Special provision for computation of capital gains in case of depreciable assets
[Section-74 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 74(1) of Income Tax Act 2025
74(1) Irrespective of anything contained in section 2(101), for a capital asset forming part of a block of assets on which depreciation has been allowed under this Act or under the Income-tax Act, 1961 or under the Indian Income-tax Act, 1922, the provisions of sections 72 and 73 shall be subject to the provisions of sub-sections (2), (3) and (4).
Section 74(2) of Income Tax Act 2025
74(2) If, during the tax year, the full value of consideration received or accruing for the transfer of one or more assets in a block of assets exceeds the total of the following:––
- (a) expenditure incurred wholly and exclusively for such transfer;
- (b) the written-down value of the block of assets at the start of the tax year; and
- (c) the actual cost of any asset falling within the block of assets acquired during the tax year,
such excess shall be deemed to be capital gains arising from the transfer of short-term capital assets.
Section 74(3) of Income Tax Act 2025
74(3) If any block of assets ceases to exist for the reason that all the assets in that block are transferred during the tax year, then,––
- (a) the cost of acquisition of the block of assets shall be the written down value of the block of assets at the beginning of the tax year, as increased by the actual cost of any asset falling within that block of assets, acquired by the assessee during the tax year; and
- (b) the income received or accruing as a result of such transfer or transfers shall be deemed to be short-term capital gains.
FAQs on Section 74 of Income Tax Act 2025
1. What is the special provision for computation of capital gains in the case of depreciable assets under the Income Tax Act, 2025?
The special provision is contained in Section 74 of the Income Tax Act, 2025, and applies to capital assets forming part of a block of assets on which depreciation has been allowed under this Act or the earlier Income-tax Acts of 1961 or 1922.
2. From when is the special provision for depreciable assets applicable?
It is applicable with effect from 1st April, 2026.
3. What does Section 74(1) of the Income Tax Act, 2025 provide?
Section 74(1) states that for depreciable assets, the computation of capital gains under sections 72 and 73 will be subject to the special rules laid down in subsections (2), (3), and (4) of Section 74.
4. How is capital gain computed under Section 74(2)?
Under Section 74(2), if during the tax year, the full value of consideration from the transfer of one or more assets in a block exceeds the sum of:
- expenditure incurred wholly and exclusively for the transfer,
- the written-down value (WDV) of the block at the beginning of the year, and
- the actual cost of assets acquired in the block during the year,
then the excess amount is deemed as short-term capital gains.
5. What happens if the consideration from asset transfer exceeds the written-down value and cost additions?
The excess amount is treated as short-term capital gains as per Section 74(2).
6. What is meant by ‘block of assets’ in the context of Section 74?
‘Block of assets’ refers to a group of assets falling within a class for which the same rate of depreciation is prescribed, and which are subject to depreciation allowances.
7. What does Section 74(3) deal with?
Section 74(3) deals with the situation where an entire block of assets ceases to exist because all assets in that block have been transferred during the tax year.
8. How is the cost of acquisition determined when an entire block ceases to exist?
The cost of acquisition is taken as the written-down value of the block at the beginning of the tax year, increased by the actual cost of any asset acquired in that block during the year.
9. How is income treated when an entire block of assets is transferred?
The income arising from the transfer of the entire block is deemed to be short-term capital gains under Section 74(3).
10. Will gains from the transfer of depreciable assets always be short-term?
Yes, under the special provisions of Section 74, capital gains arising from the transfer of depreciable assets are always deemed short-term, irrespective of the holding period.
11. Is it necessary for the entire block to be sold to attract short-term capital gains under Section 74?
No, even partial transfers leading to consideration exceeding written-down value and additions can trigger short-term capital gains under Section 74(2). However, if the entire block is sold, Section 74(3) specifically applies.
12. What happens if the full value of consideration is less than the written-down value and additions?
In that case, the block continues to exist, and the depreciation is allowed on the resultant block value.
13. Are expenses incurred exclusively for transfer considered in the capital gains computation?
Yes, such expenses are deducted from the full value of consideration while computing short-term capital gains under Section 74(2).
14. Does Section 74 override the general definition of capital asset under Section 2(101)?
Yes, Section 74(1) states that irrespective of anything contained in Section 2(101), the computation of capital gains for depreciable assets must follow the rules specified in Section 74(2), (3), and (4).
Refresh Page