Clause 15 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Clause 15 reports a capital asset converted into stock-in-trade — description, date of acquisition, cost of acquisition and the amount at which it is converted — in the year of conversion. It does not ask for the tax consequence.
From the ICAI Guidance Note on Tax Audit (Revised 2026), the concluding edition under the Income-tax Act, 1961. For tax years under the Income-tax Act, 2025 the particulars move to Form No. 26 under rule 47 of the Income-tax Rules, 2026, and the capital gains provisions must be checked against the new statute.
The statutory background
Paragraph 27.1: for furnishing these particulars, the provisions of sections 2(47), 45(2), 47(iv), 47(v) and 47A have to be kept in mind.
Paragraph 27.2: the conversion by the owner of an asset into, or treatment of such asset as, stock-in-trade of a business carried on by him is treated as a "transfer" within section 2(47). Under section 45(2):
- the conversion is deemed to be a transfer of the previous year in which the asset is so converted or treated as stock-in-trade;
- but the capital gains become chargeable in the previous year in which the converted asset is sold or otherwise transferred;
- the fair market value on the date of conversion is deemed to be the full value of the consideration;
- the excess of the sale price over that fair market value is business income under profits and gains of business or profession; and
- the capital gain — the difference between the cost of acquisition and the fair market value on the date of conversion — is chargeable in the year the asset is sold.
For a long-term capital asset, indexed cost of acquisition and cost of improvement are computed with reference to the previous year in which the conversion took place. Indexation is available only for long-term capital assets transferred before 23 July 2024. For land or building acquired before that date and transferred on or after it by a resident individual or HUF, tax may be paid at 12.5% without indexation or 20% with indexation, whichever is more beneficial.
Paragraph 27.2 says in one sentence "land or building or both acquired before 23rd July, 2025 but transferred on or after that date", and in the very next sentence "from transfer, on or after 23.7.2024, of land and building acquired before that date". The two cannot both be right, and the second is correct — the change was made by the Finance (No. 2) Act, 2024 with effect from 23 July 2024. Verify the date against the section before applying it.
What clause 15 actually asks for
Paragraph 27.3: the clause 15 particulars are furnished with respect to the previous year in which the asset has been converted into stock-in-trade, and clause 15 does not require details regarding the taxability of the capital gains or business income arising from the deemed transfer. The reporting and the taxation are therefore in different years, and that is deliberate.
| Column | What is reported |
|---|---|
| (a) Description of capital asset | For example shares, security, land, building, plant, machinery |
| (b) Date of acquisition | Ascertained from the accounts of the financial year in which the asset was acquired. It determines whether the asset is long-term or short-term |
| (c) Cost of acquisition | The cost as per the books. For a depreciable asset the carrying cost is the written down value, but the value reported is the original cost of acquisition — even for an asset acquired before 1 April 2001 |
| (d) Amount of conversion | The amount recorded in the books at which the asset is converted. It may not be the fair market value on the date of conversion |
On column (c), paragraph 27.6 adds two practical caveats: the assessee may exercise the option of the fair market value as on 1 April 2001 for assets acquired before that date for the purpose of computing capital gains under section 55(2)(b)(i) read with the proviso — but that is a computation matter, and not the figure reported at clause 15. And in the case of a block of assets, a particular asset loses its identity, so reporting the original cost may not be possible in all cases. Where CARO applies, the cost may be available from the fixed asset register; for companies where CARO does not apply and for partnership concerns, the original cost may not be practically possible to report.
Verifying the conversion value
Paragraph 27.7: if a value other than carrying cost is recorded at column (d), the auditor has to examine the basis of arriving at that value. The valuation of stock-in-trade is examined with reference to AS-2 or Ind AS 2, and non-compliance is to be suitably qualified in the main audit report.
Paragraph 27.8: it is desirable that a necessary accounting entry be passed in the books at the time of conversion. Paragraph 27.9: for a corporate assessee, a resolution passed in this behalf can substantiate the fact of conversion. For a proprietorship concern, the date and cost of acquisition may not be recorded in the books before conversion, and the year of acquisition may not have been audited at all; an asset may also have been acquired through one of the modes in section 49. In those circumstances the auditor may have to verify the cost and the date of acquisition himself.
Verifying cost of acquisition — the AS 10 principles
Paragraph 27.10 sets out how. Under AS 10, Property, Plant and Equipment / Ind AS 16, the cost of an item comprises its purchase price and any attributable cost of bringing the asset to its working condition for its intended use.
| How the asset was obtained | Evidence |
|---|---|
| Purchased | Supplier's purchase invoices, bank statement entries for payment to the supplier, and cash book or bank entries for cartage and installation |
| Self-constructed | Costs relating directly to the specific asset, plus costs attributable to the construction activity in general and allocable to that asset |
| Acquired in exchange | The fair value of the asset given up, unless the fair value of the asset received is more clearly evident — and the auditor must look into how the assessee decided which value is more clearly evident |
| Recorded at net book value | The fixed asset register is the prime evidence |
| Recorded at fair value | Examine the basis — valuer's report, market quotes for listed securities. Where a valuer is used, apply SA 620, Using the Work of an Auditor's Expert |
| Inherited | Cost to the original owner may be hard to verify; without a sale or purchase agreement, the auditor may need to rely on experts such as valuers |
The auditor should also refer to ICAI's Guidance Note on Audit of Property, Plant and Equipment.
Worked example
A builder converts a plot of land held as an investment since 2009 into stock-in-trade on 1 September of the previous year.
| Column | Reported |
|---|---|
| (a) Description | Land, survey number and address |
| (b) Date of acquisition | The 2009 purchase date, traced to that year's accounts — long-term |
| (c) Cost of acquisition | The original cost per the books, not the FMV as on 1 April 2001 and not any revalued figure |
| (d) Amount of conversion | The amount recorded in the books on 1 September; if that is a fair value rather than carrying cost, the basis is examined and, if a valuer was used, SA 620 applied |
No capital gain is reported at clause 15, because clause 15 asks only for the four columns above. The gain crystallises for tax in the year the developed units are sold, with the fair market value on 1 September as the full value of consideration, and the excess of sale price over that value taxed as business income.
Audit checklist
- Identify conversions from the fixed asset movement schedule and the inventory additions, not from a client list alone.
- Report at clause 15 in the year of conversion, and report no tax effect.
- Trace the date of acquisition to the accounts of the year of acquisition.
- Report the original cost, not the written down value or a revalued figure.
- Examine the basis of the conversion value where it is not carrying cost, and apply AS-2 or Ind AS 2; qualify non-compliance.
- Look for the accounting entry at conversion and, for a company, the board resolution.
- Apply the AS 10 / Ind AS 16 cost principles and SA 620 where a valuer's work is used.
- Where the asset was in a block or acquired under section 49, document how cost was established.
Common mistakes
- Reporting the written down value as the cost of acquisition.
- Reporting the fair market value at column (d) instead of the amount recorded in the books.
- Deferring the clause 15 reporting to the year of sale.
- Reporting the capital gain at clause 15, which does not ask for it.
- Accepting a valuer's figure without applying SA 620.