Section 45(2) - Capital Gains on conversion of Capital Asset into Stock in trade

• Section 45(2) of the Income Tax Act 1961 prescribes provisions regarding capital gains taxability in case of conversion of Capital Asset into Stock in trade.

• As per section 2(47) of the Act, in case of conversion of capital asset into stock in trade, transfer takes place in the year in which such capital asset is converted into stock in trade.

• However, the liability to pay tax shall arise in the year in which such stock in trade is sold by the assessee.

• For the purpose of calculation of capital gains, the full value of consideration shall be the fair market value of the capital asset as on the date of its conversion into stock in trade.

• If only a part of the stock in trade is sold then only part capital gain shall arise in the year in which such stock in trade is sold.