What assets are excluded from capital assets status?

Capital asset section 2(14) means –

• Any kind of property held by an taxpayer, whether fixed or circulating, moveable or immovable, tangible or intangible or whether or not in reference to his business or profession;

• Any securities (other than stock in trade which is not held by a foreign institutional investor) held by a Foreign Institutional Investor (FII) which has invested or deposited in such securities in according to the regulations formed under the Securities and Exchange Board of India (SEBI) Act, 1992.

NOTE: Capital asset is also movable or immovable or tangible / corporeal (furniture, jewellery, etc.) or intangible / incorporeal (goodwill, tenancy right, copy right, etc.).

WHAT IS NOT CAPITAL ASSET | WHAT ASSETS ARE EXCLUDED FROM CAPITAL ASSETS STATUS | THE FOLLOWING SHALL NOT BE REGARDED AS CAPITAL ASSETS

The “Property” any kind held by a taxpayer,  includes any rights in or in respect to an Indian company (domestic company), including rights of management or control or the other rights whatsoever.

- but does not include the following:

CAPITAL ASSET DOES NOT INCLUDES

(1) STOCK IN TRADE

Stock in trade (not being securities held a foreign institutional investor), consumable stores or raw materials held for the purpose of business or profession (B&P) is not a capital asset. 

However, any securities (other than stock in trade which is not held by a foreign institutional investor) held by a foreign Institutional Investor which has invested or deposited in such securities in accordance with the regulations made under the Securities and Exchange Board of India (SEBI) Act, 1992 shall not be treated as stock-in-trade.

TREATMENT OF PROFIT ON SALE OF STOCK

Any stock-in-trade transfer or sale of profit shall be taxable under the head “Profits & gains of business or profession / PGBP".

(2) PERSONAL EFFECT

Personal effect means any movable property (Including article of clothing and furniture) held for personal use of the assessee or for any dependent member of his family but excludes the followings:

a. jewellery

b. archaeological collections c

c. drawings

d. paintings

e. sculptures; or

f. any work of art

TAXPOINT

• An immovable property and aforesaid assets held for personal use (example- wearing apparel and furniture) are not personal effect and hence are capital assets. Example- a house property although used for personal purpose cannot be treated as personal effect and shall fall within the definition of capital assets. 

• Securities aren't personal effect.

• Personal effect includes article of clothing, furniture, car, cycle, scooter used by the assessee for personal purpose.

• intangible asset does not have personal effect.

Here, Jewellery includes –

• ornaments (jewellery) made from gold, silver, platinum, the other precious metal or precious stones or any alloy containing one or more of such precious metals. it is immaterial whether or not such ornaments (jewellery) contain any precious or semi-precious stones and whether or not such ornaments (jewellery) are worked or sewn into any article of clothing; 

• Ornaments (jewellery) also includes precious or semi precious stones whether or not set in any furniture utensils or other article or worked or sewn in any article of clothing. Example- loose diamond shall be treated as jewellery.

TREATMENT OF PROFIT ON SALE OF PERSONAL EFFECT

Any income on transfer or sale of personal effect shall not be treated as capital gain. Such income is within the nature of capital receipt and hence shall not be taxed under any head.

(3) AGRICULTURAL LAND IN RURAL AREA

Agricultural land or agricultural property in India is not a capital asset except the following –

(a) Agricultural land or agricultural property in India which is situated within the jurisdiction of any Municipality (whether referred to as a  municipal corporation, municipality, notified area committee, city area committee, town area committee, town committee, or by any other name) or Cantonment Board having population (the population according to the last preceding census) of 10,000 or more; or 

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

NOTES

i. Population, consistent with the last preceding census of which the relevant figures are published before the first day of the previous year, shall be considered.

ii. If such land is not agricultural land, it will be treated as capital asset regardless of its location.

iii. If agricultural land or agricultural property is located outside India, it will be treated as capital asset. 

TREATMENT OF PROFIT ON SALE OF AGRICULTURAL LAND OR AGRICULTURAL PROPERTY IN RURAL AREA OF INDIA

Profit on sale of agricultural land or agricultural property in rural area shall not be treated as capital gain. Such income is within the nature of capital receipt and hence shall not be taxed under any head.

(4) GOLD BONDS

Following gold bonds (this point does not have any practical utility) issued by the Central Government are not capital asset:

● 6.5% Gold Bond, 1977

● 7% Gold Bonds, 1980; and

● National Defence Gold Bond, 1980

(5) SPECIAL BEARER BOND

Special bearer bond (this point does not have any practical utility), 1991 issued by the Central Government (CG) are not capital asset.

NOTE: it is not necessary that the taxpayer should be the initial subscriber.

(6) GOLD DEPOSIT BONDS

Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 or (with effect from the assessment year 2016-17) deposit certificates issued under the Gold Monetisation Scheme, 2015 notified by the Central Government are not capital asset.

NOTE: Interest on aforesaid bonds or deposits are exempt [section 10(15)]