Special Cases of Capital Gains Computation under Income-tax Act, 2025

Understand Special Cases of Capital Gains Computation

Key rules to remember

Slump sale: deemed cost

Cost of acquisition = Cost of improvement = Net worth of the undertaking

Section 77(3)(a). Net worth = aggregate value of total assets less liabilities as per books. Revaluation changes are ignored.

Slump sale: deemed consideration

Full value of consideration = Fair market value of the capital assets on the date of transfer (as prescribed)

Section 77(3)(b). Gain is long-term if held more than 36 months, otherwise short-term (Section 77(1) and (2)).

Aggregate value of total assets

Depreciable assets: WDV of block; self-generated goodwill: nil; assets with full deduction allowed or allowable under section 46: nil; other assets: book value

Section 77(5)(b). Goodwill bought from a previous owner is not nil; it falls under other assets at book value.

Block of assets: gain when block continues

STCG = Sale consideration − (Transfer expenses + Opening WDV of block + Cost of assets acquired in the year), if positive

Section 74(2). Gain is deemed short-term.

Block of assets: when block ceases to exist

Cost of block = Opening WDV + Actual cost of assets acquired in the year; STCG = Consideration − that cost (and transfer expenses)

Section 74(3). The income is short-term capital gain.

Compulsory acquisition (industrial undertaking land or building)

Gain exceeds cost of new asset: excess taxed. Gain ≤ cost of new asset: nil gain taxed

Section 84. Land or building must have been used for the undertaking's business in the two years before transfer. New asset must be bought or built within three years. If sold within three years, cost of new asset is nil (excess case) or reduced by the gain (other case).

NRI foreign exchange asset: proportionate exemption

Exempt gain = Capital gain × (Cost of new asset ÷ Net consideration)

Section 215(1)(ii). Applies if cost of new asset is less than net consideration. Investment within six months. If cost ≥ net consideration, whole gain is exempt. Applies to long-term gains.

How to solve Special Cases of Capital Gains Computation questions

1. 1Identify the case from the facts: slump sale, block of assets, compulsory acquisition, SEZ shifting or NRI foreign exchange asset. Name the section.
2. 2Check the holding period or asset type. For slump sale, more than 36 months means long-term. For block assets, the gain is always short-term.
3. 3Replace the usual figures with the deemed ones. For slump sale use net worth and fair market value. For a block use WDV and cost of additions.
4. 4Compute the gain step by step, showing each item of the deduction.
5. 5Apply the exemption rule if the question gives a new asset. Compare the gain (or net consideration) with the cost of the new asset and check the time limit.
6. 6Deal with the unused amount: deposit in the specified account before the return due date, or tax it if not utilised in the period.
7. 7Write the conclusion: type of gain, amount taxable and amount exempt, citing the section.

Quickest way: Case, deemed figure, compare

Common mistakes in Special Cases of Capital Gains Computation

• Using the actual sale price of individual assets in a slump sale, or adding revaluation to net worth.

  Students treat the sale like an ordinary asset sale.

  Fix: Use net worth as cost, ignore revaluation, and use fair market value as the full value of consideration as the section deems.

• Treating self-generated goodwill at book value in net worth.

  The books may show a figure, so students copy it.

  Fix: Self-generated goodwill is nil. Only goodwill bought from a previous owner goes at book value.

• Calculating gain asset by asset for a depreciable block.

  The general method is remembered better.

  Fix: Compute at the block level using opening WDV and additions. The gain is short-term whatever the holding period.

• Forgetting to add assets acquired during the year when computing block gain.

  Students use only opening WDV.

  Fix: Always deduct opening WDV plus cost of assets acquired in the year, plus transfer expenses.

• Using the wrong base in the NRI proportion, such as gain instead of net consideration in the denominator.

  The formula letters are mixed up.

  Fix: Remember: gain × cost of new asset ÷ net consideration. Net consideration is sale value less transfer expenses.

• Ignoring the time limits and conditions for exemptions.

  Students focus on the arithmetic only.

  Fix: Check the two-year use test and three-year purchase period under Section 84, the six-month window under Section 215, and the three-year lock-in rules.

Worked examples