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Section 50C - Conversion of Land

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Issue -  I am converting my land into stock in trade and then the same is given away for development. Will section 50C of the Income Tax apply ? When tax will become payable ?


Reply : Conversion of a capital asset by the owner thereof into a stock in trade is governed by the  provisions of section 45(2) of the Income Tax Act, 1961 and accordingly such conversion is a deemed transfer with the result that the capital gains would arise on the date of conversion on the basis of fair market value of the capital asset on the date of conversion. However, although the capital gains are computed on the date of conversion, the same would not be  chargeable to tax until and unless you sell or otherwise transfer the stock in trade.  Even for the purposes of investment of such capital gains tax for avoiding tax, some of the specified time limits for investment would run from the dates of  sale or transfer of stock in trade. Provisions of section 50C of the Income Tax Act, 1961  making the capital gains taxable on the basis of stamp duty valuation would not get attracted in these  transactions.

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