Section 74 — Depreciable Block of Assets STCG | ITA 2025

Section 74 — - DEPRECIABLE BLOCK OF ASSETS / FORCED STCG

Section 74 is the substantive equivalent of 1961 s. 50 -- the FORCED STCG treatment for depreciable block-of-assets, irrespective of holding period. The non-obstante override of s. 2(101) (holding-period definition) makes ALL gains on depreciable assets STCG, even where assets are held for decades. Rationale: depreciation has been claimed over the asset's life as a current expense; permitting LTCG concession on disposal would create double-benefit. TWO scenarios: (1) where DISPOSAL EXCEEDS [opening-WDV + acquisitions during year + transfer expenses] -- excess is deemed STCG; (2) BLOCK-EMPTYING (all assets in block transferred) -- entire receipts beyond WDV+acquisitions deemed STCG. Critical for industrial / commercial real-estate / plant disposals -- LTCG concession is NOT available.

Statutory text — Income-tax Act, 2025

Marginal note -- Special provision for computation of capital gains in case of depreciable assets

(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.

Corresponding provision — 1961 regime

INCOME-TAX ACT, 2025	INCOME-TAX ACT, 1961
INCOME-TAX ACT, 2025 -- s. 74	INCOME-TAX ACT, 1961 -- s. 50
Sub-s. (1) -- non-obstante: s. 2(101) holding-period overridden for depreciable blocks	1961 s. 50 main
Sub-s. (2) -- excess over [WDV + acquisitions + transfer expenses] deemed STCG	1961 s. 50(1)
Sub-s. (3) -- block-emptying: entire receipts deemed STCG	1961 s. 50(2)

STATUTORY ARCHITECTURE

Sub-s. (1) overrides s. 2(101) (holding-period for long-vs-short-term character) AND directs that ss. 72 / 73 (mode of computation / cost) operate subject to sub-ss. (2) and (3). Effect: depreciable blocks are treated as STCG-asset class regardless of how long held. SCENARIO 1 -- PARTIAL BLOCK DISPOSAL (sub-s. 2): Where during tax year, FVOC of one or more assets in block EXCEEDS the AGGREGATE of: (a) transfer expenditure (wholly and exclusively); (b) WDV at start of tax year; (c) actual cost of any asset within block acquired during the tax year, the excess is deemed STCG. Worked example: Plant block opening WDV INR 50L; acquired plant during year INR 30L; sold one machine for INR 100L; transfer expenses INR 2L. Aggregate (a)+(b)+(c) = 2 + 50 + 30 = INR 82L. FVOC = INR 100L. Excess = 100 - 82 = INR 18L deemed STCG. Block continues with revised WDV computation. SCENARIO 2 -- BLOCK-EMPTYING (sub-s. 3): Where ALL ASSETS in a block are transferred during tax year (block ceases to exist): (a) Cost of acquisition of block = WDV at start of TY + actual cost of any asset acquired during TY; (b) Receipts = entire FVOC from all transfers. Effectively the conventional CG formula applies but with block-WDV as the cost base. STCG character preserved by sub-s. (1). INTERACTION WITH s. 41 (WDV mechanics) -- the [(A-D)+B-C]-E formula in s. 41 governs block-WDV evolution; s. 74 uses these mechanics for CG character determination.

CASE LAW

(i) CIT v. Ace Builders P. Ltd (Bom HC, 2006, 281 ITR 264) -- depreciable asset sale gives STCG character; foundational. (ii) Pavilion Buildings Ltd v. CIT (Cal HC) -- block emptying when last asset sold; STCG character preserved. (iii) Whirlpool of India Ltd v. CIT (SC, 2017) -- block-of-assets WDV computation (paired with s. 41). (iv) ITAT decisions on s. 50 / s. 74 on industrial property disposal -- LTCG concession unavailable.

PLANNING NOTES

(i) BLOCK-DISPOSAL TIMING -- holding period irrelevant; tax-cost is slab/corporate rate (no LTCG concession). (ii) PARTIAL VS FULL DISPOSAL -- partial preserves block; full extinguishes; both STCG. (iii) REINVESTMENT EXEMPTION ROUTING -- s. 84 (compulsory acquisition industrial) / s. 87 / 88 (urban-shift) preserve some relief but only for specific scenarios. (iv) BLOCK-WDV TRACKING -- maintain accurate prior-year-closing-WDV in fixed asset register; reconcile with Form 3CD. (v) M&A TRANSFERS -- s. 70(1)(c)/(d)/(e) plus s. 41(2) WDV continuity preserves tax-neutrality through tax-neutral M&A; outside such transfers, s. 74 STCG applies.

CROSS-REFERENCES

Section 2(101) -- Holding period (overridden by s. 74).
Section 33 -- Depreciation.
Section 41 -- WDV computation [(A-D)+B-C]-E formula.
Section 67 -- CG charge.
Section 70 -- Tax-neutral transfers (preserve through M&A).
Section 72 / 73 -- Computation / cost in special modes.
Section 84 / 87 / 88 -- Industrial reinvestment exemptions (limited preservation).
Section 196 -- STCG rates.

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