For computing capital gains, assets have been divided into two categories
(i) Short-term capital assets [Section 2 (42-A)].
Short-term capital asset is that which is held by an assessee for not more than 36 months immediately preceding the date of its transfer.
In the case of shares (equity or preference) held in a company the period has been reduced to 12 months with effect from 1-4-88 i.e., assessment year 1988-89.
With effect from assessment year 1995-96, the securities listed in any recognised stock exchange, units of U.T.I. and units of Mutual Funds shall be treated as Long Term capital assets if held for 12 months or more.
In case an assessee subscribes to right issue himself, or subscription is made by renouncee the period shall be counted from the date of allotment of such financial asset.
In case subscription is made against the right being renounced in favour of any other person the period will be counted from the date on which offer is made by the company or financial institution.
Any gain or loss accruing to the assessee on such assets shall be known as short-term capital gain or loss. [2(42B)1.
(ii) Long-term capital assets. Assets which do not fall within the definition given in section 2(42), i.e., th assets which are held by the assessee for a period exceeding 36 months immediately preceding the date of transfer, are called ‘long-term capital assets’.
Any gain or loss accruing on such asset shall be known as long-term capital gain or loss. [2(42B)].