Can you defer the payment of Capital Gains Tax on sale of immovable property?

Capital Gains Tax Planning on conversion of capital asset into stock in trade

In view of decision of Chaturbhuj Dwarkadas Kapadia of Bombay v. CIT [2003] 129 TAXMAN 497 (BOM.) difficulty is faced by the property owners who sell there property for development / redevelopment, where payment is staggered over number of years, but tax on such sale is required to be paid in the year of transfer itself, even though he has not received ay consideration. Difficulty is further exaggerated where consideration is in kind eg in the form of constructed flats/shops.

Tax Idea:
The Section 45(2) provide in case capital asset is converted into stock in trade it would be considered as transfer on the date of such conversion but the actual chargeability to tax would arises only when the stock-n-trade (erstwhile capital asset) is sold. The value of consideration is taken to be market value of the asset on date of the conversion.

Accordingly in case a property owner converts capital assets into stock in trade, his tax liability shall be deferred to future date. This provision is applicable to all assets, movable or immovable, considering the huge appreciation of properties it assumes a special importance in regard to immovable properties.

(This was originally Published in CVO News & Views December 2010 issue)