It seems Microsoft has been working on a new version of the Lumia RingTone Maker app that allows one to create RingTones from owned songs on Windows Phone devices. WindowsBlogItalia has been able to get its hands on the new version of RingTone Maker app and has posted a hands-on video.
While the source claims it to be an universal app, they were not able to install it on PCs. So, may be it is still a Windows 10 Mobile only app with a new and revamped UI. The new app allows one to create 30 Sec RingTones and also has the ability to set them as default.
Thanks Pedro for the tip. Cheers!!