Tax Laws and Practice · Capital Gains

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

Updated 11 October 2026 · Fact-checked

A capital asset is short-term if you hold it for not more than the prescribed period before transfer, and long-term otherwise. The period is 12 months for listed securities, units of equity oriented funds and business trusts, and 24 months for other assets such as land, buildings and unlisted shares. Count from acquisition to transfer.

Understand Short-term and Long-term Capital Assets

Every capital gain is first sorted as short-term or long-term. The label decides the rate of tax, whether special rates apply, and which exemptions you can claim. So classification is the first step in any capital gains question.

The test is period of holding: the time between the date you acquired the asset and the date you transferred it. The Act sets a cut-off period. If you hold the asset for not more than that period, it is a short-term capital asset. If you hold it for more than that period, it is a long-term capital asset. Note the wording. Holding for exactly the cut-off period still gives a short-term asset.

The cut-off depends on the type of asset. It is 12 months for listed securities (other than units), units of an equity oriented fund, units of a business trust and zero coupon bonds. It is 24 months for all other assets, such as land, buildings, unlisted shares, gold and jewellery. Check the definitions in your ICSI study material for the exact list, because special categories can be deemed short-term regardless of the period held.

The period is not always counted from the day you paid for the asset. The law has rules for assets that came to you by gift, will, inheritance or certain tax-neutral transfers, and for bonus shares, rights shares and shares in a company in liquidation. In many of these cases the earlier owner's period is added, or the period starts from a different date. Examiners like these cases, because they test whether you know the rule and not just the number of months.

The classification matters in practice. Under section 198, long-term capital gains on listed equity shares, units of an equity oriented fund or units of a business trust are taxed at 12.5% on the gain above ₹1,25,000. This applies only if securities transaction tax has been paid as the section requires. The asset must therefore first be proved long-term before this rate can be applied.

Key rules to remember

Period of holding: Period of holding = Date of transfer − Date of acquisition (counted in months); Count full months. For gifted or inherited assets, the previous owner's holding period is added, as explained below.
Short-term capital asset: Held for ≤ cut-off period → short-term; 'Not more than' includes the exact cut-off. An asset held for exactly 24 months (or 12 months) is short-term.
Long-term capital asset: Held for > cut-off period → long-term; A long-term capital asset is one that is not a short-term capital asset.
Cut-off: 12 months: Listed securities (other than units), units of equity oriented fund, units of business trust, zero coupon bonds → 12 months; Securities must be listed on a recognised stock exchange in India for this rule.
Cut-off: 24 months: All other capital assets (land, building, unlisted shares, jewellery and so on) → 24 months; Treat 24 months as the default and 12 months as the exception.
Gift, will or inheritance: Holding period = Previous owner's period + Your own period; The cost is also taken as the previous owner's cost, so the two rules go together.
Bonus and rights shares: Period runs from the date of allotment of the bonus or rights shares; Do not count the period of the original shares. Renounced rights entitlements are a separate case.
Section 198 rate: Tax = 12.5% × (LTCG − ₹1,25,000), where STT conditions are met; Applies to long-term gains on listed equity shares, units of equity oriented funds and units of business trusts. For resident individuals and HUFs, sub-section (3) adjusts for any unused basic exemption limit.

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

Use this method for any question that asks whether a gain is short-term or long-term.

1Identify the asset. Is it a listed share, an equity oriented fund unit, an unlisted share, land, a building, jewellery or something else?
2Fix the cut-off period. Use 12 months for listed securities (other than units), units of equity oriented funds or business trusts and zero coupon bonds. Use 24 months for everything else.
3Find the start date. Normally it is the date of acquisition. Check whether the asset came by gift, will, inheritance or a tax-neutral transfer, or is a bonus or rights share. If so, apply the special starting rule.
4Find the end date, which is the date of transfer.
5Count the period from start to end in months and days.
6Compare. If the period is not more than the cut-off, the asset is short-term. If it is more, the asset is long-term.
7State the conclusion in one line, giving the reason and the consequence (for example, that section 198 applies or does not apply).

Quickest way: Two-second cut-off check

When to use it: Use this when the question gives clear purchase and sale dates and asks only for the classification, or when you need a quick check before a longer computation.

Ask: is the asset a listed security or a unit of an equity oriented fund or business trust? If yes, the cut-off is 12 months. If no, it is 24 months.
Add the cut-off to the start date. For example, 10 March 2025 plus 12 months is 10 March 2026.
If the transfer date is after that date, the asset is long-term. If it is on or before that date, it is short-term.
Before finalising, check for gift, inheritance, bonus or rights shares. These change the start date.

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

Treating an asset held for exactly 24 months (or 12 months) as long-term.
Students read 'held for 24 months' and assume it has satisfied the test.
Fix: Remember the wording 'not more than' gives short-term. Long-term needs the period to be more than the cut-off, so the transfer must fall after the anniversary date.
Using 12 months for every asset, or 24 months for every asset.
Students memorise one number and forget that the cut-off depends on the type of asset.
Fix: Ask first whether the asset is a listed security, an equity oriented fund unit or a business trust unit. If yes, use 12 months. Otherwise use 24 months.
Using 12 months for unlisted shares.
Students link 'shares' with 12 months without checking whether the shares are listed.
Fix: Only listed securities qualify for the 12-month cut-off. Unlisted shares, like land and buildings, use 24 months.
Starting the count of a gifted or inherited asset from the date you received it.
Students forget that a gift, will or inheritance is not itself a purchase.
Fix: Add the previous owner's holding period to your own, and count from the date the previous owner acquired it.
Counting bonus shares from the date of the original shares.
Students think the bonus shares are just a continuation of the original holding.
Fix: Count the period of bonus (and rights) shares from the date of their allotment. The original shares keep their own period.
Applying the 12.5% rate under section 198 without checking the conditions.
Students link long-term equity gains with a flat rate and ignore the securities transaction tax condition.
Fix: Before using section 198, confirm the asset is long-term, is an equity share, equity oriented fund unit or business trust unit, and that STT was paid as the section requires. Apply 12.5% only to the gain above ₹1,25,000.

Worked examples

Example 1

Classify each transfer as short-term or long-term: (a) Listed equity shares of an Indian company bought on 15 March 2025 and sold on 20 March 2026. (b) Unlisted shares bought on 1 June 2024 and sold on 15 May 2026. (c) A plot of land bought on 10 August 2024 and sold on 10 August 2026.

Show the solution

(a) Listed shares: the cut-off is 12 months. The period from 15 March 2025 to 20 March 2026 is 12 months and 5 days. It is more than 12 months.
(b) Unlisted shares: the cut-off is 24 months. The period from 1 June 2024 to 15 May 2026 is 23 months and 14 days. It is not more than 24 months.
(c) Land: the cut-off is 24 months. The period from 10 August 2024 to 10 August 2026 is exactly 24 months. It is not more than 24 months.

Answer: (a) Long-term capital asset. (b) Short-term capital asset. (c) Short-term capital asset, because exactly 24 months is not 'more than' 24 months. Gain on (a) can qualify for section 198, subject to the STT conditions.

Example 2

Mr. Sharma bought a house in Pune on 5 January 2023. He gifted it to his son Rohan on 1 March 2026. Rohan sold the house on 20 April 2026. Is the house a short-term or long-term capital asset in Rohan's hands?

Show the solution

The asset is a house (a building). It is not a listed security, so the cut-off is 24 months.
Rohan received the house by gift. For the period of holding, the previous owner's period is included.
The count therefore starts from 5 January 2023, the date Mr. Sharma acquired the house.
The end date is 20 April 2026, the date Rohan transferred it.
The period from 5 January 2023 to 20 April 2026 is 3 years, 3 months and 15 days, which is more than 24 months.

Answer: The house is a long-term capital asset in Rohan's hands, because the combined holding period of 3 years, 3 months and 15 days exceeds 24 months. Counting only Rohan's own period (about 1 month, 19 days) would wrongly give short-term.

Exam tips

Write the cut-off period and the reason (listed or not) as your first line. It earns marks even if a later date calculation slips.
Always write both dates and the exact period. Examiners reward visible working. Do not just say 'more than 24 months'.
Scan every question for gift, inheritance, bonus shares, rights shares or a transfer on amalgamation. These words are signals that the start date changes.
Link the classification to its consequence, for example section 198 for long-term gains on listed equity shares, to show you know why it matters.
In theory questions, present the answer in ICSI style: the provision, the application to the facts, then a clear conclusion.

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 holding period of the asset. If you hold it for not more than the cut-off (12 or 24 months, depending on the asset), the gain is short-term. If you hold it for more, the gain is long-term. The two are taxed differently.

What is the holding period for shares and immovable property?

Listed shares are long-term if held for more than 12 months. Unlisted shares and immovable property such as land and buildings are long-term if held for more than 24 months.

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

No. The test is 'not more than' the cut-off for short-term. An asset held for exactly 24 months is short-term. It becomes long-term only when the holding goes beyond that.

How is the holding period counted for a gifted asset?

You add the period for which the previous owner held the asset to your own period. The count starts from the date the previous owner acquired it. This also applies to assets received by will or inheritance.

Does section 198 apply to all long-term capital gains?

No. Section 198 applies to long-term gains on equity shares, units of an equity oriented fund and units of a business trust, and the securities transaction tax conditions in the section must be met. The tax is 12.5% on gains above ₹1,25,000.