Capital gain on conversion of assets

Tax planning 650 views 4 replies

ALPESH KUMAR

SUPRITENDENT

140 Points Joined November 2009

Deal all,

My query is regarding capital gain on conversion of assets into stock in trade.

A peson converts its land into stock in trade in the year F.Y. 2010-11 i.e. within a period 2 years from its acquisition. He then introduce the same as capital introduction in the firm in which he is a partner in the year F.Y. 2011-12. In this case, what will the status of capital gain? STCG OR LTCG?? and in which year it is to be payable and how the sales consideration will decide?? please reply urgently???? thanx and regards

Replies (4)

Z

Tax Consultation (US and India)

2970 Points Joined September 2011

According to the sec 45(2) Capital gain arising from the transfer by way of conversion of a capital asset into stock in trade of b/s, shall be charged to tax as his income of the P/Y in which such stockin trade is sold or otherwise transferred.

In the given case Capital gain shall be computed as

Fair Market Vale of asset on date of conversion

Less Cost of transfer

Less Index cost of acquisition

According to provisions of sec 45(3) (for bringing Capital asset into business)

It shall apply only if the share in capital account of assesse is more than Cost of transfer and Indexed cost of transfer taken together

Introduction of a capital asset by a partner or by a member in AOPs./BOIs is a transfer.

Capital gain will be computed as

Amount credited in partners capital account.

Less Cost of transfer

Less Indexed cost of acquisition

Lets see what others say

Guest

Completely agree with Z

Yes , in this case for the purpose of sec 48 , the fair market value of the asset on the date of such conversion shall be deemed to be full vaue of consideration .