s.2(42A) — Short-term capital asset and the holding period
A capital asset held for not more than twenty-four months before its transfer is short-term. Explanation 1 adds the previous owner's holding only where the asset came by gift, will, inheritance or another mode in section 49(1).
Land or building is long-term if held for more than twenty-four months from assessment year 2018-19 (Finance Act, 2017), and if held for more than thirty-six months before that. The Finance (No. 2) Act, 2024 made twenty-four months the general period and omitted the land and building proviso; the effective date of that change could not be read on a Department footnote, but it leaves land and building at twenty-four months. The counterpart in the Income-tax Act, 2025 is section 2(101).
Income-tax Act, 1961
s.2(42A)
Income-tax Act, 2025
s.2(101)
In force from 1 April 2026, but s.536(2)(c) preserves the 1961 Act for tax years beginning before that date.
In short
Section 2(42A) of the Income-tax Act, 1961 defines a short-term capital asset as a capital asset held by an assessee for not more than twenty-four months immediately preceding the date of its transfer, with twelve months for listed securities, units of the Unit Trust of India and of equity oriented funds, and zero coupon bonds. For land or building twenty-four months has applied since assessment year 2018-19; before that it was thirty-six. Explanation 1(i)(b) adds, for an asset that became the assessee's property in the circumstances in section 49(1), the period for which the previous owner held it, and clause (ii) leaves other cases to rules made by the Board. No sub-clause of Explanation 1 refers to section 45(5A), a specified agreement or a share in a project, so a landowner's flats carry no statutory tacking from the land. Their holding runs from their own acquisition, and the Act does not say when that is. Outside section 45(5A), Tribunals have counted from the agreement or the allotment under it: in Olivia Apparels (Bangalore, February 2023) the Tribunal left undisturbed, on the Revenue's appeal, the Commissioner (Appeals)'s split of the gain on flats given up under a 2005 settlement, within three years of a 2003 agreement, into long and short-term, counting from the agreement, and in Madhu Kumar Patel (Hyderabad, December 2022) flats allotted under an agreement of 13 January 2012 were held for more than three years for section 54F(3) (para 26). The allotment line comes from the Punjab and Haryana High Court in Madhu Kaul (January 2014), where "identification of a particular flat and delivery of possession are consequential acts", which the Surat Tribunal followed for a builder-buyer in Jagdishkumar Chhotubhai Gandhi (September 2026). Tacking is narrow: in K.S. Akhilesh Babu (Bangalore, November 2025) co-owners who received land from a partnership firm under a court-approved compromise could not add the firm's holding, and their gain under a 2007 agreement was short-term (paras 15 to 18.2). A flat sold within twenty-four months of acquisition yields a short-term gain taxed at the ordinary rates rather than under section 112. The counterpart in the Income-tax Act, 2025 is section 2(101): clause (a) keeps twenty-four months, clause (b) the twelve-month list, and clause (c)(B)(I) adds the previous owner's holding by reference to serial 1 of the Table in section 73(1).
What the provision does
Classifies a gain as short-term or long-term by how long the asset was held before transfer, twenty-four months for land and buildings, and adds a previous owner's period only for the modes in section 49(1). It does not say when an asset received under a joint development agreement is acquired, and it has no tacking rule for a landowner's share whose cost is fixed by section 49(7).
Threshold questions
- On what date did the assessee first hold the asset: purchase, allotment, possession, the joint development agreement or the completion certificate
- Was it held for more than twenty-four months immediately before the date of transfer
- Did it come by gift, will, inheritance, partition or another mode in section 49(1), so that the previous owner's holding is added
- Is the asset a flat received under a joint development agreement, for which no statutory tacking applies
- Did the asset come from a firm or other entity whose holding cannot be added to that of the partner or co-owner who received it
- For a transfer on or after 1 April 2026, which clause of section 2(101) of the 2025 Act applies
In practice
The recurring disputes.
When a landowner acquires a flat received under section 45(5A)
Three dates compete. The Revenue's argument is the completion certificate: section 49(7) gives the flat a cost equal to the deemed consideration under section 45(5A), fixed on that date, and an asset whose cost the statute measures then was acquired then, so a sale within twenty-four months of the certificate is short-term. The owner's argument is the registered agreement, which identifies his share and gives him a right in it that ripens into the flat, on the reasoning of Madhu Kaul. A third argument, that the flat continues the land, is weak because section 45(5A) assumes a completed transfer of the land and a new asset in return, and Explanation 1(i)(b) is the only statutory tacking. No decision on a flat received under section 45(5A) was traced.
Flats received outside section 45(5A)
For agreements before assessment year 2018-19, and for companies, firms and other owners outside section 45(5A), the Tribunals have counted from the agreement or the allotment, as in Olivia Apparels and Madhu Kumar Patel. In Joseph Kiran Kumar Reddy (Hyderabad, October 2024) the Assessing Officer counted from an agreement of 26 April 2012 and treated sales between May and November 2014 as short-term; the Tribunal, without analysing the period, said the section 54 claim on the flats had been rightly disallowed (para 9). The Revenue's harder line, that the flat is acquired only on possession or completion, has not been adopted for a landowner in any decision found. The owner's harder line, that the flats are the land in another form and carry its holding, has no decision either. Tribunal practice counts from the agreement or allotment.
A town planning final plot: does the holding restart
Many Gujarat agreements are signed on final plots that replaced original plots under a town planning scheme. The owner's argument is that the Supreme Court in Shantilal Mangaldas (1969) and Mrugendra Indravadan Mehta (2024) described the scheme as a statutory readjustment in which ownership of the original plot is substituted by ownership of the final plot, with no vesting in the authority, so the holding runs from the purchase of the original plot. The Revenue's argument is that both judgments say the rights in the original plot are extinguished, which is a transfer under section 2(47)(ii), so a new holding begins when the final scheme comes into force; that matters only where the scheme came into force within twenty-four months before the transfer. No income-tax decision on the holding period of a final plot was found.