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CS Executive · Tax Laws and Practice · Capital Gains

During the tax year, Arjun Traders sold one machine from a block of plant on which depreciation has been allowed, for ₹8,00,000, incurring transfer expenses of ₹20,000. The block's WDV at the start of the year was ₹6,00,000 and a new machine costing ₹1,50,000 was bought in the same year. Not all assets of the block were sold. Under section 74 of the Income-tax Act, 2025, the capital gain is:

The gain is ₹30,000 short-term capital gain. Sale consideration of ₹8,00,000 exceeds the sum of transfer expenses ₹20,000, opening WDV ₹6,00,000 and new acquisition ₹1,50,000, which total ₹7,70,000. The excess is deemed short-term capital gain.

  1. A₹30,000 short-term capital gainCorrect
  2. B₹1,80,000 short-term capital gain
  3. C₹2,00,000 long-term capital gain
  4. DNo capital gain arises

Explanation

Excess of consideration over the total of transfer expenses, opening WDV and cost of additions: 8,00,000 - (20,000 + 6,00,000 + 1,50,000) = ₹30,000, deemed short-term. Ignoring the addition would give ₹1,80,000, which is wrong.

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