Chapter IV - Computation of Total Income
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.
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This article is for general information. Refer to the Income-tax Act, 2025 as amended by the Finance Act, 2026 and the Taxation and Other Laws (Amendment) Act, 2026 for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
(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 the Indian Income-tax Act, 1922 (11 of 1922) or under the Income-tax Act, 1961 (43 of 1961) or under this Act, the provisions of sections 72 and 73 shall be subject to the provisions of sub-sections (2) and (3).
(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 in connection with 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.
(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 capital gains arising from the transfer of short-term capital assets.
Introduction
A depreciated block has a special capital-gains computation. Section 74 can treat a positive excess on disposal as short-term gain even if individual assets were held for a long period.
Key takeaways
Depreciated asset block
When disposal proceeds from assets in a depreciated block exceed transfer expenditure, opening written-down value and the year’s additions, the excess is deemed a short-term capital gain.
Block extinguished
If all assets in the block are transferred, the section prescribes a separate block-cost calculation and treats the resulting capital gain as short-term.
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.
Compute at the block level
Reconcile opening written-down value and current-year additions for the whole block, then compare the total transfer consideration after transfer expenses.
If every asset in the block is transferred, apply the separate rule for a block that ceases to exist.
Step-by-step flow for applying Section 74
- 1
Is the transferred asset part of a block of assets on which depreciation has been allowed?
- No: Use the ordinary computation in Sections 72 and 73.
- Yes: Go to the next step.
- 2
Have all assets in the block been transferred during the tax year?
- No, the block continues: Apply Section 74(2) (next step).
- Yes, the block ceases to exist: Skip to the last step (Section 74(3)).
- 3
Section 74(2): does the consideration exceed the total of transfer expenses, opening written down value and the year's additions?
- Yes: The excess is deemed short-term capital gains.
- No: No capital gain arises under Section 74(2).
- 4
Section 74(3): block ceases to exist
Cost of acquisition of the block = opening written down value + actual cost of assets acquired into the block during the year. The income from the transfers is deemed short-term capital gains.
Practical checklist
Do
- Keep a block-level depreciation and disposal schedule, including all assets sold in the year.
- Test whether any asset remains in the block after the transfers.
Avoid
- Do not calculate a separate indexed long-term gain for each depreciated block asset under the ordinary formula.
Illustrative example
Worked example: selling part of a machinery block
Hypothetical facts (illustration only, not a real taxpayer): A manufacturer's machinery block has a written down value of ₹10,00,000 at the start of the tax year. During the year it buys a new machine for ₹2,00,000 and sells two old machines for ₹15,00,000, incurring ₹50,000 on brokerage and transport for the sale. Other machines remain in the block.
Total to compare
Transfer expenses ₹50,000 + opening written down value ₹10,00,000 + additions ₹2,00,000 = ₹12,50,000.
Compare with consideration
₹15,00,000 exceeds ₹12,50,000 by ₹2,50,000.
Character
The ₹2,50,000 excess is deemed capital gains from the transfer of short-term capital assets, however long the machines were held.
Outcome
- Short-term capital gains of ₹2,50,000 arise for the tax year.
- If the sale price had been ₹12,00,000 instead, there would be no excess and no capital gain under Section 74(2).
Glossary
- Depreciable block
- A group of assets on which tax depreciation is computed at the same rate.
- Block ceases to exist
- All assets in the depreciation block are transferred during the tax year.
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).
What is the cost of acquisition if every asset in the block is sold?
Under Section 74(3), the cost is the written down value of the block at the beginning of the tax year, increased by the actual cost of any asset in that block acquired during the year, and the resulting gain is deemed short-term capital gains.
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Get expert help computing gains on your business assetsLast updated 9 October 2026