Capital Gains on Depreciable Assets: Block of Assets Rules under the Income Tax Act 2025

When you sell a machine, vehicle or other asset that belongs to a block of assets on which depreciation has been allowed, section 74 of the Income-tax Act, 2025 does not compute a gain asset by asset. A gain arises only if the sale proceeds exceed the block's written down value plus new purchases plus selling costs, and that gain is always short-term. Section 75 covers a separate case: an asset on which depreciation was taken under section 33(2).

This article uses the law as amended by Finance Act 2026, and the examples are for tax year 2026-27. It is information, not tax advice.

What is a block of assets and written down value?

A block of assets is a group of depreciable assets that share one depreciation rate. Depreciation under section 33(3)(a) is a percentage of the block's written down value (WDV), not of each asset's cost. Section 41(1)(c) computes the block WDV as [(A - D) + B - C] - E, where A is the previous year's WDV, D the depreciation allowed for that year, B the actual cost of assets acquired in the year, C the sale money (plus scrap value) for assets sold in the year, and E applies to slump sales. C cannot exceed (A - D) + B.

For the depreciation rates themselves, see our guide to depreciation rates, block of assets and written down value.

How are capital gains computed when a block asset is sold?

Section 74(1) says that for an asset in a block on which depreciation has been allowed (under the 1922 Act, the 1961 Act or this Act), the normal rules in sections 72 and 73 apply subject to sub-sections (2) and (3). Sub-section (1) applies irrespective of the definition in section 2(101).

Under section 74(2), if the sale consideration for one or more assets of the block in the tax year exceeds the total of the following, the excess is deemed to be short-term capital gains:

• expenditure incurred wholly and exclusively on the transfer;
• the WDV of the block at the start of the tax year; and
• the actual cost of any asset in the block acquired during the tax year.

If the proceeds are lower than that total, section 74(2) creates no gain. The block simply continues with a reduced WDV under section 41(1)(c).

What if every asset in the block is sold?

Under section 74(3), if the block ceases to exist because all its assets are transferred in the tax year, the cost of acquisition of the block is the WDV at the beginning of the year plus the actual cost of any asset acquired in that year. The income from the transfer is deemed to be short-term capital gains. Working it through sections 72 and 73 (consideration less transfer expenses less cost), the result can also be a short-term loss, as example 2 shows.

Worked example 1: part of the block is sold (tax year 2026-27)

Assumptions: Meena runs a workshop. Her machinery block has an opening WDV of Rs 10,00,000. She buys a new machine for Rs 2,00,000 in the year and sells an old machine for Rs 15,00,000, paying Rs 20,000 in brokerage.

Step	Amount (Rs)
Sale consideration	15,00,000
Transfer expenditure	20,000
Opening WDV of block	10,00,000
Cost of machine bought in the year	2,00,000
Total of deductions (20,000 + 10,00,000 + 2,00,000)	12,20,000
Deemed short-term capital gain (15,00,000 - 12,20,000)	2,80,000

Because C in section 41(1)(c) cannot exceed (A - D) + B (here Rs 12,00,000), the block WDV after the sale is nil.

Worked example 2: the whole block is sold (tax year 2026-27)

Assumptions: Ravi's block has an opening WDV of Rs 6,00,000. He buys one asset for Rs 1,00,000 during the year and then sells every asset in the block for Rs 5,50,000 in total, with Rs 10,000 of transfer costs.

1. Cost of acquisition of the block under section 74(3)(a): 6,00,000 + 1,00,000 = Rs 7,00,000.
2. Consideration less transfer expenditure: 5,50,000 - 10,000 = Rs 5,40,000.
3. Result: 5,40,000 - 7,00,000 = a short-term capital loss of Rs 1,60,000.

Treatment of the loss (set-off and carry forward) is outside sections 74 and 75; check the loss provisions of the Act before relying on it.

What does section 75 say about assets on which depreciation was taken under section 33(2)?

Section 33(2) covers assets of an undertaking engaged in generation or generation and distribution of power, where depreciation is a prescribed percentage of actual cost. Section 75 says that if depreciation has been obtained under section 33(2) for a capital asset in any tax year, sections 72 and 73 apply with one change: the WDV (as defined in section 41), as adjusted, is the cost of acquisition.

Worked example 3: asset depreciated under section 33(2)

Assumptions: A power-generation unit bought a plant for Rs 10,00,000. Depreciation of Rs 4,00,000 was allowed over the years under section 33(2), so WDV is Rs 6,00,000. It sells the plant for Rs 8,00,000 with Rs 10,000 of transfer costs.

Step	Amount (Rs)
Full value of consideration	8,00,000
Less: transfer expenditure (section 72(1)(a))	10,000
Less: cost of acquisition = WDV (section 75)	6,00,000
Capital gain	1,90,000

Can I save tax on a block-asset gain by reinvesting in bonds?

Section 85(1) lets capital gains escape section 67 charge when they are invested within six months in a long-term specified asset (for example, certain NHAI or REC bonds). But it applies only to long-term capital gains arising from the transfer of land or building. A gain deemed short-term under section 74(2) or 74(3) does not meet that description, so the reinvestment route in section 85 does not apply to it.

How is block WDV used when a whole undertaking is sold?

In a slump sale, section 77(5)(b)(i) takes the WDV of the block of assets, determined under section 41(1)(c), as the value of depreciable assets when computing the undertaking's net worth. The slump-sale rules in section 77 govern that sale, not section 74.

Real-life scenarios

Scenario 1. Ravi sells an old delivery van from his transport block for less than the block's WDV and buys nothing new. Section 74(2) produces no gain because the proceeds do not exceed the total. The block WDV falls by the sale money under section 41(1)(c).

Scenario 2. Meena closes her printing unit and sells every machine in the block. Section 74(3) applies. Her cost is the opening WDV plus anything bought that year, so even a sale well above her original purchase price is measured against WDV, and any gain is short-term.

Common mistakes

• Computing a separate gain or loss for each block asset sold. For a part-block sale, section 74(2) works on the block as a whole.
• Forgetting to add assets bought during the year to the deduction total.
• Ignoring transfer expenditure, which section 74(2)(a) deducts.
• Treating the gain as long-term because the asset was held for years. Sections 74(2) and 74(3) deem it short-term.
• Mixing up section 74 (blocks) with section 75 (assets depreciated under section 33(2)).

Quick reference

Situation	Provision	Result
Some assets of a block sold, proceeds exceed deductions	Section 74(2)	Excess is deemed short-term gain
Proceeds do not exceed deductions	Section 74(2)	No gain from this provision
Entire block transferred	Section 74(3)	Cost = opening WDV + new purchases; result is short-term
Depreciation taken under section 33(2)	Section 75	WDV (as adjusted) is the cost of acquisition

For a CA firm, the hard part is tracking each client's block WDV and new additions across years. Finexo's practice management software helps you keep client work and deadlines organised; it does not compute capital gains for you. For how short-term gains are taxed, see tax on short-term capital gains under the Income Tax Act 2025.

Where this is in the Act

• Section 74: special provision for computation of capital gains in case of depreciable assets.
• Section 75: special provision for cost of acquisition in case of depreciable asset.
• Section 85: reinvestment in specified bonds (land or building, long-term gains only).
• Section 77(5)(b)(i): block WDV in slump-sale net worth.
• Section 41: written down value (block formula in 41(1)(c)).
• Section 33(2), (3): depreciation deduction.
• Sections 72 and 73: mode of computation and cost of acquisition.