  Defining Capital Assets Land, building, house property, vehicles, patents, trademarks, leasehold rights, machinery, and jewellery are a few examples of capital assets. This includes having rights in or in relation to an Indian company. It also includes the rights of management or control or any other legal right. The following do not come under the category of capital asset: a. Any stock, consumables or raw material, held for the purpose of business or profession b. Personal goods such as clothes and furniture held for personal use c. Agricultural land in rural(*) India d. 6½% gold bonds (1977) or 7% gold bonds (1980) or National Defence gold bonds (1980) issued by the central government e. Special bearer bonds (1991) f. Gold deposit bond issued under the gold deposit scheme (1999) or deposit certificates issued under the Gold Monetisation Scheme, 2015 *Definition of rural area (effective from AY 2014-15) – Any area which is outside the jurisdiction of a municipality or cantonment board, having a population of 10,000 or more is considered a rural area. Also, it should not fall within a distance given below Distance(to be measured aerially) Population(as per the last census). 2 kms from local limit of municipality or cantonment board If the population of the municipality/cantonment board is more than 10,000 but not more than 1 lakh 6 kms from local limit of municipality or cantonment board If the population of the municipality/cantonment board is more than 1 lakh but not more than 10 lakh 8 kms from local limit of municipality or cantonment board If the population of the municipality/cantonment board is more than 10 lakh Types of Capital Assets 1. STCA ( Short-term capital asset ) An asset held for a period of 36 months or less is a short-term capital asset. The criteria is 24 months for immovable properties such as land, building and house property from FY 2017-18. For instance, if you sell house property after holding it for a period of 24 months, any income arising will be treated as a long-term capital gain, provided that property is sold after 31st March 2017. The reduced period of the aforementioned 24 months is not applicable to movable property such as jewellery, debt-oriented mutual funds etc. Some assets are considered short-term capital assets when these are held for 12 months or less. This rule is applicable if the date of transfer is after 10th July 2014 (irrespective of what the date of purchase is). These assets are: Equity or preference shares in a company listed on a recognized stock exchange in India Securities (like debentures, bonds, govt securities etc.) listed on a recognized stock exchange in India Units of UTI, whether quoted or not Units of equity oriented mutual fund, whether quoted or not Zero coupon bonds, whether quoted or not 2. LTCA ( Long-term capital asset ): An asset held for more than 36 months is a long-term capital asset. They will be classified as a long-term capital asset if held for more than 36 months as earlier. Capital assets such as land, building and house property shall be considered as long-term capital asset if the owner holds it for a period of 24 months or more (from FY 2017-18). Whereas, below-listed assets if held for a period of more than 12 months, shall be considered as long-term capital asset. Equity or preference shares in a company listed on a recognized stock exchange in India Securities (like debentures, bonds, govt securities etc.) listed on a recognized stock exchange in India Units of UTI, whether quoted or not Units of equity oriented mutual fund, whether quoted or not Zero coupon bonds, whether quoted or not Classification of Inherited Capital Asset In case an asset is acquired by gift, will, succession or inheritance, the period for which the asset was held by the previous owner is also included when determining whether it’s a short term or a long-term capital asset. In the case of bonus shares or rights shares, the period of holding is counted from the date of allotment of bonus shares or rights shares respectively. Tax Rates – Long-Term Capital Gains and Short-Term Capital Gains Tax Type Condition Applicable Tax Long-term capital gains tax (LTCG)  Sale of:– Equity shares– units of equity oriented mutual fund 10% over and above Rs 1 lakh   Others 20% Short-term capital gains tax (STCG) When Securities Transaction Tax (STT) is not applicable Normal slab rates When STT is applicable 15%. Tax on Equity and Debt Mutual Funds- Gains made on the sale of debt funds and equity funds are treated differently. Any fund that invests heavily in equities (more than 65% of their total portfolio) is called an equity fund. Funds On or before 1 April 2023 Effective 1 April 2023  Short-Term Gains Long-Term Gains Short-Term Gains Long-Term Gains Debt Funds At tax slab rates of the individual 10% without indexation or 20% with indexation whichever is lower At tax slab rates of the individual At tax slab rates of the individual Equity Funds 15% 10% over and above Rs 1 lakh without indexation 15% 10% over and above

Under Section 2 (31), ‘Person’ is an AOP or Association of Persons or BOI (Body of Individuals) or a Local Authority or an artificial judicial person, or not, that Person or Body or Authorities or a Legal Person, was established or merged for revenue, profit or gains. In this article, we will the definition of persons under Income Tax Act, 1961. Definition of Persons under Income Tax Act, 1961 In terms of section 2 (31) of the Income-tax Act a person includes:   Individuals  Partnership Firms  HUF  Company  An individual organization or body of persons whether incorporated or not. Local authorities  Any other legal person who is not subject to any of the above clauses  The assessee is the person responsible for paying any taxes and any other fees specified under the law. In the above section, it can be noted that man includes not only a natural person but also a person of the artificial judicial person. The types of people mentioned under the categories are described below. Individuals: Individuals refer to natural persons whether male or female or transgender, minor or major, resident or non-resident  A partnership firm is a contractual relationship between two or more; persons who have agreed to conduct business on behalf of all or any of them on behalf of all to share the profits made by the business. LLP is also considered to be a corporation under the Income-tax act of 1961. HUF: Hindu Undivided Family (HUF) is a family business covered by Hindu law rules that include all people in a lineage from the same family as Karta and members as coparceners. Jain and Sikh families are also considered HUF under this act. Company: A company is a legal entity established under the Companies Act, 2013 or any other previous act. Companies include Any Indian Company Foreign Company Parent, Partner or Subsidiary Legal Company Public Company, any other type of company,  An association or individual body: A group of people means a group of people united to achieve the same goal by operating the same principle. AOP members can be natural persons or judges.  Local authorities: Local authorities are a legally responsible organization of public services designed to provide services in a particular area. Every Assessee is a Person but every person is not an assessee It is very important. An assessee is a person who is responsible for paying taxes, either on his or her income or with others. But that does not mean that everyone should pay taxes. If you are an individual and your total income is below the income limit as per income tax, then you have no obligation to pay taxes. If your income is not available then you are not responsible for remittances and refunds. If so, you are not an assessee but he is a person. FAQs Q: How does the Income Tax Act, 1961 define the term “person”? The term “person” under the Income Tax Act, 1961, includes individuals, Hindu Undivided Families (HUFs), companies, firms, associations of persons (AOPs), body of individuals (BOIs), and any other entity capable of being taxed. Q: Are individuals the only entities considered as persons under the Income Tax Act? No, individuals are just one category of persons. The Act also recognizes other entities such as HUFs, companies, firms, AOPs, BOIs, etc., as persons for taxation purposes. Q: What is the significance of including HUFs in the definition of persons? Hindu Undivided Family (HUF) is a unique concept in Indian taxation where the family, as a unit, is considered a separate entity for tax purposes. HUFs have their own PAN (Permanent Account Number) and are subject to tax on their income. 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