Tag: Short-term capital gain

Sale of Depreciable Assets: Capital Gains Under Sections 74 and 75 (Earlier 50 and 50A)

Posted on by CA Meet Dhrangadhariya

Last updated: 13 July 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • When an asset in a block of assets on which depreciation has been allowed is sold, a capital gain arises only if the sale price exceeds the opening written down value of the block plus additions of the year plus the expenses of transfer (section 74(2)).
  • The excess is a short-term capital gain, whatever the holding period; if the block ceases to exist because all its assets are sold, the net result is also a short-term gain or loss (section 74(3)).
  • Where depreciation was allowed on an asset in a particular year, its written down value is taken as the cost of acquisition (section 75).
  • The tax is at the assessee’s slab rate or at the short-term rate, not at 12.5%.

A business that sells machinery, a vehicle or a building on which it has claimed depreciation does not compute the gain asset by asset, as it would for shares. The Income-tax Act, 2025 treats such assets in blocks, and sections 74 and 75 (earlier sections 50 and 50A) provide the special rules.

What is a block of assets

Depreciation is allowed on a block of assets: assets of the same class with the same depreciation rate. The block has an opening written down value (WDV) each year, which is reduced by depreciation and by the sale proceeds of assets sold, and increased by the cost of assets acquired.

Section 74(2): gain when part of a block is sold

If, during the tax year, the full value of consideration received or accruing for the transfer of one or more assets in a block exceeds the total of:

  • (a) the expenditure incurred wholly and exclusively on the transfer;
  • (b) the written down value of the block at the start of the tax year; and
  • (c) the actual cost of any asset of the block acquired during the tax year,

then the excess is deemed to be a short-term capital gain, irrespective of how long the asset was held. The gain is charged in the year of the sale.

If the sale price is less than or equal to this total, there is no capital gain under this section, and the sale is dealt with under the depreciation provisions for the block.

Example. The WDV of a block of machinery at the start of the year is ₹10,00,000. During the year, you buy a machine of the same block for ₹2,00,000 and sell an old machine for ₹14,00,000 (expenses ₹20,000).

  • Total = 20,000 + 10,00,000 + 2,00,000 = ₹12,20,000
  • Sale price ₹14,00,000 is more than ₹12,20,000, so short-term capital gain = ₹1,80,000

Section 74(3): the block ceases to exist

If all the assets of a block are transferred in the year, so that the block ceases to exist:

  • the cost of acquisition of the block is the WDV at the beginning of the year plus the actual cost of any asset of the block acquired during the year; and
  • the amount received or accruing is deemed a short-term capital gain (or a short-term loss, if it is less than that cost less the expenses).

Example. A block has a WDV of ₹6,00,000 and is entirely sold for ₹4,50,000 with no additions. The result is a short-term capital loss of ₹1,50,000 (less expenses). The loss is a capital loss and is dealt with under the loss rules (see our post on capital loss), not as a business loss.

Section 75: where depreciation was obtained on an asset

If depreciation has been obtained under section 33(2) for a capital asset in any tax year, then sections 72 and 73 apply with the modification that the written down value of the asset, as defined in section 41 and adjusted, is its cost of acquisition. This avoids a double benefit: the depreciation already claimed is not allowed again as a cost.

Who these provisions affect

  • Businesses and professions that claim depreciation (plant, machinery, vehicles, furniture, buildings, intangible assets).
  • Goodwill: if you bought goodwill and claimed depreciation before the tax year commencing 1 April 2020, the depreciation reduces the purchase price for its cost of acquisition (section 90(4)).

Tax and reporting

  • The gain is short-term and is taxed at the slab rates (individuals), or the rates for the entity (company, firm).
  • Report the gain in the capital gains schedule under short-term gains, with the block details.
  • Advance tax applies to the gain as it arises.

Points to remember

  1. The holding period does not matter: the gain is short-term.
  2. A gain arises only when the sale price exceeds the whole block’s WDV plus additions plus expenses.
  3. When a block disappears, a loss on its sale is a short-term capital loss, which can be set off only against capital gains.
  4. Keep the depreciation schedule to prove the WDV.

Frequently asked questions

How is a gain on a depreciable asset computed?

If the sale price of one or more assets of a block exceeds the total of the expenses of transfer, the written down value of the block at the start of the year and the cost of assets of the block bought during the year, the excess is a short-term capital gain (section 74(2)).

Is the gain long-term if I held the machine for many years?

No. The excess is deemed to be a short-term capital gain irrespective of the holding period (section 74(2)).

What if all assets in the block are sold?

The block ceases to exist. Its cost of acquisition is the written down value at the start of the year plus the cost of assets of that block bought during the year, and the net result is a short-term capital gain or loss (section 74(3)).

What happens if the sale price is lower than the block’s written down value?

No capital gain arises under section 74(2). The sale is dealt with under the depreciation provisions for the block, unless the block ceases to exist, in which case section 74(3) gives a short-term loss.

Does section 75 apply to every asset?

It applies where depreciation was obtained under section 33(2) for a capital asset in any tax year: the written down value of the asset as defined in section 41, as adjusted, is its cost of acquisition for sections 72 and 73.

What tax rate applies?

Short-term capital gain rates. Since the transaction is not on a stock exchange with STT, the gain is taxed at the assessee’s slab rates (or the rate of the entity).

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Capital Gains Tax in India: Short-Term, Long-Term, Rates and Computation (Tax Year 2026-27)

Posted on by CA Meet Dhrangadhariya

Last updated: 26 July 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • Capital gains are the profit on transfer of a capital asset, taxed in the year of transfer under section 67 of the Income-tax Act, 2025; they are computed as the sale value less expenses on the transfer, the cost of acquisition and the cost of improvement (section 72).
  • An asset held for 12 months or less (listed securities, equity-oriented fund units, UTI units, zero coupon bonds) or 24 months or less (everything else) is short-term; otherwise it is long-term (section 2(101)).
  • Short-term gains on listed equity with STT are taxed at 20%; long-term gains are taxed at 12.5%, and gains on listed equity with STT are taxed at 12.5% only on the part above ₹1,25,000 a year.
  • Resident individuals and HUFs can choose indexed cost at 20% for land or building acquired before 23 July 2024 if that gives a lower tax.

Profit on selling a house, plot, shares, mutual fund units or gold is taxed as capital gains. The rules sit in sections 67 to 91 of the Income-tax Act, 2025 (they were sections 45 to 55A of the 1961 Act), and the tax rates in sections 196 to 198. This post sets out the framework for tax year 2026-27, from the sale date to the tax.

What is taxed

Section 67(1): profits or gains from the transfer of a capital asset in a tax year are chargeable under the head “Capital gains” and are the income of the year in which the transfer took place. “Capital asset” means property of any kind held by you, whether or not connected with your business or profession (section 2(22)).

Some transactions are not a transfer (section 70): a gift or will by an individual or HUF, partition of a HUF, certain transfers between a company and its wholly owned subsidiary, amalgamation, and others. A gift is tax free to the giver, but the receiver takes over the cost and holding period of the giver (see our post on cost of acquisition).

The Act also specifically taxes some receipts as capital gains: insurance money received for destruction of a capital asset (section 67(2)), gains on conversion of a capital asset into stock-in-trade (section 67(6), taxed when the stock is sold), contributing an asset to a firm of which you are a partner (section 67(9)), enhanced compensation (section 67(12)), and a real estate joint development (section 67(14)).

Short-term or long-term (section 2(101))

Asset Short-term if held for
Security listed on a recognised stock exchange in India, unit of UTI, unit of an equity-oriented fund, zero coupon bond 12 months or less
Every other capital asset (unlisted shares, foreign shares, land, building, gold, debt fund units and so on) 24 months or less

The holding period runs from the date of acquisition to the date of transfer. It includes the previous owner’s period for a gift, will, inheritance and the other cases in section 73(1) Table serial 1, and, for shares or securities allotted by an employer under an ESOP, runs from the date of allotment. A specified mutual fund bought on or after 1 April 2023, a market linked debenture, and an unlisted bond or debenture transferred or redeemed on or after 23 July 2024 give short-term gains whatever the holding period (section 76).

How the gain is computed (section 72)

Capital gain = full value of consideration, less expenditure incurred wholly and exclusively on the transfer, less the cost of acquisition, less the cost of any improvement.

  • Interest claimed as a deduction under section 22(1)(b) or Chapter VIII and securities transaction tax are not deducted.
  • For land or building, if the sale price is less than the stamp duty value, the stamp duty value is taken as the sale price, but a gap of up to 10% is ignored (section 78). For unquoted shares sold below fair market value, the fair market value is used (section 79).
  • If the price cannot be ascertained, the fair market value on the transfer date is used (section 80).
  • Cost of improvement means capital expenditure on additions or alterations, not repairs (section 90(1) and (2)).

Cost of acquisition

Situation Cost
Bought What you paid
Gift, inheritance, will, certain transfers Cost to the previous owner (the last owner who acquired it otherwise), plus his cost of improvement (section 73(1), Table serial 1)
Acquired before 1 April 2001 Cost, or fair market value on 1 April 2001, at your option; for land or building the fair market value cannot exceed the stamp duty value on that date (section 90(9) and (10))
Long-term listed equity shares, equity-oriented fund units or business trust units acquired before 1 February 2018 The higher of (a) cost and (b) the lower of the fair market value on 31 January 2018 and the sale price (section 90(7))
Shares allotted under an ESOP or RSU The fair market value taken for the perquisite (section 73, serial 4)
Bonus shares and rights shares Nil for bonus shares; the amount paid for rights shares (section 90(5) and (6))

Tax rates (sections 196 to 198)

Gain Rate
Short-term gain on equity shares or units of an equity-oriented fund or a business trust, sold on a stock exchange with STT paid 20% (section 196)
Other short-term gains Normal slab rates
Long-term gain on listed equity shares, equity-oriented fund units or business trust units, where STT was paid on acquisition and transfer (STT on transfer only for fund and trust units) 12.5% on the gain above ₹1,25,000 in the year (section 198)
Other long-term gains (unlisted shares, property, gold, debt units and so on) 12.5%, without indexation (section 197)
Long-term gain on land or building acquired before 23 July 2024, by a resident individual or HUF The lower of 12.5% without indexation, and 20% with the indexed cost of acquisition and improvement (section 197(3))

Other points on rates:

  • For a resident individual or HUF, if the rest of your income is below the basic exemption limit, the shortfall is set against the capital gain before tax is applied (sections 196(2), 197(2) and 198(3)).
  • Chapter VIII deductions (section 123 and others) are allowed only from income other than these capital gains (sections 196(4), 197(5), 198(6)).
  • The rebate under section 156 is allowed against tax on income other than the special-rate capital gains. It does not wipe out tax on long-term gains under section 198 (section 198(7)).
  • Surcharge on tax on these capital gains is capped at 15% whatever the income (Finance Act, 2026), and cess is 4%.

Examples

1. Long-term gain on listed shares. A resident individual bought listed shares for ₹4,00,000 on 12/06/2025 and sold them on a stock exchange on 20/08/2026 for ₹6,10,000, with STT paid on both. Held for more than 12 months, so long-term.

  • Gain: 6,10,000 - 4,00,000 = ₹2,10,000
  • Exempt part: ₹1,25,000; taxable: ₹85,000
  • Tax at 12.5% = ₹10,625; cess 4% = ₹425; total ₹11,050

2. Short-term gain on listed shares. Bought on 01/04/2026 for ₹2,00,000, sold on 10/10/2026 for ₹2,50,000, STT paid. Gain ₹50,000; tax at 20% = ₹10,000 plus cess ₹400 = ₹10,400.

3. Listed shares bought before 1 February 2018. Cost ₹1,00,000 in 2015; value on 31 January 2018 ₹3,00,000; sold in 2026 for ₹5,00,000. Deemed cost = higher of 1,00,000 and the lower of 3,00,000 (value on 31/01/2018) and 5,00,000 (sale price) = ₹3,00,000. Gain = ₹2,00,000; taxable above ₹1,25,000 = ₹75,000 at 12.5% = ₹9,375.

4. Plot of land. Bought for ₹10,00,000 in March 2020 and sold for ₹30,00,000 in August 2026. Held more than 24 months, so long-term. Tax at 12.5% without indexation: 20,00,000 × 12.5% = ₹2,50,000. If indexing the cost at 20% gives a lower figure, the resident individual pays that lower tax, because the land was acquired before 23 July 2024. See our post on capital gains on property.

Losses

  • A short-term capital loss can be set off against any capital gain, short-term or long-term; a long-term capital loss only against long-term gains (section 108(2)).
  • A capital loss cannot be set off against other heads such as salary (section 109(2)).
  • Unabsorbed losses carry forward for eight tax years against capital gains of the matching kind (section 111), and only if the loss was determined in a return filed by the due date (section 121). See our post on capital loss set-off.

Reporting

Capital gains are reported in the capital gains schedule of the return, with each sale listed (date, cost, sale price). If you have capital gains beyond the long-term gains of ₹1,25,000 under section 198, you cannot use the simple ITR-1 (see our post on which ITR form to file). Pay advance tax on gains as they arise.

Frequently asked questions

What is a capital asset?

Property of any kind held by you, whether or not connected with your business, such as land, a house, shares, units, gold and jewellery, and certain other items (section 2(22)). Stock-in-trade and some other items are outside the definition.

When is a gain short-term or long-term?

Short-term if the asset is held for not more than 24 months before transfer; for a security listed in India, a UTI unit, a unit of an equity-oriented fund or a zero coupon bond the period is 12 months. A longer holding makes the gain long-term (section 2(101)).

What are the capital gains tax rates?

Short-term gain on listed equity shares and equity-oriented fund units sold with STT: 20%. Other short-term gains: slab rates. Long-term gains: 12.5%, and on listed equity shares and equity-oriented fund units with STT 12.5% only on gains above ₹1,25,000 in the year (sections 196 to 198).

Is indexation still available?

Only for a resident individual or HUF selling land or building acquired before 23 July 2024, who may pay the lower of 12.5% without indexation and 20% with indexation (section 197(3)). Indexation is not available for other assets.

How is the cost of acquisition fixed?

Generally what you paid; for gifted or inherited assets, the cost to the previous owner (section 73); for assets acquired before 1 April 2001, cost or fair market value on that date at your option; for listed equity acquired before 1 February 2018, the higher of cost and the lower of its value on 31 January 2018 and the sale price (section 90).

Can I set off a capital loss?

A short-term loss against any capital gain, a long-term loss only against long-term gains. Unabsorbed losses carry forward for eight tax years if the return was filed on time (sections 108, 111 and 121).

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.