The Central Board of Direct Taxes ( CBDT ) has notified the rules relating to the determination of Fair Market Value of inventories converted into capital assets under the Income Tax Act, 2018.

The Finance Act, 2018 has inserted clause (via) to Section 28 of the Income Tax Act, 1961 so as to provide that any profit and gains from the conversion of inventory into the Capital Asset or its treatment as capital asset shall be charged to tax as Business Income. It has also been provided that for this purpose the fair market value of inventory on the date of conversion or treatment determined in prescribed manner shall be deemed to be the full value of consideration.

Accordingly, rules were framed for providing the manner in which fair market value of the inventory shall be determined.

In view of the above, in May, the Government proposed to insert a new Rule 11UAB in the Income Tax Rules, 1962 for prescribing the manner of determination of the fair market value of the inventory which has been converted into, or treated as, the capital asset.

The Board also invited suggestions on the draft notification pertaining to new Rule 11UAB of the Income Tax Rules, 1962. Now, the Rules has been notified and will be applicable from 1st April 2019.