Profits or gains arising from the transfer of a capital asset made in a previous year is taxable as capital gains under the head “Capital Gains”. The important ingredients for capital gains are, therefore, existence of a capital asset, transfer of such capital asset and profits or gains that arise from such transfer.
A capital asset is defined to include property of any kind held by an assessee, whether connected with their business or profession or not connected with their business or profession. It includes all kinds of property, movable or immovable, tangible or intangible, fixed or circulating.
Meaning of Capital Asset for the purpose of Capital Gain
Capital asset means property of any kind except the following:
a) Stock-in-trade, consumable stores or raw-materials held for the purpose of business or profession.
b) Personal effects like wearing apparel, furniture, motor vehicles etc.., held for personal use of the tax payer or any depended member of his family. However, jewellery, even if it is for personal use, is a capital asset. The Finance Act, 2007 has modified the definition of Personal effects w.e.f. 1.4.2008. ‘Personal effects’ now include 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:-
- Jewellery
- Archaeological Collections
- Drawings
- Paintings
- Sculptures or
- Any work of art
c) Agricultural land in India other than the following:
- Land situated in any area within the jurisdiction of municipality, municipal corporation, notified area committee, town area committee, town committee, or a cantonment board which has a population of not less than 10,000 according to the figures published before the first day of the previous year based on the last preceding census.
- Land situated in any area around the above referred bodies up to a distance of 8 kilometers from the local limits of such bodies as notified by the Central Government (Please see Annexure ‘A’ for the notification).
d) 6 ½ per cent Gold Bonds, 1977 per cent Gold Bonds,1980, National Defense Gold Bonds, 1980 and Special Bearer Bonds, 1991 issued by the Central Government.
e) Gold Deposit Bonds under Gold Deposit Scheme, 1999 notified by the Central Govt.