Case studies: Computation of WDV of intangible assets and capital gains on transfer from ‘Goodwill’
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- Last Updated on 19 July, 2021
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Section 50 of the Income-tax Act contains provisions for computation of capital gain in case of transfer of depreciable assets. The Finance Act, 2021 has inserted a new proviso to section 50(2). It provides that the CBDT may prescribe a manner to determine the WDV of the block of asset and short-term capital gain if goodwill is forming part of that block and depreciation has been claimed thereon. Thus, if a block of intangible asset contains goodwill and it ceases to exist, the capital gain on such block shall be calculated in the manner prescribed by the Board.
The CBDT has accordingly notified Rule 8AC vide Notification No. 77/2021, dated 07-07-2021. This rule contains provisions for the following scenarios:
(a) Computation of WDV of block of intangible assets containing goodwill [Rule 8AC(2)];
(b) Deemed capital gains if block of intangible assets ceases to exist [Rule 8AC(3)];
(c) Exception to Rule 8AC(3) if block contains only goodwill [Rule 8AC(4)]; and
(d) Computation of capital gains on transfer of goodwill [Rule 8AC(5)].
This write-up has explained the provisions related to goodwill with the help of a few practical case studies.
Read the Full Article Citation: Rahul Singh - [2021] 128 taxmann.com 236 (Article)
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