Computation of Capital Gain for Depreciable Assets

Depreciable Assets - [Section 50]

1. WDV of block of asset at the beginning of previous year

2. Add: Actual cost of assets falling within that block acquired during the year

3. Less: Full value of consideration of assets transferred during the Year

Note: Short-term capital gain or loss from sale of depreciable asset will arise only in the following two situations:

A) When on last day of the previous year, WDV of the block of asset is NIL; or

B) When on last day of the previous year, block ceases to exist.

What is slump sale?

Section (42C) "slump sale" means the transfer of one or more undertakings as a result of the sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sales.

Explanation 2.-For the removal of doubts, it is hereby declared that the determination of the value of an asset or liability for the sole purpose of payment of stamp duty, registration fees or other similar taxes or fees shall not be regarded as assignment of values to individual assets or liabilities ;

As per Explanation 1 to section 2(19AA), 'undertaking' shall include any part of an undertaking or a unit or division of an undertaking or a business activity taken as a whole, but does not include individual assets or liabilities or any combination thereof not constituting a business activity.

The consideration for transfer is a lump sum consideration.

This consideration should be arrived at without assigning values to individual assets and liabilities. The consideration may be discharged in cash or by issuing shares of Transferor Company.

Section 50B of the Income-tax Act, 1961 provides the mechanism for computation of capital gains arising on slump sale.

Special Provision: Section 50B reads as 'Special provision for computation of capital gains in case of slump sale. Since slump sale is governed by a 'special provision', this section overrides all other provisions of the Act.