CBDT notifies rule for computation of capital gain & WDV u/s 50 if dep. was claimed on goodwill

Notification No. 77/2021, dated 07-07-2021

The Finance Act, 2021, has amended the various provisions of the Income-tax Act, 1961, to prohibit the deduction for depreciation on goodwill. Section 2(11), which defines the term “block of assets” was amended to remove the goodwill of business or profession from the ambit of a block of asset.

The CBDT was empowered to specify the manner in which the written down value (WDV) and capital gains are to be computed where goodwill forms part of a block of assets. In the exercise of such powers, CBDT has inserted a new Rule 8AC to the Income-tax Rules, 1962. This Rule provides that where the goodwill of the business or profession was the only asset or one of the assets in the block of asset “intangible” for which the assessee obtained depreciation in the assessment year beginning on 01-04-2020, the WDV of this block of an asset for the previous year relevant to the assessment year commencing on 01-04-2021 shall be determined in the following steps:

Step 1:

Determine the Opening WDV of a block of assets as on 01-04-2020;

Step 2:

Add the Actual cost of the asset (other than goodwill) acquired during the previous year;

Step 3:

Reduce the money payable in respect of any asset, sold, destroyed, discarded, or demolished during the previous year together with the scrap value, if any;

Step 4:

Reduce the WDV of the assets, transferred under ‘slump sale’ falling under that block; and

Step 5:

Reduce the Actual cost of goodwill after reducing depreciation allowed, falling within the block.

Further, Rule also provides that if the actual cost of goodwill after reducing depreciation (amount calculated at Step 5) exceeds the aggregate of opening WDV and the actual cost of asset acquired during the year, such excess shall be deemed to be the capital gains arising from the transfer of short-term capital assets.

Furthermore, it also provides that if goodwill of the business or profession was the only asset in the block of asset for which assessee had obtained depreciation in the assessment year 2020-21, and the block of asset ceases to exist on account of there being no further asset acquired during the assessment year 2021-22 in that block, there will not be any capital gains or loss on account of the block of asset having ceased to exist.