The Income Tax Act, 1961 contains provision with regard to the taxability of capital gains. Sec. 45 of the Act provides that any profit or gain arising from the transfer of a capital asset affected in the previous year shall be chargeable to Income lax under the head ‘capital gains’ and shall be deemed to be the income of the previous year in which the transfer took place. The chargeability to capital gains, however, subject to certain exceptions. The provisions in this regard are contained in various sections of the Act.

Definition of capital asset
Section 2( 14) of the act provides that the term capital asset means properly of any kind held by an assessee, whether or not connected with this business or profession but does not include inter alia.
1. Stock in trade consumable stores or raw materials held for purposes of business or profession.
2. Person effects such as wearing apparel, furniture, motor car, air for personal use by the assessee or by any member of his   family dependent on him.
3. 6   Vi percent Gold  Bonds, 1977- 7 percent Gold Bonds, 1980 and National Gold Bonds, 1980.
4. Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999.
5. Agricultural land in India, not being land which is situated within the local limits of any municipality, notified area committee, town committee or a cantonment board and which has a population of not less than 10,000 or which is situated in any area up to a distance of 8 kilometers from such limit or up to such distance from such limits as specified by a notification in this regard.
The term capital asset also includes jewellery although held for personal use. The jewellery covered for this purpose is defined as under by the relevant section:
1. Ornaments made of gold, silver, platinum or any other previous metal or containing one or more of such precious metals, whether  or  not   containing  any precious or semi-precious stone, and whether or not worked or sewn into any wearing apparel.
2. Precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any apparel. From assessment year 2008-09 onwards archaeological collections, drawings, paintings, sculptures and any work of art have also been included in the term capital asset even though they are in the nature of personal effect.
The transfer of such articles would thus attract capital gains tax.

In accordance with the provisions of section 2(47) of the act transfer, includes the sale, exchange or relinquishment of the asset or impingement of any rights therein or the compulsory acquisition thereof under any law or in a case where the asset is converted by the owner there of into, or is treated by him as, stock-in-trade or a business carried on by him, such conversion or treatment or the maturity or redemption of a zero coupon bond.

The term transfer for the purpose of capital gain tax also includes:
1. Giving   possession   of immovable property under part of performance of a contract.
2. Any transaction which has the effect   of   transferring    the immovable property. 
Capital asset is classified as a short term or long term capital with reference to the period of holding of the asset by the assessee or the previous owner under certain circumstances. The period of holding of the asset is computed from the date of acquisition to the date immediately preceding its transfer.