Reduction of Goodwill from block of assets to be considered as 'transfer'



Quick Summary
As of the 2021-2022 assessment year, goodwill is no longer a depreciable asset. If you've purchased goodwill, its acquisition cost is used for capital gains, minus any depreciation claimed before AY 2021-22. A recent clarification confirms that reducing goodwill from an asset block will now be considered a 'transfer' for tax purposes. This change applies retrospectively from 1st April 2021.

1. From the assessment year 2021-2022, goodwill of a business or profession is not considered as a depreciable asset and there would not be any depreciation on goodwill of a business or profession in any situation. In case where goodwill is purchased by an assessee, the purchase price of the goodwill will continue to be considered as cost of acquisition for the purpose of computation of capital gains under section 48 of the Act subject to the condition that in case depreciation was obtained by the assessee in relation to such goodwill prior to the assessment year 2021-22, then the depreciation so obtained by the assessee shall be reduced from the amount of the purchase price of the goodwill.

2. When the amendment was carried out through the Finance Act 2021, consequential amendment was carried out in section 50 of the Act by insertion of a proviso to clause (2) of that section. A further consequential amendment required is being proposed now.

Goodwill Reduction Now Treated as Transfer: Tax Implications

3. Accordingly, it is proposed to clarify that for the purposes of section 50 of the Act, reduction of the amount of goodwill of a business or profession, from the block of asset in accordance with sub item (B) of item (ii) of sub-clause (c) of clause (6) of section 43, shall be deemed to be transfer.

4. Since the amendment to the effect that goodwill of a business or profession is not a depreciable asset has been made applicable from assessment year 2021-2022 the above amendment will take effect retrospectively from 1st April 2021 and will accordingly apply in relation to the assessment year 2021-22 and subsequent assessment years.

[Clause 15]

FAQ :

No, from the assessment year 2021-2022 onwards, goodwill of a business or profession is not considered a depreciable asset, and no depreciation can be claimed on it.

If goodwill is purchased, its purchase price is considered the cost of acquisition for calculating capital gains under section 48. However, any depreciation claimed on goodwill before assessment year 2021-22 will be deducted from this purchase price.

It is now clarified that for the purposes of section 50 of the Act, reducing the amount of goodwill from a block of assets will be deemed a 'transfer'.

This amendment takes effect retrospectively from 1st April 2021 and applies to the assessment year 2021-22 and subsequent assessment years.

Previously, goodwill was considered a depreciable asset, and depreciation could be claimed on it.




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Finance news reporter covering taxation, GST, income tax, business compliance, and economy updates. I simplify complex financial topics into easy-to-understand articles for professionals, taxpayers, and business owners on leading finance and tax platforms.

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