Regarding capital gain on sale of fixed asset

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This discussion clarifies the tax implications of selling fixed assets when depreciation hasn't been charged. It confirms that capital gains can still arise, as the Written Down Value (WDA) is considered for tax calculations. The content stresses that charging depreciation is mandatory under the Income Tax Act, 1961, the Companies Act, 2013, and accounting standards, ensuring accurate financial reporting and tax compliance.

Suresh S. Tejwani

Suresh S. Tejwani (Querist)
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22 October 2024 IF WE NOT CHARGED DEPRECIATION ON FIXED ASSETS HENCE, WE CONSIDERED IN 0% BLOCK. IF SAME ASSET HAS BEEN SOLD THEN THERE IS CAPITAL GAIN ON SALE OF FIXED ASSET?

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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22 October 2024 Yes.

Suresh S. Tejwani

Suresh S. Tejwani (Querist)
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23 October 2024 there is sufficient block of 0% is available to set-off against sale of fixed assets. so thare is no requirement of capital gain?

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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23 October 2024 It is mandatory to charge depreciation. Even if you have not charged depreciation but for calculation of capital gain, the WDA of the asset will be considered.

Suresh S. Tejwani

Suresh S. Tejwani (Querist)
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23 October 2024 IF THERE IS OTHER ASSETS OF 0% BLOCK IS AVAILABLE AND BLOCK IS NOT NILL YET, SO THERE IS CAPITAL GAIN IS TO BE CHARGED?

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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23 October 2024 Income Tax Act, 1961:
Section 32 of the Act requires businesses to claim depreciation on assets used for business purposes.
Depreciation is allowed as a deduction from taxable income.
Companies Act, 2013:
Section 123 of the Act mandates companies to provide depreciation on fixed assets.
Accounting Standards (AS) 10 - Accounting for Fixed Assets, and AS 6 - Depreciation Accounting, issued by the Institute of Chartered Accountants of India (ICAI), also require companies to account for depreciation.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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23 October 2024 Depreciation is mandatory for several reasons:
Depreciation matches the cost of an asset with the revenue it generates over its useful life.
Depreciation reflects the reduction in asset value due to wear and tear, obsolescence, or exhaustion.
Mandatory depreciation ensures compliance with accounting standards, which promotes consistency and comparability in financial reporting. Auditors may qualify their reports, indicating non-compliance.
Depreciation affects taxable income, and non-compliance can lead to tax disputes.

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