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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
View AnswerIn 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
-ea-
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 |
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 |
