Closing stock converts into investment

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TARIQUE RIZVI (Querist)
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26 September 2014 A builders wants to convert closing stock into investment. Is it possible ? If the closing stock is converted into investment, capital gain tax will have to be paid rate of which is comparatively less than the normal rate of income tax. Will it be one kind of saving of income tax.

CA vandana goyal

CA vandana goyal (Expert)
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27 September 2014 Conversion of stock into capital asset: Based on the interpretations of various sections and prudence my comments are as follows:

1. Stock may be converted into investment in a running business or at the time of closure.
2. No capital gain would arise on the date of conversion. However when the investment is sold, it will result into capital gain or loss to be calculated taking book value as cost of acquisition.
3. In view of differential tax rates applicable on type of capital gain, period of holding of capital asset is relevant to distinguish long term gain from short-term gain. Period of holding in this case will be reckoned from the date of acquisition of original stock of shares.

This technique of converting stock into investment or vice versa can be effectively used as tool of tax planning