Any profit or gain that arises from the transfer of a ‘capital asset’ is a capital gain. This gain or profit is charged to tax in the year in which the transfer of the capital asset takes place.

 

Capital gains are not applicable in case asset is inherited because it’s a transfer and not a sale. However, if this asset is sold by the person who inherits it, capital gains tax will be applicable. Assets received specifically as gifts by way of an inheritance or will are exempted under the Income Tax Act.

 

There are two types of Capital Assets:

 

Short-term capital asset – An asset, which is held for not more than 36 months or less is a short-term capital asset. Any gain arising from this asset is termed as Short-term capital gain.

 

Long-term capital asset – An asset that is held for more than 36 months is a long-term capital asset. Any gain arising from this asset is termed as Long-term capital gain.
From FY 2017-18 onwards – The criteria of 36 months has been reduced to 24 months in the case of immovable property being land, building, and house property.

Difference between Capital Asset and Current Asset?

Capital Assets are long-term assets that an individual expects to hold more than one year and that cannot be readily convertible into cash.

Current assets are assets which are readily convertible into cash within one year, it includes cash, accounts receivable etc.

 

What is the treatment of Capital Loss? Can it be carried forward in subsequent years?

 

The Loss of Long Term Capital Asset can be set off only from the income of Long Term Capital Asset and not from the income of short term capital asset. However, the loss from short-term capital asset can be set off from the income of short-term asset as well as long tern capital assetSuch capital loss can be carried forward for 8 years from the end of the year in which the loss was incurred. 

 

Know more about Capital Gains.