This was Section 2(42A) under the Income-tax Act 1961. See the mapping
Chapter I: Preliminary (Section 2 definitions)
Section 2(101), Income-tax Act 2025: Short-term capital asset and the holding-period test
Plain-English summary
A capital gain is long-term when you hold the asset for more than its holding-period threshold, and short-term at or below it. Since 23 July 2024 there are only two thresholds: 12 months for listed securities and fund units (listed shares, equity-fund units, REIT and InvIT units, listed bonds, UTI units and zero-coupon bonds), and 24 months for everything else (unlisted shares, foreign shares, land, buildings, gold and unlisted bonds). The old 36-month period is gone. The 2025 Act keeps this test and moves the definition from Section 2(42A) of the 1961 Act to Section 2(101); a long-term capital asset (anything that is not short-term) is defined in Section 2(67). Holding is counted from the day you acquired the asset to the day you transfer it, inherited and gifted assets add the previous owner's period, and bonus and rights shares run from their own allotment date.
What changed when Section 2(42A) became Section 2(101)?
Until 22 July 2024
Three periods
From 23 July 2024
Two periods
The definition moved and the number of holding periods shrank. Old Section 2(42A) of the Income-tax Act 1961 defined a short-term capital asset; the Income-tax Act 2025 carries the same definition into Section 2(101), and defines a long-term capital asset (anything that is not short-term) in Section 2(67). The rule that separates short-term from long-term is unchanged in substance.
What genuinely changed is a little older. Budget 2024 removed the 36-month holding period for transfers made on or after 23 July 2024. Until then three periods ran side by side: 12 months for listed securities, 24 months for unlisted shares and property, and 36 months for gold, debt-fund units and most other assets. Now only two remain, 12 and 24 months, and Section 2(101) writes that simpler structure into the new Act from TY 2026-27.
The 2025-Act clause (2(101)) and the long-term definition (2(67)) are cross-checked against published copies of the enacted Act.†
How long must you hold each asset to become long-term?
12 months
Listed securities and fund units
Hold longer than 12 months and the gain is long-term.
24 months
Everything else
Hold longer than 24 months and the gain is long-term.
Match the asset to one of two lines. If it is a security listed on a recognised Indian stock exchange, or a unit of an equity-oriented fund, a UTI unit or a zero-coupon bond, the line is 12 months. For every other capital asset the line is 24 months. Cross the line and the gain is long-term; stay at or below it and the gain is short-term.
| Asset | Long-term after | What decides it |
|---|---|---|
| Listed equity shares (recognised Indian exchange) | More than 12 months | Listed security |
| Equity-oriented mutual fund units | More than 12 months | Equity-oriented fund unit |
| REIT / InvIT (business trust) units | More than 12 months | Listed unit |
| Listed bonds and debentures | More than 12 months | Listed security |
| UTI units, zero-coupon bonds | More than 12 months | Named in the shorter list |
| Unlisted shares (including foreign shares) | More than 24 months | Not listed in India |
| Land and buildings | More than 24 months | Immovable property |
| Gold, jewellery, paintings | More than 24 months | Other asset |
| Unlisted bonds and debentures | More than 24 months | Not a listed security† |
| Debt-fund units bought before 1 Apr 2023 | More than 24 months | Other unit† |
A share listed only on a foreign exchange is not listed in India, so it takes the 24-month line. Some debt instruments have no long-term path at all; the traps section below covers them.†
Which assets get the 12-month rule?
The shorter 12-month line rewards listed and fund-type holdings:
- Equity shares of a company listed on a recognised stock exchange in India.
- Units of an equity-oriented mutual fund (broadly, a fund holding at least 65% in domestic equity).
- Units of a business trust: a REIT or an InvIT.
- Any other security listed on a recognised Indian exchange, such as listed bonds, debentures and government securities.
- Units of the Unit Trust of India (UTI), and zero-coupon bonds, which the definition names alongside listed securities.
The 12-month line and Securities Transaction Tax (STT) are separate tests. This line decides short-term versus long-term; whether the concessional 20% or 12.5% equity rates then apply depends on STT, covered under Sections 196 and 198.
Which assets get the 24-month rule?
Everything the shorter list does not name falls to 24 months:
- Unlisted shares, including shares of private companies and shares listed only on a foreign exchange.
- Immovable property: land, residential and commercial buildings, and rights in them.
- Physical gold and jewellery, gold ETFs, and collectibles such as paintings and sculptures.
- Unlisted bonds and debentures, subject to the always-short-term trap below.†
- Units of a non-equity (debt-oriented) mutual fund bought before 1 April 2023; units bought on or after that date follow the specified-fund rule below.†
Foreign shares are the one that surprises people: because they are not listed on a recognised Indian exchange, a US-listed stock or an ESOP holding needs more than 24 months, not 12, to go long-term.
How do you count the holding period?
Count from the date you acquired the asset to the date you transfer it. The threshold is written as "more than" the period, so a listed share must be held for more than 12 months, and any other asset for more than 24 months, to become long-term. An asset held for exactly the threshold, to the day, is still short-term.
In practice, give yourself a margin rather than selling on the exact anniversary: a share bought on 10 June is safely long-term only from 11 June the following year. The date of transfer is fixed by when the asset actually changes hands. For shares it is the trade date, for immovable property usually the date of registration or of handing over possession, and for an under-construction flat many practitioners count from the builder's allotment letter rather than the later registration.
The transfer date, not the payment date, ends the clock. A sale agreed in March but registered in April transfers in April.
Special start dates: inherited, gifted, bonus and rights
For assets that did not come to you by an ordinary purchase, the clock has its own starting rule. Two patterns cover most cases: some acquisitions tack on the previous holder's time, and some start a fresh clock of their own.
| How you got the asset | Holding counted from | Effect |
|---|---|---|
| Inheritance, will or gift | The previous owner's acquisition date | You inherit their holding period; often long-term at once |
| Partition of an HUF | The HUF's acquisition date | Tacks the earlier period |
| Shares in an amalgamated company | The date you held the amalgamating company's shares | Tacks the old shares' period |
| Shares in a resulting company on demerger | The date you held the demerged company's shares | Tacks the original period |
| Bonus shares | Their own date of allotment | Fresh clock; no tacking to the original shares |
| Rights shares | Their own date of allotment | Fresh clock from allotment |
| Right entitlement (renounced or sold) | The date the company's rights offer opened | Usually short-term; the window is short |
| Sweat equity or ESOP shares | The date of allotment or transfer to you | Clock starts at allotment, not at grant |
The tacking rules carry over from the 1961 Act's Explanations to Section 2(42A); the 2025 Act keeps them within Section 2(101) and the Income-tax Rules.†
Traps: assets that are always short-term
A few assets never reach long-term, however long you hold them, because a separate provision overrides the holding-period test:
- Depreciable business assets held in a block of assets: any gain on their sale is short-term by law, even after many years, because depreciation has already been claimed against them.†
- Units of a specified mutual fund bought on or after 1 April 2023 (broadly, a fund with more than 65% in debt or money-market instruments), and market-linked debentures: the gain is short-term whatever the holding period, and taxed at your slab rate. This is the old Section 50AA rule.†
- Unlisted bonds and debentures transferred, redeemed or matured on or after 23 July 2024: the gain is treated as short-term regardless of how long you held them.†
These overrides sit in provisions other than Section 2(101); their 2025-Act numbering is cross-checked against published copies of the enacted Act.†
What the holding-period test decides: your tax rate
The test itself charges no tax. It only labels a gain short-term or long-term, and the rate then comes from the charging sections. For listed equity, an equity-oriented fund or a business-trust unit on which STT was paid, a short-term gain is taxed under Section 196 at 20%, and a long-term gain under Section 198 at 12.5% on the amount above the ₹1.25 lakh yearly exemption.
For every other asset the split is starker. A short-term gain is added to your income and taxed at your slab rate, which can reach 30%. A long-term gain is taxed at 12.5% without indexation, with one relief: a resident individual or HUF selling land or a building bought before 23 July 2024 may instead choose 20% with indexation and pay whichever is lower. Crossing the holding-period line is therefore often the single biggest lever on the tax you pay.
Should you wait to cross the long-term line?
When a sale is close to the line and you have any flexibility, the holding-period test is worth planning around. Take a ₹5,00,000 gain on STT-paid listed shares. Sell at 11 months and it is short-term under Section 196: 20%, or ₹1,00,000 of tax. Hold past 12 months and it is long-term under Section 198: 12.5% on the ₹3,75,000 above the ₹1.25 lakh exemption, or ₹46,875. Waiting a few extra weeks saves ₹53,125 before cess, on the same gain.
The lever is real, but do not let the tax tail wag the investment. A few weeks of extra market risk can erase a saving built on the gap between 20% and 12.5%, and the money is only saved if the price holds. For property and gold near the 24-month line the same logic applies with bigger numbers, because the short-term route is your full slab rate. Where an asset came by inheritance or gift, check the previous owner's date first: you may already be long-term without waiting at all. Run your figures through the income-tax calculator before you decide to sell early.
Worked examples
Listed shares sold at 13 months: long-term
Rahul buys 500 shares of a company listed on an Indian exchange on 10 June 2025 and sells them on 20 July 2026. He held them 13 months and 10 days, which is more than 12 months, so the gain is long-term and falls under Section 198 (12.5% above the ₹1.25 lakh yearly exemption). Had he sold on 5 June 2026, that is 11 months and 26 days, not more than 12 months, so the same gain would have been short-term under Section 196 at 20%. Two weeks of patience move the entire gain across the line.
A plot of land at the 24-month line
Priya buys a plot on 1 March 2024 for ₹40,00,000 and sells it on 1 August 2026 for ₹64,00,000. Land is not a listed security, so the 24-month line applies. She held it about 29 months, more than 24, so the ₹24,00,000 gain is long-term. At 12.5% without indexation the tax is ₹3,00,000, plus 4% cess of ₹12,000, ₹3,12,000 in all. Because she bought before 23 July 2024, a resident may instead choose 20% with indexation and pay the lower figure. Had she sold within 24 months, the whole ₹24,00,000 would be short-term, added to her income and taxed at her slab rate, up to about ₹7,48,800 at the 30% slab.
An inherited house sold months later
Anil inherits his father's house in April 2026; his father had bought it in 2009. Anil sells it in December 2026, only eight months after inheriting. Because the house came by inheritance, Anil adds his father's holding period to his own: counted from 2009, it has been held far more than 24 months, so the gain is long-term even though Anil himself held it eight months. His father's cost carries over as the cost of acquisition, and the acquisition date for indexation is his father's date, not April 2026.
Read the section as enacted
The statutory text is loaded verbatim from the Gazette copy of the Income-tax Act 2025, never from secondary sources or memory. The CA-checked copy appears here the moment it clears review.
Section 2(101) FAQs
Is a gain long-term if I hold for exactly 12 months?
No. The rule is "more than" the threshold, so a listed share must be held for more than 12 months, not exactly 12. A share sold on the first anniversary of purchase is still short-term; you need to cross 12 months (in practice, 12 months and a day) for it to become long-term. The same "more than" test applies at the 24-month line for other assets.
What is the holding period for unlisted shares and foreign shares?
24 months. Unlisted shares, including shares of private companies and shares listed only on a foreign exchange, are not listed securities in India, so they need more than 24 months to become long-term. A US-listed stock or an ESOP holding is the common example: it takes 24 months, not 12.
Has the 36-month holding period been removed?
Yes, for transfers on or after 23 July 2024. Budget 2024 collapsed the old three periods into two: 12 months for listed securities and fund units, 24 months for everything else. Assets that once needed 36 months, such as gold, debt-fund units and unlisted assets, now turn long-term at 24 months. Section 2(101) of the 2025 Act keeps this two-period structure.
How is the holding period counted for inherited or gifted property?
You add the previous owner's holding period to your own. If you inherit a house your parent bought in 2009 and sell it months later, it is long-term, because the clock runs from 2009, not from the date of inheritance. The previous owner's cost of acquisition also carries over for computing the gain.
When does the clock start for bonus and rights shares?
From their own date of allotment, not from the original shares. Bonus shares issued in July and sold in September are held only two months, so their gain is short-term, even when the shares that earned the bonus are long-term. Rights shares run from their allotment date the same way.
What is the holding period for gold and jewellery?
24 months. Physical gold, jewellery, gold ETFs and collectibles are "other assets", so a gain is long-term only after more than 24 months, and short-term at or below. Before 23 July 2024 gold needed 36 months, which is why older guidance still quotes three years.
Are debt mutual funds ever long-term now?
It depends when you bought them. Units of a specified (debt-oriented) mutual fund bought on or after 1 April 2023 are always short-term, whatever the holding period, and taxed at your slab rate, under the old Section 50AA rule. Units bought before that date follow the ordinary 24-month test.†
Does the holding period decide my tax rate?
Indirectly. The holding-period test only labels the gain short-term or long-term. The rate then comes from the charging section: 20% (Section 196) or 12.5% above ₹1.25 lakh (Section 198) for STT-paid listed equity, and slab rates or 12.5% for other assets. Get the label wrong and the whole calculation is wrong, which is why the 12-versus-24-month line matters.