Tax issues as we know are the main concern of any assessee. Every assessee engaged in any form of business organization wants to reduce their tax liability in one or the other ways. Conversion of any business organization into another form of business organizations helps in reducing the tax liability to an extent.

Sole proprietorship is a form of business entity in which the individual is the only owner of the properties & assets and are liable to the liabilities also. When a sole proprietorship business is being converted into a Company form various taxation aspects arise.

Tax Mantra has tried to provide the details in respect of taxation aspects involved when a sole proprietorship is being converted into a Company.

Capital gains tax benefits:

Where a situation beckons you to convert your sole proprietorship to company and as a result of such conversion, the sole proprietary concern transfers any capital asset (whether tangible or intangible) to the company, such transfer will not be charged to capital gains tax if the following conditions are complied with:

            i.            All the assets and liabilities of the sole proprietary concern immediately before its succession should become the assets and liabilities of the company.

          ii.            The shareholding of the sole proprietor in the company is not less than 50% of the total voting power in the company and his shareholding continues to remain so in the company for a period of 5 years from the date of succession.

        iii.            The sole proprietor does not receive any consideration or benefits (whether directly or indirectly) other than the shares allotted to him by the company u/s 47(xiv) of Income Tax Act.