Short-term capital asset
A capital asset taxed as short-term: listed securities held 12 months or less, unlisted securities 24 months or less, plus MLDs, specified mutual funds and unlisted bonds deemed short-term whatever the holding.
In plain language
When a security is sold at a gain, the tax depends heavily on how long it was held. Gains on a short-term capital asset are short-term capital gains (STCG); gains on a long-term capital asset are long-term capital gains (LTCG), usually taxed more lightly.
The workbook's rules turn on whether the security is listed:
| Instrument | Short-term if held |
|---|---|
| Listed securities, units of UTI, units of equity-oriented funds, zero coupon bonds | 12 months or less |
| Unlisted securities (including shares offered through an offer for sale in an IPO) | 24 months or less |
On top of that, some assets are always short-term, however long they are held.
Before any of this applies, there is a prior question: whether the securities were held as a capital asset at all, or as stock-in-trade, in which case gains are business income.
How it works
Deemed short-term, irrespective of holding period (section 14.1.3.3):
- Market Linked Debentures transferred, redeemed or matured on or after 01-04-2023;
- Specified Mutual Funds acquired on or after 01-04-2023;
- Unlisted bonds or unlisted debentures transferred, redeemed or matured on or after 23-07-2024.
What changed on 23-07-2024. The Finance (No. 2) Act, 2024 amended the definition:
- All listed securities, including units, are short-term if held 12 months or less. Before that date, listed units other than UTI and equity-oriented fund units were short-term if held 36 months or less.
- All unlisted securities are short-term if held 24 months or less. Before that date, only unlisted shares had the 24-month test; other unlisted securities used 36 months.
Why it matters — effective rates from the workbook's table (individuals, residents):
| Gain | Effective rate |
|---|---|
| STCG on STT-paid listed equity shares / equity-oriented fund units | 23.92% |
| Other STCG | 42.744% |
| LTCG | 14.95% |
Note 3 to the table: LTCG above Rs 1.25 lakh on STT-paid listed equity is taxed at 12.5% plus surcharge and cess.
The workbook uses the Income-tax Act's tax year throughout — the 12-month financial year beginning 1 April.
A worked example
The investor and prices are illustrative. Rates are the workbook's effective rates for a resident individual at the highest surcharge; the Rs 1.25 lakh threshold is applied to the listed-equity LTCG case only.
Rohan makes a Rs 10 lakh gain in each of three situations:
A. Listed shares, STT paid, bought 10 January 2025 and sold 5 January 2026. Held under 12 months → short-term.
Tax = Rs 10,00,000 × 23.92% = Rs 2,39,200
B. The same shares sold on 15 January 2026 — held more than 12 months → long-term.
Taxable = Rs 10,00,000 − Rs 1,25,000 = Rs 8,75,000
Tax = Rs 8,75,000 × 14.95% = Rs 1,30,813
Waiting ten more days saves about Rs 1.08 lakh.
C. Unlisted shares held 20 months. The unlisted test is 24 months → short-term, taxed as other STCG:
Tax = Rs 10,00,000 × 42.744% = Rs 4,27,440
And if Rohan's gain had come from an unlisted debenture sold after 23-07-2024, it would be short-term even after five years of holding.
Why NISM asks about it
Chapter 14, section 14.1.3.3 (Capital Gains on Listed and Unlisted Securities), gives the holding-period table, the three deemed short-term assets and, in footnotes, the pre- and post-23-07-2024 rules. Chapter 14 carries 8% weight. Expect "an unlisted debenture held three years and sold in 2025 is…", the 12-month / 24-month split, and the three deemed categories with their dates.
Common exam traps
- Listed: 12 months or less. Unlisted: 24 months or less. "Or less" — exactly 12 months listed is still short-term.
- Unlisted bonds and debentures are short-term regardless of holding period if transferred, redeemed or matured on or after 23-07-2024.
- MLDs: transferred on or after 01-04-2023. Specified mutual funds: acquired on or after 01-04-2023. One date is about transfer, the other about acquisition.
- The 36-month tests are gone for listed units and non-share unlisted securities from 23-07-2024.
- Stock-in-trade is not a capital asset — its gains are business income, so this classification does not apply.
- Stale figures elsewhere in the workbook: Example 7.10 in Chapter 7 still taxes a long-term distribution at 10.4% (10% plus cess), and Chapter 2 says Category III AIFs withhold 42.7% on derivatives income. Chapter 14 is the current source: LTCG at 12.5% (14.95% effective at the top surcharge), other STCG at 42.744% effective.
Where this is taught
- Series XXI-B · Chapter 10: Taxationintroduced here
- Series X-B · Chapter 8: Capital Gainsintroduced here
- Series XIX-E · Chapter 14: Taxationintroduced here
Related terms
- Securities Transaction TaxA central government tax collected by the exchange on the sell side of every futures and option trade — 0.05% of futures traded value, 0.15% of option premium, and 0.15% of settlement price on exercise.
- Capital asset (Section 2(14))Section 2(14)'s wide definition of what can generate a capital gain — property of any kind held by an assessee — narrowed by exclusions for stock-in-trade, personal effects and rural agricultural land.
- Long-term capital assetA capital asset held for more than the prescribed period before transfer — generally more than 24 months, and more than 12 months for listed securities and equity oriented fund units.
- Maximum Marginal RateThe highest slab rate of income tax, applied to a Category III AIF's business income at fund level because the fund gets no pass-through — 30% before surcharge and cess.
- Tax yearUnder the Income Tax Act, 2025, the 12-month financial year beginning 1 April — or, for a newly set-up business or profession, the period from set-up to the end of that financial year.
- Market Linked DebentureA debenture whose return is linked to an underlying index or security rather than being a fixed coupon; since Section 50AA its gains are short-term capital gains taxed at slab, whatever the holding period.
- FIFO methodThe rule that securities sold from a demat account are deemed to be those that entered the account first — which fixes both their period of holding and their cost of acquisition for capital gains.
- Stock-in-tradeSecurities or goods held for the purpose of business — excluded from the definition of capital asset, so profit on their sale is business income, not capital gains.