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Treatment of loss of car (Income Tax)

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This query is : Resolved


( Author )
09 January 2012

Hey , Can anyone help me in this query

A proprietor sold motor car on 1st july,2010 for Rs. 170000/-
WDV value as on 1st April,2010- Rs. 2,36,211/-
During the same year, he purchased a new car. both are using for business purpose.
Pls tell me the accounting treatment and how to give effect under income tax.
its urgent...


CA PARAS BAFNA

( Expert )
09 January 2012



236211-170000+Cost of New Car
Provide Depreciation @ 15% on above amount.
in case the new car has been used for more than 180days. Otherwise provide depreciation @7.5%.
.
You may credit the receipts to Motor Car A/c of Rs 170000/ and debit the amount of New Motor Car to the said account only as in Income Tax such method of accounting is accepted.
.


CA Deep Upadhyay

( Expert )
09 January 2012

Accounting Treatment:
1. Provide proportionate depreciation for 3 months.
2. On 1st July,
A. Write off Accumulated Depreciation A/c. by Crediting Car A/c. & debiting Accumulated Dep. A/c. with the amount of Accumulated dep. On that sold car.
B. Debit Bank A/c. & Loss on Sale of Car A/c. and Credit Car Account.


CA Deep Upadhyay

( Expert )
09 January 2012

As far as Income Tax is concerned, Sec. 50 applies to this case. As per this section,

A. short term capital gain if, Sale consideration of old car is higher than (WDV u/s. 43(6) of Block of Asset + Actual Cost New Car u/s. 43(1))
OR
B. Provide depriciation at 15% p.a. on (W.D.V. u/s. 43(6)+Actual Cost u/s. 43(1)-Full value of Consideration of old car u/s.48)


CA. Mukesh Jangid

( Author )
09 January 2012

1st of all.......Thanks for ur replies...
actuly he is a small business,he is calculating Dep. of assets only as per Income tax act and not as per companies act in books of accounts. The new car which he was purchased was effectively used for business purpose from july,10 onwards.......
when the we follow block of assets, capital gain or loss will caculate only when all the assets were sold.
loss on sale of car cant be claim as business expenditure..
he is also a partner in a firm and getting regular remuneration ......


CA PARAS BAFNA

( Expert )
09 January 2012

I think when WDV has been given, existence of Accumulated Depreciation Account should not be thought for by the expert. Had Cost been given I shall definitely agree with the expert.
.
The possibility of STCG is not there where it is clearly given that WDV- Sale price = 66,211.
.
The query itself indicates that the Author will not understand 43(6) and 43(1).
.
Application and reference of Section 50 is also out of context.


CA. Mukesh Jangid

( Author )
10 January 2012

Bafna sir, i got the answer.....
thanks for ur support....


CA. Mukesh Jangid

( Author )
10 January 2012

Sir, Entry in tally will be..

Bank A/c Dr. Rs. 170000
Loss on sale of Car Dr. Rs. 66211
To Motor Car A/c Rs. 236211.

Depreciation for 3months(April to July) will be caculated or not??
Can i claim the loss on sale as a business expediture????


CA Deepak S

( Expert )
10 January 2012

Since you are calculating depreciation as per IT rules depreciation need not be calculated for three months. The depreciation for the new car can be claimed for the full year since it is put to use for more than six months.

loss on sale of can cannot be claimed as a business loss. Since the block of asset not ceased to exist the difference between the sale price and opening WDV is going to reduce the closing WDV of the block. You can claim the loss / gain from the sale of vehicle only if the block of asset ceased to exist. In that case the difference will be short term capital gain/loss


CA. Mukesh Jangid

( Author )
10 January 2012

Deepak sir, So in that case, i simply pass a single entry in tally,


Bank A/c Dr. Rs.170000/-
To Motor Car a/c Rs. 170000



CA Deepak S

( Expert )
11 January 2012

In my opinion even if the depreciation is charged as per income tax rates, it is better to maintain two set of depreciation statement, one for accounting purpose and the other for the IT purpose. It is not a prudent accounting practice to credit the full amount of sale consideration received into the asset account without transferring the gain/loss on the sale of the asset to Profit/loss on sale of fixed asset a/c. In your case if the amount of loss is not transferred the WDV of the individual asset will be positive even if the asset ceased to exist. Suppose if the sale consideration received is more than the WDV the particular asset shows a credit balance. Even if block of asset concept is following in IT, in books of accounts normally all major assets are booked under individual heads, even if the assets coming under a particular group are grouped under that group while preparing financial statements. Therefore in my opinion it is will be more accurate if the difference between WDV and sale consideration is transferred to loss on sale of vehicle account and maintain two separate depreciation calculation for IT and for books and in either case you can use the rate of depreciation as per Income Tax.


CA. Mukesh Jangid

( Author )
11 January 2012

Deepak Sir,

In my case, Turnover of proprietor is less than Rs. 60 lacs.and the balance in Fixed asssets ledger is debit balance after sale, he had purchased new car of Rs. 10 lacs during the year( Op.Wdv(236211+ New car(10,00,000)- sale(170000)=10,66,211/-

shall i charge Dep.@15% on RS.10,66,211 ??
I had gone through Section 32, 43(6) and 43(1).
As per Income TAx ,
If we are following block of assets method, than STCG/STCL will only come when Selling price is more than WDV value or WDV value of more than one or two assets is less than selling price of any asset sold.
Is it required to mention Loss on sale of Car in books of accounts.??? and such loss will disallow under IT Act


CA Deepak S

( Expert )
11 January 2012

In my opinion it is better to show loss on sale of car in books of accounts. The same has to be disallowed under IT Act.

Charge depreciation on Rs.10,66,211/- for IT purpose and on Rs.10,00,000 for Book purpose.


CA. Mukesh Jangid

( Author )
11 January 2012

Sir, we mostly follow what u said in Companies and Firms. But in my case it is necessary to follow the same method...

The assessee is maintaing schedule of fixed assets as per IT Act only since begning.


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