When are shares or mutual funds or AIF considered as short term or long term for Income Tax purpose | Period of holding for shares and securities

With the ease of investing in share market and increasing number of people investing and purchasing shares, mutual funds or other securities for parking their extra income it is important to also know what is period of holding prescribed by Income tax department to consider a share or security or unit as short term or long term.

 

In this post we shall try to discuss the aspect of period of holding under Income Tax Act to bifurcate the holding into Short term and long term.

Income Tax Act defines Long-term asset and Short-term asset in Income tax act under clause 29AA and clause 42A of section 2 of the Income Tax Act respectively.

Below is the table which provides for holding period after which the share or security or unit will be considered as short-term or long-term for income tax purpose:

Type of security/ Asset	Short-Term Asset (Holding period)	Long-Term Asset (Holding period)
Security (Other than unit) listed on stock exchange in India. This would include but not limited to: Listed shares Listed debentures Listed bonds Listed MLD	12 month or less	More than 12 month
Unit of Unit trust of India	12 month or less	More than 12 month
Unit of an equity oriented mutual fund	12 month or less	More than 12 month
Zero coupon bond	12 month or less	More than 12 month
Share in a company not listed in a recognised stock exchange in India. This could include: Preference shares Equity shares Foreign shares of a company	24 month or less	More than 24 month
Other securities listed on stock exchange: Debt oriented mutual fund Fixed Maturity Plan (FMP) Units of business trust or investment trust (AIF)	36 month or less	More than 36 month

 

Some of the important points or explanation in relation to above table and words used in above table are as under:

The word security mentioned above includes the below mentioned items as per clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956):

Shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate;

Derivative;

Units or any other instrument issued by any collective investment scheme to the investors in such schemes

Security receipt as defined in clause (zg) of section 2 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;]

Units or any other such instrument issued to the investors under any mutual fund scheme;

Government securities;

Such other instruments as may be declared by the Central Government to be  securities; and

Rights or interest in securities;

 

In the case of a capital asset which becomes the property of the assessee in the circumstances mentioned in sub-section (1) of section 49, there shall be included the period for which the asset was held by the previous owner referred to in the said section (i.e. share received by way of gift, will etc.)

 

In the case of a capital asset being a share or shares in an Indian company, which becomes the property of the assessee in consideration of a transfer referred to in clause (vii) of section 47, there shall be included the period for which the share or shares in the amalgamating company were held by the assessee (i.e. share received in case of amalgamation)

 

Meaning of equity oriented mutual fund as provided in section 112A of the Income Tax Act:

“equity oriented fund” means a fund set up under a scheme of a mutual fund specified under clause (23D) of section 10 7[or under a scheme of an insurance company comprising unit linked insurance policies to which exemption under clause (10D) of the said section does not apply on account of the applicability of the fourth and fifth provisos thereof] and,—

(i)  in a case where the fund invests in the units of another fund which is traded on a recognised stock exchange,—

(A) a minimum of ninety per cent of the total proceeds of such fund is invested in the units of such other fund; and

(B) such other fund also invests a minimum of ninety per cent of its total proceeds in the equity shares of domestic companies listed on a recognised stock exchange; and

(ii)  in any other case, a minimum of sixty-five per cent of the total proceeds of such fund is invested in the equity shares of domestic companies listed on a recognised stock exchange:

 

To read about other explanation and clarification in relation to short term and long term asset one can read clause 42A of section 2 of Income Tax Act: Short-term Capital asset.

 

In the next post we shall try to discuss taxability on the above mentioned share, securities and units.

 

You can book phone consultation/ assistance online with expert as mentioned below:

 

Connect with us on: LinkedIn, Telegram, Instagram, Facebook and Youtube for regular Updates.