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of <h1>Tax Clarification: Conversion of Capital Assets into Stock-in-Trade and Capital Gains Deferral u/ss 2(47) and 45(2).</h1> The circular clarifies the tax implications under the Income-tax Act, 1961, regarding the conversion of capital assets into stock-in-trade. Section 2(47) considers such conversion as a transfer, typically resulting in capital gains in the conversion year. However, section 45(2) defers the capital gains assessment to the year when the stock-in-trade is sold or transferred. For deductions under section 54E, the relevant date of transfer is deemed to be when the asset is converted into stock-in-trade, not when it is sold. This interpretation is supported by the Central Board of Direct Taxes in consultation with the Ministry of Law.
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