Finance Bill, 2025 Notifies Amendments on Definition of ‘Capital Asset’ under Income Tax Act
This amendment aims to streamline the taxation framework for AIFs, ensuring clarity in the tax treatment of securities held by these funds
A major change to the definition of "capital asset" under Section 2(14) of the Income Tax Act, 1961, has been proposed by the Finance Bill 2025. The SEBI (AIF) Regulations, 2012 expressly target Category I and Category II Alternative Investment Funds (AIFs), and this change places securities held by investment funds under the capital asset category. Read More: Top Stories...
A major change to the definition of "capital asset" under Section 2(14) of the Income Tax Act, 1961, has been proposed by the Finance Bill 2025. The SEBI (AIF) Regulations, 2012 expressly target Category I and Category II Alternative Investment Funds (AIFs), and this change places securities held by investment funds under the capital asset category.
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This amendment aims to streamline the taxation framework for AIFs, ensuring clarity in the tax treatment of securities held by these funds. By recognizing such securities as capital assets, the government seeks to provide uniformity in taxation and enhance transparency in investment structures.
Want a deeper insight into the Income Tax Bill, 2025? Click here
The definition of "capital asset" has been further expanded by a later government amendment to the Finance Bill 2025. Securities held by Category I or Category II AIFs whose investments were made in accordance with the rules of the International Financial Services Centers Authority (IFSCA) or SEBI are now included in the most recent edition. By giving AIFs doing business in India and offshore financial hubs more freedom, this extension seeks to bring tax laws into line with the changing regulatory environment.
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The government also proposed various amendments. Section 10(4D) of the Income-tax Act, 1961, which exempts "specified funds" from income tax, is to be amended by the Indian government. With this action, tax benefits for investment vehicles that operate inside the International Financial Services Centre (IFSC) would be significantly simplified.
Currently, Section 10(4D) exempts the income of designated funds from taxes, provided that certain legal requirements are met. These funds are essential for encouraging investment in India's financial markets, especially in GIFT City and other IFSCs.
Want a deeper insight into the Income Tax Bill, 2025? Click here
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