Taxability of Conversion of Stock in trade to Investment
In case of a business of trading in shares assessee may transfer some of his stock in trade into his capital asset by deciding to hold it as an investment or on discontinue of delivery based trading of shares, convert the stock of shares into investments and sell the same at a later stage and pay tax on the profit as capital gain instead of business profit. It is here to be noted that long term capital gain from equity shares sold in stock exchange and on which Security Transaction Tax has been paid, is exempt u/s 10(38) of Income Tax Act. Thus in case of conversion of shares held as stock in trade into capital asset, the benefit of exemption u/s 10(38) will be available if such converted capital asset is sold later and long term capital gain arises from it. There will not be any capital gain at the time of conversion.