Finance Bill, 2025, proposes an amendment to Section 2(14) of the Income-tax Act, redefining the term “capital asset.” Currently, capital assets include property of any kind, excluding stock-in-trade or personal assets, and securities held by Foreign Institutional Investors (FIIs) investing under SEBI regulations. The amendment aims to resolve uncertainty regarding the classification of income from securities transactions by investment funds specified under Section 115UB. The proposal specifies that securities held by such funds, when invested per SEBI regulations, will be treated as capital assets, ensuring that income from their transfer is classified as capital gains rather than business income. Additionally, the amendment extends the capital asset classification to unit-linked insurance policies (ULIPs) not exempt under Section 10(10D) due to the fourth and fifth provisos. These changes will take effect from April 1, 2026, and apply to the assessment year 2026-27 onwards.
Budget 2025: Amendment of Definition of ‘Capital Asset’
Section 2(14) of the Act defines the term “capital asset” to include property of any kind held by an assessee, whether or not connected with his business or profession, but does not include any stock-in-trade or personal assets as provided in the definition. The securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992 (15 of 1992) are also defined as capital assets.
2. There is some uncertainty in characterization of income arising from transaction in securities as to whether it is capital gain or business income for investment funds (specified in clause (a) of Explanation 1 to section 115UB in the Act).
3. With a view of providing certainty in respect of the above, it is proposed to amend the Act to provide that any security held by investment funds referred to in Section 115UB which has invested in such security in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992 would be treated as capital asset only so that any income arising from transfer of such security would be in the nature of capital gain.
4. This amendment will take effect from the 1st day of April, 2026 and shall accordingly, apply in relation to the assessment year 2026-27 and subsequent assessment years.
[Clause 3]
Extract of Relevant Clauses of Finance Bill, 2025
Clause 3 of the Bill seeks to amend section 2 of the Income-tax Act relating to definitions.
Clause (14) of the section 2 provides in sub-clause (b) that “capital asset”, means any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992. Further, sub-clause (c) of the said clause, provides that capital asset means any unit linked insurance policy to which exemption under clause (10D) of section 10 does not apply on account of the applicability of the fourth and fifth provisos thereof.
It is proposed to amend sub-clause (b) of the said clause so as to insert the expression “or held by an investment fund specified in clause (a) of Explanation 1 to section 115UB” after the words “Foreign Institutional Investor”.
It is further proposed to amend sub-clause (c) of clause (14) of the said section so as to make it applicable for unit linked insurance policy to which exemption under clause (10D) of section 10 does not apply.
These amendments will take effect from 1st April, 2026 and will, accordingly, apply in relation to the assessment year 2026-2027 and subsequent assessment years.
Extract of Relevant Amendment Proposed by Finance Bill, 2025
3. Amendment of section 2
(a) in clause (14), with effect from the 1st April, 2026,–
(i) in sub-clause (b), after the words “Foreign Institutional Investor”, the words, brackets, letters and figures “or held by an investment fund specified in clause
