InvestorQ : Will any sale of property always result in capital gains or can property also be held as stock in trade?
Sam Eswaran made post

Will any sale of property always result in capital gains or can property also be held as stock in trade?

Answer
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swati Bakhda answered.
1 year ago


Of course, property can be held as stock in trade. For example, if there is a real estate broker or a real estate consultant who is into the business of dealing in property, then he can buy such property and keep it as stock in trade and sell it to another buyer at a higher price. Let us understand this with an example.

Ms. Rita Kapoor is a property dealer in the Western Suburbs of Mumbai. She purchased a 1 BHK flat in Andheri West for resale at a future date. The flat was purchased in January, 2018 for Rs. 86,00,000 and sold in August, 2019 for Rs. 98,00,000. In this case, Rita is dealing in properties in the course of her ordinary business. Hence, flat so purchased by her would necessarily form part of stock-in-trade of the business. In other words, Rita’s flat is not a capital asset and, hence, gain of Rs. 12,00,000 arising on account of sale of flat will be charged to tax as business income and not as capital gains. For Rita, this flat is stock in trade and not capital asset. Thus the purpose of the purchase of the asset does matter a lot. At the same time even if a person buys a second property for purely investment purposes, it will still be classified as capital asset only.