Income from Capital Gain

Type of Capital Asset and Capital Gain

Capital asset can be short term or long term depending upon the period of holding (i.e. date of acquisition to one day prior to date of transfer)

Short term Capital asset

A capital asset will be a short term capital asset if period of holding of such capital asset is 36 months or less. However, securities listed on stock exchange and equity oriented fund held by an assessee are short term capital asset if their period of holding is 12 months or less.

Gain arising on transfer of Short term capital assets is known as short term capital gain.

Long term Capital asset

A capital asset is a long term capital asset if Period of holding is more than 36 months. However, in case of listed securities on stock exchange and equity oriented fund held by an assessee an asset will be long term capital asset if its period of holding is more than 12 months. An asset should be held for more than 36 months immediately prior to the date of its transfer to become a long term capital asset. However, where a capital asset, being Immoveable property (land or building or both) is transferred on or after April 1, 2017, then it will be treated as Long Term Capital Asset if it is held for more than 24 months immediately prior to the date of its transfer. [Amendment vide Finance Act, 2017 w.e.f. AY 2018-19]

Note: Gain arising on transfer of Long term capital asset is Long term capital gains.

Long-term Capital Gains on mutual funds (other than equity oriented mutual funds) are to be taxed at the rate of 20% and option to pay tax at the rate of 10% (without indexation) would not be available in case of long-term capital gain arising from sale of such units. However, a proviso has been inserted for the transitional period to allow benefits of concessional tax rates for the units redeemed during period April 1, 2014 to July 10, 2014. The provisio provides that the assessee shall have an option to pay tax at lower of following rates if units of Mutual Funds are transferred between the said periods: (a) At 10% of capital gains as computed after reducing the cost of acquisition without indexation. (b) At 20% of capital gains as computed after reducing the indexed cost of acquisition.

Reference:
ICSI
ICAI

Income Tax Law & Practice by Gaur & Narang