Capital gain on conversion of capital asset into stock-in-trade

Capital gain on conversion of capital asset into stock-in-trade u/s 45(2)

• When a capital asset is converted into stock-in-trade, it is a transfer u/s 2(47).
• Transfer shall deemed to have taken place in the year in which the asset is so converted.
• Capital gain will arise in the previous year in which such converted asset is sold or otherwise transferred.
• Indexation of cost of acquisition and cost of improvement, if required, will be applicable for the previous
year in which such conversion took place.
• Full value of consideration = Fair Market Value of the capital asset(on the date of conversion)
• There will also arise Business Income in the previous year in which such converted asset is being sold.
• Business income = Sale price- Fair market value of the asset on the date of conversion

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