Section 74

Section 74: special provision for computation of capital gains in case of depreciable assets

Section 74 modifies the general capital gains computation rules (Sections 72 and 73) for a capital asset that forms part of a "block of assets" on which depreciation has been allowed - whether under this Act, the 1961 Act, or the 1922 Act. Gains on such assets are always computed with reference to the block's written down value, and are always treated as short-term capital gains, regardless of how long the underlying assets were actually held.

This explanation is AI-assisted and pending review by our CA/CS team. It is general information, not professional advice - always cross-check against the bare law text above or talk to our tax team for guidance specific to your situation.

When the block still has other assets after the transfer

Section 74(2) applies where, during the tax year, the consideration received or accruing on transfer of one or more assets in a block exceeds the sum of: the transfer expenses, the block's written down value at the start of the year, and the actual cost of any asset acquired into the block during the year. That excess is deemed to be short-term capital gains.

When the entire block ceases to exist

Section 74(3) applies where all the assets in a block are transferred during the tax year, so the block ceases to exist. In that case, the cost of acquisition of the block is taken as its written down value at the start of the year, increased by the actual cost of any asset acquired into the block during the year - and the resulting income (consideration less that cost) is deemed to be short-term capital gains.

Frequently asked questions

Are gains on selling depreciable business assets always short-term capital gains?

Yes - under Section 74, whenever a capital asset forms part of a block of depreciable assets, any resulting gain is deemed to be short-term capital gains, regardless of the actual holding period of the individual asset.

How is the gain computed if only some assets in the block are sold?

The excess of the sale consideration (less transfer expenses) over the sum of the block's opening written down value and the cost of any assets added to the block during the year is treated as short-term capital gains, per Section 74(2).