Let us again try and understand this point with the help of a live example. Ravi is a salaried employee at Sundaram Finance in Chennai. In the month of April, 2017 he purchased un-listed shares of Dharavi Syringes Ltd, a company floated by his distant relative. He sold the same in July, 2019 at a profit. How will the capital gains be treated?

The fact is that there is no difference between whether the promoter is related to you or note. The IT Act only considers whether it is a listed company or unlisted company and whether the STT has been paid on the purchase transaction / sale transaction. In this case shares are capital assets for Ravi Pujara and to determine nature of capital gain, period of holding would be considered as 24 month as shares are unlisted. This is based on the modification made in the last Union Budget where such holding period for unlisted equity was reduced from 36 months to 24 months. He purchased shares in April, 2017 and sold them in July, 2019, i.e., after holding them for a period of more than 24 months. Hence, shares will be treated as Long Term Capital Gains and taxed accordingly.

Gain arising on transfer of short-term capital asset is termed as short-term capital gain and any profit arising on transfer of long-term capital asset is termed as long-term capital gain. While the definition of long term and short term asset is fairly clear from the above illustration, there is one exception that investors need to be conscious of. For example, gains on depreciated assets are always taxed as short-term capital gain only. That is because the benefit of time value depletion has already been captured by the depreciation benefit that you have claimed on the asset.