Income Tax Act 2025 Update
- The Income Tax Act, 2025 have replaced the terms Previous Year & Assessment Year with the term Tax Year. For example, if the income was earned in the year 2025-26, it will be called Tax Year 2025-26. However, since many taxpayers are still familiar with the terms Financial Year (FY) and Assessment Year (AY), this guide continues to use them for easier understanding.
- The new Income Tax Act has renumbered most of the sections and simplified them by reducing the number of sections, schedules, etc.
You can refer to the complete section mapping of Income Tax Act 1961 vs Income Tax Act 2025 here.
What is Section 50 of the Income Tax Act 1961?
Section 50 of the Income Tax Act establishes the rules for calculating capital gains and their taxation on the sale of depreciable assets. If a person sells a capital asset that forms part of a block of assets, on which depreciation has been allowed under the Income Tax Act, it is covered under section 50.
It specifies the taxation for capital gains on the sale of depreciable assets. In other words, it establishes the tax rules for capital gains arising for those assets on which depreciation has been charged.
What are Depreciable Assets?
Depreciable assets refer to assets that experience a drop in value over time due to wear and tear, discontinuance, or other affiliated causes. The concept of depreciation allows taxpayers to claim deductions for the reduction in the actual value of these assets. The decrease in value is called as depreciation and is claimed as deduction under the Income Tax Act.
Depreciation Rates
| Assets |
Rates of Depreciation |
| Residential Building |
5% |
| Non-residential Building |
10% |
| Furniture and Fitting |
10% |
| Computers and Software |
40% |
| Plant and Machinery |
15% |
| Personal Use Motor Vehicle |
15% |
| Commercial Use Motor Vehicle |
30% |
| Ships |
20% |
| Aircraft |
40% |
| Tangible Assets |
25% |
Learn more here:-https://incometaxindia.gov.in/charts%20%20tables/depreciation%20rates.htm
How to Claim Depreciation Under Income Tax Act?
Assets categorize
To claim depreciation under income tax, the owner of the asset must be an assessee, and the asset should be used for business or professional purposes. Assets can be classified as tangible, such as buildings, equipment, factories, or furniture, and intangible, like patents, copyrights, trademarks, licenses, or franchises acquired on or after April 1, 1998. Depreciation is allowed only on the building structure and not on the land it is built on, as land does not undergo wear and tear. This ensures a fair assessment of asset value for tax purposes.
Lease Vs Ownership
An assessee can claim depreciation only on capital assets that they own. To benefit from the depreciation allowance on a property, the assessee must typically be the owner of the property. However, ownership of the property is not always mandatory. If an assessee constructs a house on a property owned by someone else, they are still eligible to claim depreciation on the house.
Used for Professions or Business
To qualify for depreciation, the asset must have been used for business or professional purposes. However, it is not mandatory for the assessee to use the asset for the entire fiscal year to claim depreciation. Even if the asset is used for a short period within the accounting year, the assessee can claim depreciation, as seen in cases like seasonal factories.
Depreciation On Assets Sold
Depreciation cannot be claimed on assets that are sold, removed, or damaged within the same year of purchase. In such cases, the assessee is not eligible for a depreciation deduction.
Co-ownership
If an asset has a co-owner, the depreciation should be reported by the the co-owner as well.
What are Block of Assets?
These depreciable assets are systematically categorized into blocks based on their characteristics, utilization, and depreciation rates. A block of assets constitutes a grouping of assets belonging to the same category and subject to identical depreciation rates. Notable examples of distinct blocks of assets include buildings, machinery, plants, furniture, intangible assets, and others.
The computation of depreciation on block of assets is conducted on the block's written down value (WDV). The WDV is the cumulative value of each asset within the block at the conclusion of the financial year, adjusted for depreciation. It is crucial to note that the WDV of a block can never assume a negative value.
The determination of capital gain on depreciable assets or loss arising from the sale of depreciable assets hinges on several aspects. This includes whether all or only some assets within the block are transferred and whether the sale consideration exceeds or falls short of the WDV of the block. Any loss or capital gain arising from the transfer of depreciable assets is invariably treated as a short-term capital gain or loss.
How to Calculate Capital Gain on Depreciable Assets for Partial Block of Asset Transfer
When you sell only some assets from a depreciable block, Section 50 lays down how to calculate the capital gain. The outcome depends on how the sale affects the block’s Written Down Value (WDV).
Scenario 1: Sale consideration reduces the block’s WDV to zero
If the net sale proceeds (sale consideration minus expenses) are more than the opening WDV plus the cost of any assets acquired during the year, the balance is treated as short-term capital gain (STCG).
Example:
- Sale Consideration: ₹15,000
- Opening WDV of the Block: ₹12,000
- Cost of Newly Acquired Assets: ₹600
STCG = Sale Consideration – (Opening WDV + Cost of Additions)
STCG = ₹15,000 – (₹12,000 + ₹600) = ₹2,400
Scenario 2: Sale consideration does not reduce the block’s WDV to zero
If the sale proceeds are lower than the total of the opening WDV and the cost of additions, no capital gain or loss arises. Depreciation continues on the remaining value of the block.
How to Calculate Capital Gain on Depreciable Assets for Complete Block of Asset Transfer
When all assets in a depreciable block are transferred, the capital gain calculation depends on the sale value compared to the block’s Written Down Value (WDV).
Scenario 1: Sale Consideration Exceeds the Block’s WDV
If the net sale proceeds are higher than the opening WDV plus the cost of additions, the difference is treated as short-term capital gain (STCG).
| Particulars |
Amount (₹) |
| Sale Consideration |
50,000 |
| Opening WDV of the Block |
30,000 |
| Cost of Newly Acquired Assets |
6,000 |
| Total (Opening WDV + Additions) |
36,000 |
| Short-Term Capital Gain (50,000–36,000) |
14,000 |
It is mandatory to file an ITR whether you have a capital gain or a capital loss during the year. If you have a capital gain on the sale of depreciable assets and you are seeking expert help to save taxes, you can reach out to our experts. Hire an online CA now!
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