Meaning of Transfer and Capital Asset

The most important terms forming the definition of income from Capital Gains are Transfer and Capital Asset. I will be discussing both terms in detail in this blog.

Meaning of Transfer

As per section 2(47) of the Income Tax Act, 1961, transfer includes various items: –

• Sale, exchange, or relinquishment of the asset; or
• Extinguishment of any right there in; or
• Compulsory acquisition there of under any law; or
• Conversion of capital asset into stock in trade; or
• Allowing the possession of any immovable property to be taken or retained in part performance of a contract; or
• Any transaction (like becoming a member of, or acquiring shares in Cooperative Society) which has the effect of transferring or enabling the enjoyment of immovable property; or
• Redemption of Zero Coupon Bonds (ZCB)

Meaning of Capital Asset

A transaction involving a transfer of any asset will not be covered under a capital gains transaction, but only of a capital asset.

As per section 2(14) of the Income Tax Act, 1961, a capital asset includes the following: –

• Property of any kind (movable, tangible, intangible etc.), whether connected with business or profession
• Any securities held by a Foreign Institutional Investor (FII)
• Jewellery, Drawings, Paintings, Sculpture, Archaeological Collection, or any other work of art
• Unit Linked Insurance Plan (ULIP) to which exemption under section 10(10D) does not apply (will upload a separate blog for the same)

Some important clarifications regarding capital assets: –

• Personal effects/ assets used for personal purpose of assessee – TV, Car, Mobile etc. are not a capital asset
• Gold utensils, silver bars, silver coins are considered as capital assets
• Silver utensils are considered not to be a capital asset
• Car used in the business is treated as a capital asset
• Jewellery includes ornaments made of gold, silver, platinum, or any other precious metal or any alloy containing such metals, and precious stones whether set in any furniture, utensil, or other article

Some items are specifically excluded from the definition of capital assets including: –

• Stock in trade (Raw material, work in progress or finished goods)
• Movable personal property (used by assessee or his dependent family member for personal purpose)
• Rural agricultural land in India
• Gold Deposit Bonds, 1999 or Deposit Certificates issued under the Gold Monetization Scheme, 2015

So, this was an explanation to the concept of transfer and capital asset which form the definition of Income from Capital Gains.