Section 50 of Income Tax Act: Capital Gains on Depreciable Assets
Learn how capital gains are computed when machinery, plant, equipment and other depreciable capital assets are sold, using the written down value of the relevant block of assets.
What does Section 50 provide?
Section 50 is a special computation rule for capital assets belonging to a block of assets on which depreciation has been allowed. It modifies the ordinary capital-gain computation under Section 48 and Section 49. A positive capital gain calculated under this rule is deemed to arise from a short-term capital asset, irrespective of the holding period.
Key statutory definitions
Block of assets: A group of assets within a class that attracts the same prescribed depreciation rate, as defined under Section 2(11) of the 1961 Act. Written down value (WDV): The tax value of the block after adjustments for depreciation, additions and disposals under Section 43(6). Actual cost: Cost determined under Section 43(1), subject to statutory adjustments. Transfer expenses: Expenditure incurred wholly and exclusively in connection with the transfer.
Section 50: How the two rules work
Section 50(1): Transfer of one or more assets in a block
Where aggregate sale consideration from assets transferred out of a depreciable block during the year exceeds the opening WDV, actual cost of additions during the year and eligible transfer expenses taken together, the excess is deemed short-term capital gain (STCG).
If the proceeds do not exceed the relevant total, Section 50(1) does not itself create a capital gain. The block is adjusted under the applicable depreciation rules; the tax treatment should not be calculated independently for each machine when it remains in the block.
Section 50(2): The entire block ceases to exist
If all assets in a block are transferred and the block ceases to exist, the cost of acquisition for the block is the opening WDV plus the actual cost of assets added during the year. Proceeds and transfer expenses are then considered to compute the resulting capital gain or loss. A positive gain is deemed short-term; any loss must be evaluated under the applicable capital-gain provisions.
Capital gains computation: Worked examples
Example 1: Partial sale generating STCG
| Particulars | Amount (Rs.) |
|---|---|
| Opening WDV of machinery block | 8,00,000 |
| New machinery purchased | 2,00,000 |
| Aggregate sale consideration | 12,50,000 |
| Transfer expenses | 50,000 |
| Deemed short-term capital gain | 2,00,000 |
Calculation: Rs. 12,50,000 - (Rs. 8,00,000 + Rs. 2,00,000 + Rs. 50,000) = Rs. 2,00,000 STCG. This assumes the assets qualify for block depreciation and no special valuation or other adjustments apply.
Example 2: Entire block sold at a loss
Suppose opening WDV is Rs. 5,00,000, no additions are made, every asset in the block is sold for Rs. 3,60,000 and transfer expenses are Rs. 10,000. The net proceeds are Rs. 3,50,000, resulting in a short-term capital loss of Rs. 1,50,000, subject to the applicable rules.
Goodwill: Important legislative update
Goodwill of a business or profession is no longer a depreciable asset for income-tax purposes. Where depreciation was claimed on goodwill in earlier years, transitional provisions in Section 50, the Explanation, Section 43(6) and Rule 8AC may require an adjustment to the block's WDV and a deemed transfer computation. Do not apply the pre-amendment rule to current goodwill transactions without checking the relevant year.
Section 74 of the Income-tax Act, 2025
Section 74(1) provides a special rule for depreciable assets, overriding the general holding-period definition. Section 74(2) covers sale consideration exceeding the block's opening WDV, additions and transfer expenditure. Section 74(3) deals with a block ceasing to exist because all assets have been transferred. It refers to Sections 72 and 73 for the general computation and cost rules.
The new Act applies from 1 April 2026. For older transactions, Section 50 of the 1961 Act and relevant saving or transition provisions remain important.
Official law and guidance
- Income Tax Department: Section 50, Income-tax Act, 1961 (2025 text)
- Income Tax Department: Income-tax Act, 2025 (official PDF; see Section 74)
- Income Tax Department: Capital gains guidance
Frequently asked questions
Are gains on depreciable assets always short-term?
Where section 50 applies to a depreciable block, the resulting capital gain is deemed short-term even if an asset was held for many years.
What if only one machine is sold?
Compute proceeds at the block level. If sale consideration does not exceed opening WDV plus additions and allowable transfer expenses, section 50(1) does not produce a gain; the block WDV is adjusted under depreciation rules.
What if every asset in the block is sold?
Section 50(2) applies when the block ceases to exist because all its assets are transferred. Compare aggregate consideration, transfer expenses, opening WDV and additions; a gain is deemed short-term, while any loss needs examination under applicable capital-gain rules.
Does section 50 apply to goodwill?
Business or professional goodwill is not eligible for depreciation under the amended law. Historical depreciation on goodwill requires the transitional adjustment prescribed under Rule 8AC.
What is the corresponding section from April 2026?
Section 74 of the Income-tax Act, 2025 covers capital gains on depreciable assets for tax years beginning on or after 1 April 2026.
Editorial note: This article explains the general statutory computation. The outcome may differ where deemed consideration provisions, special depreciation adjustments, transitional rules or other specific provisions apply.