Period of holding of a capital asset is very important step in determination of liability of capital gains. If you are holding shares or mutual fund units or other securities  and sold through stock exchange , it shall be tax free if it is held for 12 months or more before sale . Similarly, other assets also become long term capital asset or short term asset based on the period for which it was held by the transfer The tax rates for short term capital gains and long term capital assets are entirely different and even the rules of carry forward and adjustment of loss are different.