Conversion of Capital Assets in to Stock in Trade: Declaration which can be executed by the Owner of the capital Assets


Conversion of Capital Assets in to Stock in Trade: Declaration which can be executed by the Owner of the capital Assets

There are various interesting provision in the Income Tax Act – 1961 which provides for taxation in a mode different from the normal accepted mode of transactions,

One such mode of taxation is “conversion of capital assets” into stock in trade. By this, one can pay tax at the rate of tax applicable for capital gain till the date of conversion and at the normal slab rate on the profit earned after conversion.

Section 45(2) reads as under:

E.—Capital gains

Capital gains.

Section 45.

(1) Any profits or gains ………………..

(2) Notwithstanding anything contained in sub-section (1), the profits or gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by him as stock-in-trade of a business carried on by him shall be chargeable to income-tax as his income of the previous year in which such stock-in-trade is sold or otherwise transferred by him and, for the purposes of section 48, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset.


(3) ……….

The question arises, how to make the declaration for this. Are there any documents required to be prepared for this? Are any registered documents required for this?

Since the property continues to be held by the same person even after conversion, no documents are required to be registered in such cases.

The department can question the authenticity of the conversion. To avoid the future litigation on authenticity of the transactions whereby the department can treat as a sham, bogus or colorable device, one can prepare the following affidavit, either by before the executive magistrate or can notarize it.

The draft copy of the declaration could be as under:



  1. I         Name & Address of the owner of the Property__________                                   the owner of   _______________Nature of the Property  (Like Open Land, Agricultural Land, etc                               and situated at ____Address of the property____________________purchased by me on                             _____Date of Prucahse___________ .
  2. The above property is duly forming the part of shown in personal books of account as “Capital Assets”.
  3. I hereby transfer the mentioned land to the entity bearing name     Put the name of the firm if the business is proposed to be done in the name of any proprietary firm                               as I am planning to put this capital assets to my business use. The present Declaration may be treated as conversion of my above referred capital assets to the stock in trade in view of section 45(2) of the Income Tax Act – 1961.
  4. With this declaration, I am adopting the value of Rs. ____Put the Market Rate at which the conversion is proposed considering the fair market value of the property___ as per the prevailing market land of the property which is after considering the stamp duty valuation of the property.
  5. Now, the property which was shown in personal books of accounts as “Capital Asset” has been transferred to my “Stock in Hand” and is held now with a motive to perform commercial or business operation thereon.  (Can elaborate the activities proposed to be performed on the said property after conversion)
  1. The present declaration is documented so as to avoid future litigation as to treating it as a sham, bogus or colorable device to avoid the tax liability.



  1. ____________________                  __________________________2.         ____________________