Long-Term And Short-Term
Capital Gains
Broadly speaking, where a capital asset is held for a period of more than 3 years but more than 12 months in case of shares, units, securities traded on a stock exchange - any profit resulting from the transfer of the capital asset is regarded as long-term capital gain.
Where a capital asset becomes the property
of the assessee in any case as mentioned in Section 49(i), the period for which
the asset was held by the previous owner would also be considered.
The advantage of long-term capital gain is
that certain special deductions are allowed while computing the next taxable
income in respect of such capital gain. In case a capital asset is held for a
period less than 3 years — less than 12 months in the case of shares, units,
securities traded on a stock exchange — any profit resulting from the transfer
of the capital asset is a short-term capital gain.
Accordingly, the assessee can plan the disposal of his capital assets on the basis of duration of their holding. Such assets have to be further classified into assets yielding long-term capital gains and long-term capital losses.
In the same way, the capital assets should
further be sub-classified into assets yielding short-term capital gains and
short-term capital losses. Hence by proper tax planning, an assessee can adjust
short-term capital losses against the short-term capital gains or the net
long-term capital gains after deduction under Section 48 and also plan the
long-terms capital gains in such a manner that he stands to gain the maximum
benefit of exemptions and deductions.