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sale of car tax treatment

DIPAK AGARWAL (Service) (554 Points)

25 April 2009

I had purchase a car from my personal a/c for Rs.6 lacs in FY 2002-03, & shown it as cost in books. But not provided any depreciation there on till date.

Now in FY 08-09 i had sold it for Rs.1 Lac, My question is that

1. what wil be the value of loss/profit on sale of car, whether i can take the all past depreciation to be reducted now.

2. whether it is LTCG / STCG

3. & its tax treatment in I.T. purpose.

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23 Replies

Rupesh Jha (M.Com CA PhD* and MBA*) (1116 Points)
Replied 25 April 2009

CALULATE WDV OF ASSETS AFTER CHARGING DEPRECIATION FROM THE DATE OF PURCHASE ON DATE OF SALES,THAN CALULATE LOSS/GAIN ON SALE OF ASSETS.

AND LOSS/GAIN WILL BE TAXABLE AS LTCG

P.Gopinath (Manager Internal Audit) (90 Points)
Replied 25 April 2009

If you carring business only you are eligible to claim depreciation.You can workout wdv and gains will be treated as Buisness income.

Rupesh Jha (M.Com CA PhD* and MBA*) (1116 Points)
Replied 25 April 2009

HI MR. P GOPINATH,I WANT TO SAY CALCULATE WDV OF ASSETS FOR CALULATING GAIN/LOSS ON SALES OF FIXED ASSETS ,AND NOT FOR CLAIMING FOR DEPRECIATION, IN ALL THE CASE(INDIVIDUAL OR FIR/COMPANY).

CA. Narendra Kumar (ACA ...ACS) (81 Points)
Replied 25 April 2009

hi... dep s

vijay (.) (212 Points)
Replied 25 April 2009

Mr. Rupesh, i think it will be short term capital gain/loss as the profit/loss from all the assets on which depreciation is claimed come under Short Term Capital Gain. Please inform if i am not right.waiting for ur reply.

Regards

Vijay Kumar

RAJU CHANDAK (ACCOUNTS MANAGER) (66 Points)
Replied 25 April 2009

Car used for personal purpose will be personal effect and not treated as capital asset as per definition in section 2(14) . therefore the question of capital gain/loss doesnot arise at all..

Profit/loss on sale of transfer will not be subject to any tax...... Even depreciation is also not admissible.... The treatement will be completely different if car was used for business purpose.

RAJU CHANDAK (ACCOUNTS MANAGER) (66 Points)
Replied 25 April 2009

Car used for personal purpose will be personal effect and not treated as capital asset as per definition in section 2(14) . therefore the question of capital gain/loss doesnot arise at all..

Profit/loss on sale of transfer will not be subject to any tax...... Even depreciation is also not admissible.... The treatment will be completely different if car was used for business purpose.

vijay (.) (212 Points)
Replied 25 April 2009

Hi Mr. Raju,

AS Mr. Deepak Aggarwal has mentioned that he has shown the COST of car int the BOOKS it implies that it would have been purchased for business purpose???

Regards

Vijay Kumar

RAJU CHANDAK (ACCOUNTS MANAGER) (66 Points)
Replied 25 April 2009

Hi Vijay,

Shown in books of accounts does not necessarily means it is meant for business purpose.....If u buy your personal effects... will it remain undisclosed... and doesnot form part in Balance Sheet.. No this is not the case....

If Motor car forms part of the business... then depreciation as per income tax rule needs to be provided for every year to ascertain the Carrying amount of the motor car ... Difference between carrying amount of asset and sale proceeds will be treated as short term capital gain.

I hope the matter is clarified now.

Balaji (Knowledge Seeker) (317 Points)
Replied 25 April 2009

Dear Raju Chandak,

Your reply seems to be perfect.Could you please guide on whether the purchase of the car needs to be shown under "Capital A/c" of the individual(who does not have any business income)?Or should the cost of the car be charged to expenses under "Drawings"?Thanks.

vijay (.) (212 Points)
Replied 25 April 2009

SIr if u dont mind ...i m not agree as if some one has mentioned in his books the value of car. then the 1st Assumption will be that it is being used for business. AS the question asked is not clear but a businessman has purchased car it is assumed that it is for business. The amount paid will be added in the capital of the person and in the assets side it will shown under the head Fixed Assets.

As claiming depreciation claim is made compulsoary by the CBDT it is fault on the behalf of the accountant of that person that he hasnt claimed depreciation.

Sir please clear my doubt. I am waiting for ur reply.

Regards

Vijay Kumar

RAJU CHANDAK (ACCOUNTS MANAGER) (66 Points)
Replied 25 April 2009

Dear Mr Venky

Motor car needs to be shown in the Balance sheet under the head of Fixed asset... This is advisable to avoid any query in future by Income tax dept... If u charged this off as expense then it will be very difficult in future to withstand with IT queries (I mean question of undisclosed income/wealth)....

I hope the matter is clarified.

vijay (.) (212 Points)
Replied 25 April 2009

Mr. Raju

I am waiting for a reply from your side.

Regards

Vijay kumar

Balaji (Knowledge Seeker) (317 Points)
Replied 25 April 2009

Thanks Raju.This means a person without business income will carry the cost of the car at cost in his capital A/c until such time that he sells the car.For example,if a car is purchased in July 2000 for Rs.4,75,000/- and sold in January 2009 for Rs.1,25,000/-,the person would show the cost of the car(Rs.4.75 lakhs) in his Balance-sheet under Fixed Assets from F.Y.2000-01 till F.Y.2007-08.What does he do to the loss of Rs.3,50,000/- on sale of car in F.Y.2008-09?Does he debit his Capital A/c as loss on sale of car?[A related query would be that since no depreciation is being provided on the car,the capital A/c of the individual would be inflated thro' the years since he knows that his car's worth is much less than what he is carrying in his books].Kindly provide your insights.Regards.