Capital Gains Accruing u/s 45(2)

[Sanjay Aggarwal]

Section 45(2) of the Income Tax Act, 1961, Conversion of capital asset into current asset. The capital gain arises at the time of actual sale of shares. The assessee has sold shares in the market and STT has been paid. Two kind of incomes accrue to the assessee. Long term capital gain u/s 45(2) and business income on sale of shares. The query is whether such long term capital gain qualifies for exemption u/s 10(38)?

AI Summary

Section 10(38) Tax Exemption Not Applicable to Converted Shares Without STT Payment, Long-Term Gains Not Exempt A query was raised regarding the applicability of tax exemptions under Section 10(38) of the Income Tax Act, 1961, on long-term capital gains arising from the conversion of capital assets into current assets, specifically shares. The response clarified that since the conversion did not involve a transfer through the stock exchange with Securities Transaction Tax (STT) paid, Section 10(38) does not apply. Consequently, the long-term capital gain of Rs. 20 from the example provided is not exempt under Section 10(38). The situation may lead to disputes, especially in cases of losses or gains.