Capital asset

A capital asset is defined to include property of any kind held by an assessee, whether connected with their business or profession or not connected with their business or profession. It includes all kinds of property, movable or immovable, tangible or intangible, fixed or circulating. Thus, land and building, plant and machinery, motorcar, furniture, jewellery, route permits, goodwill, tenancy rights, patents, trademarks, shares, debentures, securities, units, mutual funds, zero-coupon bonds etc. are capital assets.

Excluded from the definition of capital assets

  1. Any stock in trade, consumable stores, or raw materials held for the purpose of business or profession have been excluded from the definition of capital assets.
  2. Any movable property (excluding jewellery made out of gold, silver, precious stones, and drawing, paintings, sculptures, archeological collections, Dinosaur bones, etc.) used for personal use by the assessee or any member (dependent) of assessee’s family is not treated as capital assets. For example, wearing apparel, furniture, car or scooter, TV, refrigerator, musical instruments, gun, revolver, generator, etc. is the examples of personal effects. (But see IRS publication 544 chapter 2.)
  3. Agricultural land situated in rural area.
  4. 6.5% gold bonds or 7% gold bonds 1980, national defense gold bond 1980, issued by the central government.
  5. Special bearded bonds, 1991
  6. Gold deposit bonds issued under gold deposit scheme, 1999.

Specific common definitions

US tax definition versus broader economic definition

A well-known financial accounting textbook[5] advises that the term be avoided except in tax accounting because it is used in so many different senses, not all of them well-defined. For example it is often used as a synonym for fixed assets[6] or for investments in securities.[5]

However this advice is questionable beyond the US private context. Several public sector standards in global use, notably triple bottom line accounting as defined by ICLEI for world cities, require that employees or the environment or something else be treated as a capital asset. In this context it means something managers have a responsibility to maintain, and to report changes in value as gains or losses.[7] See human capital, natural capital, triple bottom line, human development theory.

Capital assets should not be confused with the capital a financial institution is required to hold. This capital is computed from the right-hand side of the balance sheet while assets are found on the left-hand side.[5] See Basel III for a summary of how such requirements are proposed to be calculated.

See also


  1. Eugene F. Fama and Merton H. Miller, The Theory of Finance, Holt Rinehart and Winston (1974).
  2. Governmental Accounting Standards Board Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments, paragraph 19.
  3. 26 USC 1221. Also see the discussion of capital gains and losses in IRS Publication 550.
  4. See HMRC discussion of assets liable to capital gains tax.
  5. 1 2 3 Clyde P. Stickney and Roman L. Weil, Financial Accounting, p. 622.
  6. John Owen Edward Clark, Dictionary of International Accounting Terms, p. 98
  7. David F. Robinson, "Human asset accounting", Long Range Planning, v. 7, i. 1, February 1974, Pp. 58-60.
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