Shares - stock to investment - conversion

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CA CHETAN GUPTA

426 Points Posted on 10 June 2018

Shares held as Stock-in-Trade as per the Income Tax Return of FY 2016-17, is now being Converted into Investments on 01-April 2017 and then Such Shares are Sold during FY 2017-18 so that TAX BENEFIT of Long Term Capital Gain on sale of Shares held for a period of more than 1 Year can be availed.

Not all Shares, Only those shares which are held for a Long Term.

Is it Possible?

What would be the Tax Implications of Converting into Investment ?

Does this Profit during the Year will be taken as LTCG and be exempted or will it be taxed as BUSINESS INCOME.?

Replies (4)

prakin singhal

212 Points Posted on 10 June 2018

For the period when it is held as stock in trade should be taxed under Business head and the value on the day of conversion is treated as cost price while calculating capital gain. The capital gain is short term capital gain and will be taxed at 15% if STT is paid otherwise included in basic exemption limit.

Example:
You have Rs.100 share as on 31-03-2017. The price of the same is Rs.150 on 01-04-2017. You sold the share on 31-03-2018 for Rs.280.

Then Rs.50 is taxable under business head and Rs.130 is taxable under STCG.

CA CHETAN GUPTA

426 Points Posted on 10 June 2018

If its so, then what's the Benefit of Converting. The Sole Purpose was to Save Tax.

Divakar agarwal

Student

172 Points Posted on 10 June 2018

it will be taxed under PGBP. whole purpose of the transaction is to save tax. there are previous juris prudence where the AO has taxed income under PGBP. also in the case of abhinandan Investment Delhi High court judgement it was held that on conversion such notional income will be taxable under PGBP