Section 2 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Clauses (101) to (112) of section 2 are the last block of definitions, and they matter most for capital gains: when an asset is "short-term", what a "slump sale" and a "transfer" are, what "stamp duty value" means and what counts as a "virtual digital asset". This article explains them as per the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026.
A capital asset is short-term if held for not more than twenty-four months before transfer, and twelve months for listed securities, units of the Unit Trust of India, units of an equity-oriented fund and zero-coupon bonds. "Transfer" is widely defined, with eight limbs. A "slump sale" is a transfer of undertakings for a lump sum without values for individual assets and liabilities. "Virtual digital asset" now also covers a crypto-asset. Section 2 was amended by section 35 of the Finance Act, 2026.
Where this article sits
This is the last article on section 2. Earlier clauses are in clauses 1 to 21, 22 to 35, 36 to 48, 49 to 76 and 77 to 100. The charge on a slump sale is in section 77; see the article on slump sale capital gains. If you are working out a gain on a sale, our capital gains calculation service starts from these definitions.
Clause (101): short-term capital asset
Sub-clause (a). A short-term capital asset is a capital asset held by the assessee for not more than twenty-four months immediately preceding the date of its transfer.
Sub-clause (b). Where the capital asset is (i) a security listed in a recognised stock exchange in India, (ii) a unit of the Unit Trust of India, (iii) a unit of an equity-oriented fund or (iv) a zero-coupon bond, the words "twelve months" replace "twenty-four months".
| Asset | Short-term if held for not more than |
|---|---|
| Capital asset in general | Twenty-four months |
| Security listed in a recognised stock exchange in India | Twelve months |
| Unit of the Unit Trust of India | Twelve months |
| Unit of an equity-oriented fund (section 198(8)) | Twelve months |
| Zero-coupon bond | Twelve months |
Sub-clause (c): how the holding period is counted.
- Excluded: for a share held in a company in liquidation, the period after the date the company goes into liquidation.
- Included (item B): the period for which an earlier holder held the asset. This applies to the previous owner referred to in section 73(1) (Table: serial number 1); shares in the amalgamating company, where the asset becomes the assessee's in consideration of a transfer under section 70(1)(f); shares in the demerged company, in a demerger; membership of a recognised stock exchange before its demutualisation or corporatisation, for trading or clearing rights or equity shares allotted on it; shares transferred to a business trust under section 70(1)(zi); units in a consolidating mutual fund scheme (section 70(1)(zj)) or plan (section 70(1)(zk)); preference shares converted under section 70(1)(zb); original units in the main portfolio, for units in a segregated portfolio under section 73(1) (Table: serial number 11); and gold held before conversion into an Electronic Gold Receipt, or the receipt held before conversion back into gold, as referred to in section 70(1)(y).- Reckoned from a date (item C): the date of conversion or treatment for a capital asset referred to in section 26(2)(j); the date of allotment of a financial asset subscribed to on a right to subscribe (including by a person to whom the right was renounced); the date of the offer of the right, for a renounced right; the date of allotment of a financial asset allotted without payment on the basis of another financial asset held; the date of allotment or transfer of a specified security or sweat equity shares given by the employer without cost or at a concessional rate to employees; and the date a request for redemption was made, for shares a non-resident acquires on redemption of Global Depository Receipts under section 209(1) (Table: serial number 2).
- Everything else (item D): the period is determined in the manner as may be prescribed; the detail is left to the Income-tax Rules, 2026.
Meanings in the clause: "equity oriented fund" is as in section 198(8); "security" as in section 2(h) of the Securities Contracts (Regulation) Act, 1956; "specified security" means securities as defined there and, where an employees' stock option has been granted, the securities offered under the plan or scheme; "sweat equity shares" are equity shares issued to employees or directors at a discount or for consideration other than cash for know-how or intellectual property rights or value additions.
Example: listed shares
Farida buys listed shares on 10 March 2026 and sells them on 12 March 2027. Twelve months from 10 March 2026 end on 10 March 2027, and she held them for slightly more than twelve months, so they are not a short-term capital asset under clause (101)(a) read with (b). Had she sold on 5 March 2027, she would have held them for less than twelve months and the asset would be short-term. Under clause (102), a short-term capital gain is the gain from transferring a short-term capital asset; under clauses (67) and (68), the long-term equivalents apply to an asset that is not short-term.
Clause (103): slump sale
A slump sale is the transfer of one or more undertakings, by any means, for a lump sum consideration, without values being assigned to the individual assets and liabilities. "Undertaking" has the meaning in clause (35)(i) (see the article on clauses 22 to 35). Determining a value of an asset or liability for the sole purpose of payment of stamp duty, registration fees or other similar taxes or fees is not regarded as assigning values to individual assets or liabilities.
Example: slump sale
Orion Foods LLP (an invented firm) sells its entire bakery division to another firm for one agreed sum of Rs. 2,00,00,000, and the agreement lists no price for the ovens, stock or dues. That is a transfer of an undertaking for a lump sum without values to individual items. If the buyer separately values the land only to pay stamp duty, clause (103)(b)(ii) says that valuation is not regarded as assigning values, so the sale remains a slump sale.
Clauses (104) to (108): zones, stamp duty value, tax, officers, total income
- Special Economic Zone (104): the meaning in section 2(za) of the Special Economic Zones Act, 2005.
- Stamp duty value (105): the value adopted or assessed or assessable by any authority of the Central or State Government for payment of stamp duty on an immovable property; "assessable" means the value that authority would have adopted or assessed if the matter were referred to it for stamp duty, irrespective of anything to the contrary in any other law.- Tax (106): income-tax chargeable under the Act.
- Tax Recovery Officer (107): an Income-tax Officer authorised in writing by the Principal Chief Commissioner, Chief Commissioner, Principal Commissioner or Commissioner to exercise the powers of a Tax Recovery Officer and the powers and functions of an Assessing Officer as may be prescribed.
- Total income (108): the total amount of income referred to in section 5, computed in the manner laid down in the Act.
Clause (109): transfer
In relation to a capital asset, "transfer" includes:
| Limb | Included |
|---|---|
| (a) | Sale, exchange or relinquishment of the asset |
| (b) | Extinguishment of any rights in it |
| (c) | Its compulsory acquisition under any law in force |
| (d) | Conversion by the owner into, or treatment as, stock-in-trade of a business he carries on |
| (e) | Maturity or redemption of a zero coupon bond |
| (f) | Any transaction (whether by becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons, or by any agreement or arrangement or in any other manner) which has the effect of transferring, or enabling the enjoyment of, any immovable property |
| (g) | Any transaction allowing possession of an immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 |
| (h) | Disposing of or parting with an asset or any interest in it, or creating any interest in any asset, in any manner, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily, by an agreement (in India or outside) or otherwise, irrespective of whether the transfer of rights is characterised as effected or dependent upon or flowing from the transfer of shares of a company registered or incorporated outside India |
"Immovable property" for this clause means (i) any land, building or part of a building, and, where it is to be transferred together with machinery, plant, furniture, fittings or other things, those things also, such that they include any rights therein; and (ii) any rights in or with respect to land or a building or part of a building (whether or not including machinery, plant, furniture, fittings or other things) already constructed or to be constructed, arising from any transaction (whether by becoming a member of or acquiring shares in a co-operative society, company or other association of persons, or by any agreement or arrangement of whatever nature), not being a sale, exchange or lease of that land or building.
Clauses (110) to (112): valuation officer, virtual digital asset, zero coupon bond
- Valuation Officer (110): a person appointed by the Central Government as a Valuation Officer who exercises the powers specified in section 269(3), including a Regional Valuation Officer, a District Valuation Officer and an Assistant Valuation Officer.
- Virtual digital asset (111): (a) any information, code, number or token (not being Indian or foreign currency), generated through cryptographic means or otherwise, called by any name, providing a digital representation of value exchanged with or without consideration, with the promise or representation of having inherent value, or functioning as a store of value or unit of account (including use in any financial transaction or investment, but not limited to an investment scheme) and capable of being transferred, stored or traded electronically; (b) a non-fungible token or any other token of similar nature; (c) any other digital asset the Central Government may specify by notification; and (d) any crypto-asset, being a digital representation of value that relies on a cryptographically secured distributed ledger or similar technology to validate and secure transactions, whether or not included in (a), (b) or (c). A "non-fungible token" means such digital asset as the Central Government may specify by notification, and the Central Government may by notification exclude any digital asset, subject to conditions. What has been notified is not in the text consulted.
- Zero coupon bond (112): a bond (a) issued by an infrastructure capital company, infrastructure capital fund, infrastructure debt fund, public sector company or scheduled bank on or after the 1st June, 2005; (b) for which no payment or benefit is received or receivable before maturity or redemption from such an issuer; and (c) which the Central Government may specify by notification. "Infrastructure debt fund" means the fund notified by the Central Government under Schedule VII (Table: serial number 46).
Need help with a capital gains computation?
The holding period and the meaning of "transfer" decide whether a gain is short-term or long-term and whether it arises at all. For a sale of shares, property or a business division, see our capital gains calculation service for a worked computation by a CA team.
Key takeaways
- Twenty-four months is the general holding test; twelve months for listed securities, UTI units, equity-oriented fund units and zero-coupon bonds.
- The holding period of an earlier holder is added in the cases listed in item (B); some periods run from a stated date under item (C); the rest is left to the rules.
- A slump sale needs a lump sum and no values for individual assets; a valuation only for stamp duty does not count as assigning values.
- "Transfer" has eight limbs, from sale to creating any interest in an asset.
- A virtual digital asset includes a crypto-asset under limb (d).
- Notified items are not in the text consulted.
Read next
- Section 2: capital asset, charitable purpose, company and demerger (clauses 22 to 35)
- Section 2: person, principal officer, rates in force and resident (clauses 77 to 100)
- Section 77: capital gains on slump sale
- Section 72: capital gains computation
Disclaimer: Based on the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026, as consulted on 2 October 2026. It explains the words of the Act only; the Income-tax Rules, 2026, notifications, circulars, later amendments and the way the tax authorities and courts apply these provisions should be checked. This article is general information, not legal advice; check the official text before acting.