An asset bought in June 2004 for Rs 50,000 was converted into stock-in-trade in November 2024 when its FMV was Rs 4,50,000. The stock was sold in September 2025 for Rs 6,50,000. The capital gains chargeable for A.Y. 2026-27 are:
ARs 2,89,381
BRs 4,00,000
CRs 6,00,000
DRs 2,00,000
Answer & Solution
Correct answer: B. Rs 4,00,000
1. On conversion into stock-in-trade, section 45(2) takes FMV on the conversion date as full value of consideration, chargeable in the year the stock is sold (P.Y. 2025-26, A.Y. 2026-27).
2. The conversion (transfer) happened in November 2024 — on or after 23.7.2024 — so NO indexation of cost is available.
3. LTCG = FMV on conversion - cost = Rs 4,50,000 - Rs 50,000 = Rs 4,00,000.
4. The excess of sale price over conversion FMV is business income: Rs 6,50,000 - Rs 4,50,000 = Rs 2,00,000, taxed in the same year.
5. Both incomes land in A.Y. 2026-27 because chargeability waits for the sale of the stock.
6. Option A is the indexed figure that would apply only to a pre-23.7.2024 conversion; option C wrongly measures gains up to sale price; option D is the business-income component, not capital gains.
_Source: ICAI CA Inter P3(A) Income-tax SM (May 2026), Ch 3 Unit 4 Capital Gains, PDF p. 49_
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