if there is conversion of fixed asset into stock in trade, capital gains tax is applied on the amount of difference between the fair market value of the asset and the indexed cost of asset as on the date of conversion. that amount is collected when the asset in the form of stock is sold. what if the rate of capital gains tax is different as on the date of conversion and on the date of sale of such asset?
I know that the rate dose not change but in case that happens,then what?
capital gain on conversion of fixed assets into stock in trade is chargeble to tax in the year in which stock in trade is sold.
u have to compute the value of capital gain in year of actual conversion but that value is chargable to tax in the year in which stock in trade is sold and at the rate prevelling in that year
ok thank you for the answer but you did not tell me the reason why they do so?
when gain had accrued then it must be taxed at that rate but we are taxing it at the rate of some other period
this is because capital gain arises from conversion of fixed asset into stock in trade is a NOTIONAL GAIN NOT ACTUAL GAIN. at the time of conversion u do not receive any amount of money in u r hand. but when u actually sell such stock, it is generally over and above its fair value at which u have brought into the business. in that year, u have some money portion in u r hand to pay tax. i think so. do u agree?
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