Short-Term Capital Assets under Indian Income Tax

What is a Short-Term Capital Asset?

The definition of short term capital asset under the Income Tax Act, section 2(42A), is the capital asset held by an individual for 36 months or less. This date just starts after the day of its transfer. STCA is also further divided, and the threshold of 36 months is changed as per the assets.

Key Takeaways and Examples of STCA

The Key takeaways from the short-term capital asset are as follows:

• General Rule: Hold for 36 months or less, then they will be considered as STCA.
• Equity-Oriented funds and listed securities: If held for 12 months or less, then they will be considered as STCA.
• Immovable Property and Unlisted shares: If held for 24 months or less, then they will be considered as STCA.

Example of Short-Term Capital Asset:

• An individual has a land for 20 months and then sells it. Then, this piece of land is considered a short-term capital asset.
• An individual has a diamond necklace and owns it for 16 months, then sells it. This necklace is known as STCA.
• An individual holds the shares of Reliance Industries for 11 months and then sells them. These shares are STCA.
• An individual holds some unlisted shares of a company for 26 months and then sells them. These are long-term capital assets.

Holding Period of Capital Assets

You cannot determine the type of capital asset according to its holding period. There are some provisions that are applied in certain situations:

• Gift/Inheritance: In these cases, the holding period also includes the time period for which the previous owner had the asset.
• Assets received when the Company is liquidated: The holding period includes the time for which the company had the asset.
• Bonus Shares: Holding period includes the time for which the individual holds the original shares.
• Assets received when a HUF is parted: Holding period includes the time for which the HUF holds the assets.