Are your personal assets liable for capital gain? What is capital asset and capital gain income?

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Capital gain income has been covered in the Income Tax Act from section 45 to 55. There are basically two types of capital gain income: Long term capital gain and short term capital gain.

Long term capital gain income means gain earned by selling Long term capital asset and short term capital gain means gain earned from Short term capital gain.

Before discussing the above two let’s discuss what is capital asset.

As per section 2(14) capital asset means:

“(a) property of any kind held by an assessee, whether or not connected with his business or profession;

 (b) any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992 (15 of 1992),

but does not include—

 (i) any stock-in-trade [other than the securities referred to in sub-clause (b)], consumable stores or raw materials held for the purposes of his business or profession ;

 (ii) personal effects, that is to say, movable property (including wearing apparel and furniture) held for personal use by the assessee or any member of his family dependent on him, but excludes—

(a) jewellery;

(b) archaeological collections;

(c) drawings;

(d) paintings;

(e) sculptures; or

(f) any work of art.

Explanation 1.—For the purposes of this sub-clause, “jewellery” includes—

(a) ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stone, and whether or not worked or sewn into any wearing apparel;

(b) precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel.

Explanation 2.—For the purposes of this clause—

(a) the expression “Foreign Institutional Investor” shall have the meaning assigned to it in clause (a) of the Explanation to section 115AD;

(b) the expression “securities” shall have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956);

 (iii) agricultural land in India, not being land situate—

(a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand ; or

(b) in any area within the distance, measured aerially,—

 (I) not being more than two kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten thousand but not exceeding one lakh; or

(II) not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than one lakh but not exceeding ten lakh; or

(III) not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten lakh.

Explanation.—For the purposes of this sub-clause, “population” means the population according to the last preceding census of which the relevant figures have been published before the first day of the previous year;

(iv) 6½ per cent Gold Bonds, 1977, or 7 per cent Gold Bonds, 1980, or National Defence Gold Bonds, 1980, issued by the Central Government;

(v) Special Bearer Bonds, 1991, issued by the Central Government ;

(vi) Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 or deposit certificates issued under the Gold Monetisation Scheme, 2015 notified by the Central Government.

Explanation.—For the removal of doubts, it is hereby clarified that “property” includes and shall be deemed to have always included any rights in or in relation to an Indian company, including rights of management or control or any other rights whatsoever”

Thus from the above definition it’s clear that following asset are not considered as capital asset.

1. Personal movable asset i.e. car, furniture etc.
2. Rural agricultural land.

Therefore any income/ gain by selling above asset won’t be considered as capital gain and would be capital receipt and hence non taxable.

However the following Personal movable asset are considered capital asset on which capital gain would be applicable:

1. Jewellery
2. Archaelogical collection
3. Painting
4. Drawing
5. Sculture
6. Any work of art.

Thus this is the whole list of capital asset which would attract capital gain provisions when its sold. In short it covers any type of immovable property used for any purpose other than rural agricultural land and business movable asset and personal movable asset only the one mentioned above.

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