CS Executive · Tax Laws and Practice · Capital Gains
Meera Metals Pvt Ltd has a single block of plant and machinery with opening written down value of Rs 20 lakh for the tax year. During the year it buys a machine for Rs 5 lakh and sells all assets of the block for Rs 32 lakh, incurring Rs 1 lakh transfer expenses, so the block ceases to exist. Under the Income-tax Act, 2025, what is the capital gain?
The gain is a short-term capital gain of Rs 6 lakh. The block's cost is opening WDV Rs 20 lakh plus the Rs 5 lakh addition, Rs 25 lakh. Sale consideration less Rs 1 lakh expenses is Rs 31 lakh. The excess of Rs 6 lakh is deemed short-term.
- AShort-term capital gain of Rs 6 lakhCorrect
- BShort-term capital gain of Rs 7 lakh
- CLong-term capital gain of Rs 6 lakh
- DShort-term capital gain of Rs 12 lakh
Explanation
When a block ceases to exist, the cost is the opening WDV plus actual cost of additions: 20 + 5 = Rs 25 lakh. Consideration net of transfer expenses is 32 - 1 = Rs 31 lakh. The gain is 31 - 25 = Rs 6 lakh, deemed short-term. Rs 7 lakh ignores transfer expenses, and Rs 12 lakh ignores the additions.
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