Capital Gains and Assets


Capital gains

According to the 1961 Income Tax Act, capital gains are derived according to the transfer of capital assets. Capital gain is the profit or gain of an assessee that comes from the transfer of a capital asset effected during the previous or assessment year.

Capital assets

Under section 2(14) of the 1961 Income Tax Act, a Capital Asset is defined as property of any kind held by an assessee, including property held for their business or profession. A capital asset includes all property types as well as all rights in property. It is also defined as gains on a transfer of assets where there in no cost of acquisition such as:

  • Goodwill of business generated by the assessee
  • Tenancy rights
  • Stage carriage permits
  • Loom hours
  • The right to manufacture
  • Processing and production of any article

Assets that don't fall under heads of capital assets

According to the 1961 Income Tax Act, some assets are not included as Capital Assets, including:

  • Stock and raw materials used by an assessee for their business or profession.
  • Movable properties such as wearing apparel, furniture, automobiles, phones, and household goods that are held by the assessee.
    NOTE: Jewelry that is also a movable asset falls under heads of capital assets.
  • Agricultural property in India.
    NOTE: Agricultural land that falls under municipal limits (in an area where the population exceeds 10,000) falls under Capital Assets.
    gricultural land within 8 km of municipal limit also falls under Capital Assets if notified by the central government of India.
  • A few Gold Bonds issued by the government.
  • The right to manufacture
  • A few special bonds issued by the central government (eg Special Bearer Bonds, 1991).

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