Section 50 – Capital Gain on Sale of Depreciable Assets

Updated on: Apr 27th, 2024

|

4 min read

If the person sells a capital asset that forms part of the block of assets on which depreciation has been allowed as per the provisions of the Income Tax Act, the income from such sales is a capital gain. 

The calculation of capital gain or loss arising on the sale of depreciable assets can be divided into two categories:

  • Where some assets are sold from the blocks of assets.
  • Where all assets of the block are transferred and the block of assets ceases to exist.

Calculation of Capital Gain Where Part of the Block of Assets is Transferred 

Situation I

  1. When net sale consideration on such asset’s sale is reduced from the written down value (opening WDV + cost of assets acquired if any) of the block of the assets. 
  2. And the written down value of the block of the asset becomes Nil (Note: The written down value can be Nil but not negative).
  3. Then the income from such transfer of capital asset shall be considered to be a short-term capital gain.

Computation of short-term capital gain:

 Sale consideration12,000
LessOpening written down value of the block 10,000
LessActual cost of any asset acquired during the financial year500
 Short-term capital gain 1,500

Situation II

  1. When net sale consideration on such asset’s sale is reduced from the written down value (opening WDV + cost of assets acquired if any) of the block of the assets. 
  2. And the written down value of the block of asset is not Nil.
  3. There is no capital gain on transfer of assets.
  4. Hence, normal depreciation will be allowed.

Calculation of Capital Gain Where All the Assets of the Block are Transferred: 

Situation III

  1. If the whole of the block of asset is sold and the sale consideration is less than the written down value (opening WDV + cost of assets acquired if any) of the block of assets. 
  2. Then there is short-term capital loss on sale of block of asset.
  3. And no depreciation shall be allowed from such block of assets.

Computation of short-term capital loss:

 Opening written down value of the block 50,000
AddActual cost of the asset acquired10,000
LessSale consideration20,000
 Short-term capital loss40,000

Situation IV

  1. If whole of the block of assets is sold and the sale consideration is more than the written down value (opening WDV + cost of assets acquired if any) of the block of assets. 
  2. Then income from such sale of block of asset is short-term capital gain.

Computation of short-term capital gain:

 Sale consideration40,000
LessOpening written down value of the block 25,000
LessActual cost of the asset acquired5,000
 Short-term capital gain 10,000

Note: Capital gain or loss on the transfer of depreciable assets is always treated as short-term capital gain or loss.

Frequently Asked Questions

Can the WDV of a block ever be negative?

No, the WDV can never be negative. It can reach zero (0) after depreciation has fully exhausted the original asset value, but it cannot go below zero.

What happens if the sale price is less than the WDV of the block?

If you sell some assets but the block's WDV remains above zero, even after subtracting the sale price, no capital gain or loss arises. Depreciation on the remaining assets continues as usual.

How are capital gains/losses calculated when selling the entire block?

Selling the entire block results in either short-term capital gains or losses:

  • Gain: If the sale price exceeds the WDV, you have a short-term capital gain.
  • Loss: If the sale price falls short of the WDV, you have a short-term capital loss.

Remember, depreciation stops once the entire block is sold.

Can you still depreciate a block with a zero WDV?

No, once the WDV reaches zero, even after selling some assets, further depreciation on the remaining assets is not allowed.

Is capital gain applicable on the sale of depreciable assets?

If an individual sells a capital asset included in a block of assets for which depreciation has been permitted in accordance with the provisions of the Income Tax Act, the proceeds from such a sale qualify as capital gain.

What is the treatment when all the assets in the block are sold?

When the whole block of assets is sold, there can be either short-term capital gains or losses. If the Net sale consideration is more than the block's WDV, it results in short-term capital gains. If the net sale consideration is less than the block's WDV, it results in short-term capital loss. Since the block of assets no longer exists, no further depreciation is allowed on such a block of assets.

Can depreciation be charged to a block of assets if the WDV of such a block comes to NIL?

If, after deducting the net sale consideration for part of the assets belonging to a block of assets, the WDV of such block becomes NIL, then no further depreciation can be charged to such block, even if there are a few more assets in it.

Can sale of depreciable asset be a long-term capital gain or loss?

No, sale of depreciable asset will be always considered as short-term capital gain or loss.

Public Discussion

Get involved!

Share your thoughts!

summary-logo

Quick Summary

When selling a depreciable asset part of block, calculate capital gain. If sale reduces written down value to zero, it's short-term capital gain. If not, normal depreciation applies. When selling entire block, selling below WDV is short-term capital loss. Selling above WDV is short-term capital gain.

Was this summary helpful?
liked-feedbackliked-feedback

Clear offers taxation & financial solutions to individuals, businesses, organizations & chartered accountants in India. Clear serves 1.5+ Million happy customers, 20000+ CAs & tax experts & 10000+ businesses across India.

Efiling Income Tax Returns(ITR) is made easy with Clear platform. Just upload your form 16, claim your deductions and get your acknowledgment number online. You can efile income tax return on your income from salary, house property, capital gains, business & profession and income from other sources. Further you can also file TDS returns, generate Form-16, use our Tax Calculator software, claim HRA, check refund status and generate rent receipts for Income Tax Filing.

CAs, experts and businesses can get GST ready with Clear GST software & certification course. Our GST Software helps CAs, tax experts & business to manage returns & invoices in an easy manner. Our Goods & Services Tax course includes tutorial videos, guides and expert assistance to help you in mastering Goods and Services Tax. Clear can also help you in getting your business registered for Goods & Services Tax Law.

Save taxes with Clear by investing in tax saving mutual funds (ELSS) online. Our experts suggest the best funds and you can get high returns by investing directly or through SIP. Download Black by ClearTax App to file returns from your mobile phone.

Cleartax is a product by Defmacro Software Pvt. Ltd.

Company PolicyTerms of use

ISO

ISO 27001

Data Center

SSL

SSL Certified Site

128-bit encryption