Section 50 of ITA, 1961 : Section 50: Special Provision For Computation Of Capital Gains In Case Of Depreciable Assets

Explanation using Example

Let's say Mr. Sharma owns a manufacturing business and has a block of machinery assets on which he has claimed depreciation over the years. In the financial year 2022-23, he decides to sell one of the machines for a substantial amount. To calculate the capital gains on this sale, he must consider Section 50 of the Income-tax Act, 1961.

According to Section 50, the calculation of capital gains will be different from the usual method because the machine is part of a block of assets and depreciation has been claimed on it. Here's how Mr. Sharma would apply the law:

• He would add up the sale consideration received for the machine.
• From this amount, he would deduct any expenses directly related to the sale.
• He would then subtract the written down value (WDV) of all machinery in the block at the beginning of 2022-23.
• If he had purchased any new machinery during the year, he would also subtract the cost of these new assets from the sale consideration.

The remaining amount, if positive, is considered as short-term capital gains and will be taxed accordingly. If during the same year, Mr. Sharma sells all the machinery in the block, the entire block ceases to exist and the capital gains calculation would be based on the WDV of the block at the beginning of the year plus the cost of any new machinery purchased during the year.