Direct and Indirect Taxation · Capital Gains

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

Updated 10 October 2026 · Fact-checked

A capital asset is short-term or long-term depending on how long you held it before transfer. Listed securities, equity-oriented fund units, UTI units and zero coupon bonds are long-term if held for more than 12 months. Most other assets, such as land, buildings and unlisted shares, need more than 24 months. Count from acquisition to transfer.

Understand Short-term and Long-term Capital Assets

Every capital gain is first sorted into short-term or long-term. The label decides the rate of tax, the exemptions you can claim and how losses are set off. So classification is the first step in every capital gains problem.

The test is the period of holding. This is the time between the date you acquired the asset and the date you transferred it. A short-term capital asset is one held for not more than the specified period. A long-term capital asset is one held for more than that period. Note the words: exactly equal to the limit is still short-term.

The specified period depends on the type of asset. It is 12 months for listed securities (shares, debentures and so on listed on a recognised stock exchange in India), units of equity-oriented funds, units of UTI and zero coupon bonds. For every other asset, such as land, building, unlisted shares, jewellery and goodwill, it is 24 months.

The law also tells you how to count the period in special cases. Bonus shares and rights shares are counted from the date of allotment. Where you get an asset by gift, will, inheritance or succession, the period for which the previous owner held it is added to yours. Some other transfers, such as certain amalgamations and partitions of an HUF, work the same way. For shares in demat form, the shares you bought first are treated as sold first.

The classification then feeds into the tax rate. Under the Income-tax Act, 2025, section 197 taxes long-term gains at 12.5% as the general rule. There is one important relief. For a resident individual or HUF transferring land or building acquired before 23 July 2024, section 197(3) ignores the excess tax over the tax that would be payable at 20% with indexed cost of acquisition and indexed cost of improvement. So 12.5% is not always the final tax on such assets.

Section 198 applies instead of section 197 to long-term gains on equity shares, units of an equity-oriented fund and units of a business trust, where its STT conditions are met. For equity shares, STT must have been paid on both acquisition and transfer. For units of an equity-oriented fund or a business trust, STT on transfer is enough. Under section 198, 12.5% applies only to long-term gains above ₹1,25,000. Short-term gains on securities that attract STT are covered by section 196. A few assets are treated as short-term by special provisions whatever the holding period, so check the special cases in the chapter.

Key rules to remember

Short-term capital asset: Period of holding ≤ specified period (12 or 24 months); Held for not more than the limit. Exactly 12 or 24 months is still short-term.
Long-term capital asset: Period of holding > specified period (12 or 24 months); Held for more than the limit. You need at least one day beyond the limit.
12-month group: Listed securities, units of equity-oriented funds, units of UTI, zero coupon bonds → 12 months; Securities must be listed on a recognised stock exchange in India for the 12-month test.
24-month group: All other assets (land, building, unlisted shares, jewellery, etc.) → 24 months; Treat any asset not in the 12-month group as a 24-month asset.
Period of holding: Date of transfer − Date of acquisition; For bonus and rights shares, acquisition date is the date of allotment.
Previous owner's period: Your period = Previous owner's period + your own period; Applies to gift, will, inheritance and succession, and the other cases the law lists.
LTCG rate (section 197): Tax on long-term capital gains = 12.5%; General rule for long-term gains. For a resident individual or HUF transferring land or building acquired before 23 July 2024, section 197(3) ignores the excess tax over the tax at 20% with indexation, so 12.5% is not always the final tax.
LTCG on STT-paid listed equity (section 198): Tax = 12.5% × (LTCG − ₹1,25,000); Applies where the conditions in section 198(1) are met. For equity shares, STT must have been paid on both acquisition and transfer. For units of an equity-oriented fund or a business trust, STT on transfer is enough. The ₹1,25,000 is a threshold on the gain, taken on the total long-term gains of this kind.

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

Use this order for any question that asks you to classify an asset or find the period of holding.

1Identify the asset: shares, units, bonds, land, building, jewellery or something else.
2For securities, check whether they are listed on a recognised stock exchange in India. Unlisted shares go to the 24-month group.
3Fix the specified period: 12 months for listed securities, equity-oriented fund units, UTI units and zero coupon bonds; 24 months for everything else.
4Find the start date. Use the date of purchase, or the date of allotment for bonus and rights shares. For gift, will or inheritance, also add the previous owner's holding period.
5Find the end date, which is the date of transfer, and work out the period in months and days.
6Compare: more than the specified period means long-term, otherwise short-term.
7State the classification clearly, then apply the right rate or provision (section 196, 197 or 198) if the question asks for tax.

Quickest way: Two-bucket check

When to use it: Use this in MCQs and in the first line of any written answer.

Ask: is it a listed security, equity fund unit, UTI unit or zero coupon bond? If yes, the limit is 12 months. If not, it is 24 months.
Add the limit to the acquisition date. Example: bought 10 March 2024, 24-month limit gives 10 March 2026.
If the transfer date is after that limit date, the asset is long-term. If it is on or before, it is short-term.
For bonus or rights shares, start the clock at allotment. For gifts and inheritance, start the clock at the previous owner's acquisition date.

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

Treating all shares as 12-month assets.
Students remember '12 months for shares' and forget that it applies only to listed securities.
Fix: Check the word 'unlisted'. Unlisted shares need more than 24 months to be long-term.
Calling an asset long-term when it is held for exactly 12 or 24 months.
Students read 'held for 12 months' as 'at least 12 months'.
Fix: The test is 'more than'. Exactly 12 or 24 months is short-term. Add one day to be long-term.
Counting bonus shares from the date the original shares were bought.
Bonus shares feel like part of the same holding.
Fix: Count bonus and rights shares from their own date of allotment. Original shares keep their own date.
Starting the period afresh when an asset is received as a gift or inheritance.
Students think your holding begins when you receive it.
Fix: Add the previous owner's holding period to yours when the law provides for it, as in gift, will, inheritance and succession.
Applying the ₹1,25,000 threshold to every long-term gain.
Students mix up section 197 and section 198.
Fix: The ₹1,25,000 threshold is in section 198 and applies only where its conditions are met. For equity shares, STT must have been paid on both acquisition and transfer (section 198(1)(c)(i)). For units of an equity-oriented fund or a business trust, STT on transfer is enough. Other long-term gains fall under section 197 at 12.5% with no such threshold.
Ignoring the demat first-in, first-out rule when only part of a holding is sold.
Students pick the purchase lot that gives a better result.
Fix: Treat the shares bought earliest as sold first, then classify each lot by its own date.

Worked examples

Example 1

Classify each transfer as short-term or long-term: (a) listed equity shares bought on 10 January 2025 and sold on 15 February 2026; (b) unlisted shares bought on 1 March 2024 and sold on 20 January 2026; (c) land bought on 5 June 2023 and sold on 10 June 2025; (d) gold jewellery bought on 1 April 2024 and sold on 1 April 2026.

Show the solution

(a) Listed shares are in the 12-month group. Period from 10 January 2025 to 15 February 2026 is 13 months and 5 days. That is more than 12 months.
(b) Unlisted shares are in the 24-month group. Period from 1 March 2024 to 20 January 2026 is 22 months and 19 days. That is not more than 24 months.
(c) Land is in the 24-month group. Period from 5 June 2023 to 10 June 2025 is 24 months and 5 days. That is more than 24 months.
(d) Jewellery is in the 24-month group. Period from 1 April 2024 to 1 April 2026 is exactly 24 months. That is not more than 24 months.

Answer: (a) Long-term; (b) Short-term; (c) Long-term; (d) Short-term.

Example 2

Ramesh bought 500 listed equity shares of an Indian company on 1 August 2024. The company issued him 500 bonus shares, allotted on 10 October 2025. On 20 November 2025 he sold all 1,000 shares on a recognised stock exchange. Classify the gain on each lot.

Show the solution

Listed shares are in the 12-month group, so the limit is 12 months for both lots.
Original 500 shares: acquired 1 August 2024, transferred 20 November 2025. The period is 15 months and 19 days, which is more than 12 months. This lot is long-term.
Bonus 500 shares: the period starts from the date of allotment, 10 October 2025. To 20 November 2025 it is 1 month and 10 days, which is not more than 12 months. This lot is short-term.
Compute the gain on each lot separately, using the cost of that lot.
Listed equity shares sold on a recognised stock exchange are STT-paid on transfer. The long-term lot therefore falls under section 198 (12.5% on long-term gains above ₹1,25,000), provided STT was also paid on acquisition as section 198(1)(c)(i) requires. If that condition is not met, section 197 applies instead.
The short-term lot is a short-term gain on STT-paid securities and falls under section 196.

Answer: Gain on the original 500 shares is long-term (section 198, subject to the STT-on-acquisition condition). Gain on the 500 bonus shares is short-term (section 196), because their holding period starts on 10 October 2025.

Exam tips

Write the specified period (12 or 24 months) and the two dates in the first line. Step marks are often given for this alone.
In MCQs, look for traps: 'unlisted', 'exactly 24 months', 'bonus shares' and 'gift'. Each one changes the answer.
When a question has several lots of shares, classify each lot on its own and show the working in a small list.
Quote the section only when sure: section 197 for 12.5% long-term gains, section 198 for the ₹1,25,000 threshold on STT-paid listed equity and equity fund units. Otherwise describe the rule in words.
If the question asks for tax, finish with the rate. Classification without the tax effect often earns only part 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 difference between short-term and long-term capital gain?

The difference is the period of holding. A gain on an asset held for not more than the specified period (12 or 24 months) is short-term. A gain on an asset held for more than that period is long-term. The tax rate and the exemptions available differ between the two.

What is the holding period for listed and unlisted shares?

Listed shares need to be held for more than 12 months to be long-term. Unlisted shares need to be held for more than 24 months. Listed means listed on a recognised stock exchange in India.

How do I determine the period of holding of a capital asset?

Count from the date of acquisition to the date of transfer. For bonus and rights shares, start from the date of allotment. For assets received by gift, will, inheritance or succession, add the previous owner's holding period.

Is an asset held for exactly 12 or 24 months short-term or long-term?

It is short-term. The law uses 'held for not more than' for short-term and 'more than' for long-term. You need at least one extra day to cross the limit.

Does the classification affect the tax rate?

Yes. Under section 197, long-term gains are generally taxed at 12.5%. For a resident individual or HUF selling land or building acquired before 23 July 2024, section 197(3) can reduce the tax. For STT-paid listed equity shares and units of equity-oriented funds, section 198 charges 12.5% only on long-term gains above ₹1,25,000. Short-term gains are charged as per section 196 where it applies, or at normal rates in other cases.