Capital Gains Related Amendments by Finance Bill, 2018 Capital Gains Related Amendments by Finance Bill, 2018

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The Tax Publishers Capital Gains Related Amendments by Finance Bill, 2018 CA. Manoj Gupta The Finance Bill, 2018 proposes some major amendments in the scheme of taxation of capital gains. The learned author summarises these amendments at one place in this write-up. 1. Tax consequence of conversion of inventory into capital asset section 45(2) provides that the profits or gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by him as, stock-in-trade of a business carried on by him shall be chargeable to income-tax as his income of the previous year in which such stock-in-trade is sold or otherwise transferred by him and, for the purposes of Section 48, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset. (i) Taxability aspects of conversion of inventory into capital asset Currently, there is no mechanism to tax the gains arising on conversion of inventory into capital asset. Mechanism provided by Section 45(2) applies when capital asset is converted into inventory. (ii) The amendment The Finance Bill, 2018 proposes -- (a) to amend Section 2(24) defining income so as to take fair market value of inventory referred to in Section 28(via) as income; (b) to amend Section 2(42A) so as to provide for determination of period of holding of capital asset converted from inventory; (c) to insert a new clause (via) in Section 28 so as to provide that the fair market value of inventory as on date on which it is converted into or treated as capital asset shall be treated as business income; SUBSCRIBE FOR FULL CONTENT

The Tax Publishers

Capital Gains Related Amendments by Finance Bill, 2018

CA. Manoj Gupta

The Finance Bill, 2018 proposes some major amendments in the scheme of taxation of capital gains. The learned author summarises these amendments at one place in this write-up.

1. Tax consequence of conversion of inventory into capital asset

section 45(2) provides that the profits or gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by him as, stock-in-trade of a business carried on by him shall be chargeable to income-tax as his income of the previous year in which such stock-in-trade is sold or otherwise transferred by him and, for the purposes of Section 48, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset.

(i) Taxability aspects of conversion of inventory into capital asset

Currently, there is no mechanism to tax the gains arising on conversion of inventory into capital asset. Mechanism provided by Section 45(2) applies when capital asset is converted into inventory.

(ii) The amendment

The Finance Bill, 2018 proposes --

(a) to amend Section 2(24) defining income so as to take fair market value of inventory referred to in Section 28(via) as income;

(b) to amend Section 2(42A) so as to provide for determination of period of holding of capital asset converted from inventory;

(c) to insert a new clause (via) in Section 28 so as to provide that the fair market value of inventory as on date on which it is converted into or treated as capital asset shall be treated as business income;