This normally happens in cases when a business owns some Fixed Assets and Later it starts business of selling them, hence that fixed asset becomes its stock in trade.

Capital Gain

=FMV (Fair Market Value)

Less

COA (Cost of Acquisition)

Also PGBP Income will be

Sales price (Full Value of Consideration)

Less

FMV

Example

Suppose a person purchases jewellery on 15 July for business for Rs 200000

.Later on  in August 20,he starts jewellery business.FMV of Jewellry on that date was 240000

On 18 Sep,he finally sells jewelley for Rs 250000

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In this case,Capital Gain and PGBP both will be taxable on 18 Sept

Capital Gain

FVC=240000

Less

COA=200000

STCG=40000

PGBP Income

Sales Price=250000

Less

Cost *(FMV)=240000

Profit=10000

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How to Calculate Capital Gain

• Period of holding will be calculated till the date of conversion .
• Indexation will also be done till the date of conversion
• However, capital gains will be calculated in the year in which asset is sold
• Fair market value  of the asset as on the date of conversion will be the full value of consideration

QUESTION 1

Mr A purchases a building for his personal purpose on 10 April 2008 for Rs 25 lacs
Later,on 1 May 2015 he starts Property business and keeps his property as stock in trade for sale
Fair Market value as on date was 45 lacs
On 1 June 2015 he actually sells the property for Rs 50 lacs

 YEAR CII 2008-09 582 2014-15 1024 2015-16 1081

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Period of holding from 10 May 2008 to 1 May 2015 is more than 36 Months
Hence it is LTCA
Indexation wil be done only till 1 May 2015

COA=2500000*1024/582=4398625

However,Capital gain is payable on 1 May 2015 (i.e. FY 2015-16)

Capital gain will be computed as follows for 2015-16

 Particulars Amt Full Value of Consideration 4500000 Less Expenses of Transfer 0 ICOA 4398625 ICOI 0 Long Term Capital  Gain/(Loss) 101374.6

Also PGBP Income will be computed as follows

 Particulars Amt Selling Price 5000000 Less Cost(FMV of Property) 4500000 PGBP Income 500000

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1. Income Tax
2. Income from Capital Gains
Income from Capital Gains