Taxation · Capital Gains

Short-term and Long-term Capital Assets: Holding Period Rules

Updated 5 October 2026 · Fact-checked

A capital asset is short-term or long-term based on how long you held it before transfer. Listed shares, equity-oriented fund units and listed securities become long-term after more than 12 months. Most other assets, including land, unlisted shares and gold, need more than 24 months. Count from acquisition to transfer, adding the previous owner's period where the law allows.

Understand Short-term and Long-term Capital Assets

Every capital asset you sell is first sorted into one of two boxes: short-term capital asset or long-term capital asset. The only test is the period of holding, meaning the time between the date you acquired the asset and the date you transferred it. The box decides the nature of the gain, the tax rate and the exemptions you can claim.

The law sets two cut-offs. The asset is long-term if held for more than 12 months when it is one of these: a security (other than a unit) listed on a recognised stock exchange in India, a unit of UTI, a unit of an equity-oriented mutual fund, or a zero coupon bond. Listed units of a business trust also fall in this group as listed securities. Check the exact category of the asset in the question before you pick the limit. For every other asset, such as land, buildings, unlisted shares, gold and jewellery, the asset is long-term if held for more than 24 months. Anything not long-term is short-term.

Note the words "more than". An asset held for exactly 12 months (or exactly 24 months) is still short-term. Examiners love this edge case, so always count the exact day on which the holding crosses the limit.

The period of holding is not always the time you personally owned the asset. Where you get the asset in a transaction that the law does not treat as a transfer, the law adds the previous owner's period. The usual cases are gift, inheritance, will, HUF partition, certain amalgamations, and a transfer by a holding company to its Indian wholly owned subsidiary company (here the subsidiary adds the holding company's period). In other cases the law starts the clock from a special date. Bonus shares count from the date of allotment. Shares subscribed on a rights offer count from the date of allotment. If the right is renounced, the renouncee's holding period of the shares subscribed on that right counts from the date of allotment. The holding period of the renounced right itself counts from the date of the offer to the original holder. A few assets are treated as short-term whatever the holding period. These include units of specified mutual funds, meaning funds that invest more than 65% of their proceeds in debt and money market instruments, as defined in the Income-tax Act, 2025, and market linked debentures. Unlisted bonds and debentures are also deemed short-term for transfers on or after 23 July 2024.

So the method is simple: identify the asset, pick the 12-month or 24-month limit, find the correct start date, find the transfer date, compare. Then you can move to computing the gain and the tax rate, which are covered in the related topics.

Key rules to remember

Period of holding: Period of holding = Date of transfer − Date of acquisition (start date as per special rules); Count in months and days. Use the exact dates, not just the months.
12-month group: Long-term if held for more than 12 months; Applies to: securities (other than units) listed on a recognised stock exchange in India (including listed units of a business trust), units of UTI, units of equity-oriented mutual funds and zero coupon bonds. Unlisted bonds and debentures are not in this group; they are deemed short-term for transfers on or after 23 July 2024.
24-month group: Long-term if held for more than 24 months; Applies to all other capital assets, including land, buildings, unlisted shares, gold and jewellery.
Short-term asset: Short-term if not long-term (held for 12 months or less, or 24 months or less, as applicable); Exactly 12 or exactly 24 months is still short-term.
Previous owner's period included (specified cases only): Holding period = Previous owner's period + Your own period; Applies where you get the asset in a transaction not regarded as a transfer, in the specified cases only: gift, will, inheritance, partition of HUF, certain amalgamations, and transfer by a holding company to its Indian wholly owned subsidiary company (the subsidiary adds the holding company's period). It does not apply to every case where cost is taken from the previous owner.
Bonus and right shares: Bonus shares: from date of allotment. Right shares subscribed: from date of allotment. Shares subscribed on a renounced right (by the renouncee): from date of allotment. The renounced right itself: from date of the offer to the original holder.; The original shares keep their own date of acquisition. Each lot is classified separately. The renouncee's shares are counted from allotment, while the holding period of the renounced right itself is counted from the date of the offer to the original holder.
Demerger: Shares of resulting company: period includes holding of shares in demerged company; The shareholder's original holding period carries over.
Deemed short-term assets: Certain assets are short-term whatever the period held; Examples are units of specified mutual funds (funds investing more than 65% of their proceeds in debt and money market instruments, as defined in the Income-tax Act, 2025) and market linked debentures. Unlisted bonds and debentures are also treated this way for transfers on or after 23 July 2024. Check the latest rule before answering.

How to solve Short-term and Long-term Capital Assets questions

Use this method for any question that asks you to classify an asset or find the nature of a gain.

1Identify the asset exactly: listed share, unlisted share, equity-oriented fund unit, bond, land, building, gold and so on. Check whether the security is listed on a recognised stock exchange in India.
2Check for deemed short-term assets (for example specified mutual fund units or market linked debentures). If the asset falls here, the gain is short-term and you stop.
3Choose the limit: 12 months for listed securities, equity-oriented fund units, UTI units and zero coupon bonds; 24 months for everything else.
4Fix the start date. Use your own date of acquisition. In the specified non-transfer cases (gift, will, inheritance, HUF partition, certain amalgamations, and transfer by a holding company to its Indian wholly owned subsidiary), include the previous owner's period. For bonus or right shares, start from the date of allotment.
5Fix the end date, which is the date of transfer, not the date money was received.
6Calculate the exact period and compare with the limit. It must be more than the limit to be long-term.
7State the conclusion in one line: "The asset is a long-term / short-term capital asset, so the gain is long-term / short-term capital gain." Then carry on to computation if the question asks.

Quickest way: Two-limit shortcut with a date check

When to use it: Use this for MCQs and for the first line of any written answer on capital gains.

MCQ: ask only two things. Is it a listed security, equity-oriented fund unit or zero coupon bond? If yes the limit is 12 months, otherwise it is 24 months.
Add the limit to the acquisition date to find the date when the asset turns long-term. The sale must be after that date.
If the asset came by gift, inheritance or will, add the previous owner's period before you add the limit.
Look at the option list. Options that use a wrong limit (for example 36 months for land) can be dropped at once.
Written answer: write the asset, the limit, the start date, the transfer date, the period and the conclusion in separate lines. Each line earns a step mark, and a correct conclusion with no working may lose marks.

Common mistakes in Short-term and Long-term Capital Assets

Treating an asset held for exactly 12 or 24 months as long-term.
Students read the limit as "12 months or more" instead of "more than 12 months".
Fix: Add the limit to the acquisition date. Long-term begins only on a date after that. Exactly 24 months is still short-term.
Using 12 months for all shares.
Students remember "shares = 12 months" and forget that only listed securities get the shorter limit.
Fix: Ask first whether the share is listed on a recognised stock exchange in India. Unlisted shares need more than 24 months.
Using the receipt date of sale money instead of the date of transfer.
The question gives both dates, and students pick the later one.
Fix: The holding period ends on the date of transfer. Payment dates matter only for other purposes.
Ignoring the previous owner's period for gifted or inherited assets.
Students start the clock from the date the asset came to them.
Fix: In the specified cases, include the previous owner's holding. Gift, will, inheritance and HUF partition are the usual ones. Certain amalgamations and transfers by a holding company to its Indian wholly owned subsidiary company are also covered.
Classifying bonus shares by the date of the original shares.
Students link bonus shares to the shares they came from.
Fix: Bonus shares start from their own date of allotment. Classify each lot separately.
Applying the normal limit to assets that are deemed short-term.
Students go straight to counting months without checking the asset type.
Fix: Check the asset type in step 2 of your method. If it is a deemed short-term asset, the gain is short-term whatever the period held.

Worked examples

Example 1

Classify each transfer as short-term or long-term capital asset (all transfers are in tax year 2026-27): (a) Listed equity shares of an Indian company bought on 10 June 2025 and sold on 15 June 2026. (b) A plot of land bought on 20 August 2024 and sold on 10 August 2026. (c) Unlisted shares bought on 1 January 2024 and sold on 5 January 2027. (d) Gold bought on 5 August 2024 and sold on 5 August 2026.

Show the solution

(a) Listed shares fall in the 12-month group. 12 months from 10 June 2025 ends on 10 June 2026. The sale on 15 June 2026 is after that date, so the holding exceeds 12 months.
(b) Land falls in the 24-month group. 24 months from 20 August 2024 ends on 20 August 2026. The sale on 10 August 2026 is before that date, so the holding is less than 24 months.
(c) Unlisted shares fall in the 24-month group. 24 months from 1 January 2024 ends on 1 January 2026. The sale on 5 January 2027 is well after that, so the holding exceeds 24 months.
(d) Gold falls in the 24-month group. 5 August 2024 to 5 August 2026 is exactly 24 months. It is not more than 24 months.

Answer: (a) Long-term. (b) Short-term. (c) Long-term. (d) Short-term, because exactly 24 months is not "more than 24 months".

Example 2

Rahul received a residential house by gift from his father on 1 October 2025. His father had bought it on 1 April 2023. Rahul sold it on 15 May 2026. Separately, Meera bought 500 listed equity shares of an Indian company on 1 February 2025. She received 500 bonus shares on 1 December 2025. She sold all 1,000 shares on 20 October 2026. Classify the assets.

Show the solution

Rahul: a house is in the 24-month group.
Rahul got the house by gift, so his cost is taken from the previous owner. The father's holding period is included. The clock starts on 1 April 2023, not 1 October 2025.
Period of holding = 1 April 2023 to 15 May 2026 = 37 months and 14 days. This is more than 24 months.
Meera: listed shares are in the 12-month group. Each lot is tested separately.
Original 500 shares: 1 February 2025 to 20 October 2026 is 20 months and 19 days. This is more than 12 months.
Bonus 500 shares: the clock starts on the date of allotment, 1 December 2025. 1 December 2025 to 20 October 2026 is 10 months and 19 days. This is not more than 12 months.

Answer: Rahul's house is a long-term capital asset. Meera's original 500 shares are long-term; her 500 bonus shares are short-term.

Exam tips

Write the limit (12 or 24 months) and the two dates before you state the conclusion. Step marks are given for this working.
In MCQs, look for the trap options: exactly 12 months, exactly 24 months, unlisted shares and gifted assets. These are the usual traps.
If a question gives a gift, inheritance or partition, ask yourself immediately whether the previous owner's period is added.
For bonus or right shares, always classify each lot separately and say so in your answer.
Mention any deemed short-term asset in the first line of your answer, then move to the computation and tax rate topics for the rest of the marks.

Practice questions from Capital Gains

Short-term and Long-term Capital Assets in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Short-term and Long-term Capital Assets: frequently asked questions

What is the holding period for a short-term capital asset?

An asset is short-term if it is not long-term. Listed securities, equity-oriented fund units, UTI units and zero coupon bonds are short-term if held for 12 months or less. Other assets are short-term if held for 24 months or less.

What is the holding period for shares to be long-term?

Shares listed on a recognised stock exchange in India are long-term if held for more than 12 months. Unlisted shares need more than 24 months. Always check whether the share is listed first.

How is the period of holding counted for gifted or inherited assets?

In the specified cases, the previous owner's holding period is added to yours. These cases are gift, will, inheritance, HUF partition, certain amalgamations, and a transfer by a holding company to its Indian wholly owned subsidiary company. So for a gift or inheritance, you may qualify for long-term treatment from the day you receive the asset if the combined period crosses the limit. Do not assume the same rule for every case where cost is taken from the previous owner.

What is the difference between short-term and long-term capital gain?

The difference is the holding period of the asset. Short-term capital gain comes from short-term capital assets and long-term gain from long-term assets. They have different tax rates and different exemptions, which are covered in the related topics.

Are bonds always held for 12 months to be long-term?

No. Listed bonds and debentures and zero coupon bonds get the 12-month limit. Unlisted bonds and debentures are deemed short-term whatever the period held, for transfers on or after 23 July 2024. Check the exact type of bond in your question before you pick the rule.