Capital gain on asset depreciable under wdv method

Section 32 and Section 50.

The gain/loss on sale of asset under Block of asset method under income tax act.

If the Block balance becomes negative / there are no assets in block after the sale then the balance of WDV will be taxed as deemed Short Term Capital Gain u/s 50.

Example

Opening WDV = 500000 , assets in block = 2.

Sale of 1 asset is 800000.

Hence there is deemed short term capital gain of Rs. 300000 since block is negative.

Example

Opening WDV = 500000 , assets in block = 1

Sale of asset is 200000.

Hence there is deemed short term capital loss of Rs. 300000 since block is empty i.e. no asset remains in block.

Concept of Balancing Charge is not applicable in case of an  asset depreciated under wdv method in a block of asset.

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If opening WDV is 800000 and there are 2 assets in the block.1 asset is sold out during the year for rs 500000.Will there be STCG or STCL?

Concept of Balancing charge is applicable for Power sector companies for Tangible assets only. For them Concept of Block of assets is not applicable and each asset is treated as a Seperate Block of Asset. For them if any asset is transferred and Sale proceeds exceeds W.D.V value of asset then "Sale Proceeds -  W.D.V" shall be "Business Income" and W.D.V shall be "NIL". If sale proceeds exceeds Cost of acquisition then 1."Cost of Acquisition - W.D.V" shall be Balancing Charge which is  "Business Income" and 2."Sale Proceeds - Cost of acquisition" shall be "Short term Capital Gain"

Others

For others, Concept of "Block of Assets" is applicable. For them if any asset in Block is transferred and Sale proceeds (whether it exceeds Cost of acquistion or Not, this single formula is applicable) exceeds W.D.V value of entire Block of assets then "Sale Proceeds -  W.D.V of Entire Block" shall be "Short Term Capital Gain". (as part of assets remain in block after this sale and when those exisisting assets sold later then entire sale consideration shall be Short term capital gain). If Sale Proceeds of a Part of assets in a Block does not exceeds W.D.V of entire Block of such assets then Sale Proceeds Value shall be reduced from Such W.D.V of Block of assets which is going to reduce Depreciation for Current and Future years to the extent of such sale proceeds. If Sale Proceeds of entire Block does not exceed W.D.V then "W.D.V - Sale Consideration" shall be "Short Term Capital Loss"  

For the Query of Surana, If the assessee being assumed as Non Power sector company then there is no short term capital loss or capital gain (as a asset in Block after sale is still in existence) and Rs.5,00,000 shall be reduced from W.D.V of Block and W.D.V of such respective block shall be Rs.3,00,000.

Dear Swami,

Can you please give case law for part of assets remain in block after this sale (where block of asset is negative and block does not get empty) and when those assets sold later then entire sale consideration shall be Short term capital gain???

Thanks in advance

Regards,

Sony Wadhwa