Normally, when you sell an asset held for more than 24 months (or 36 months for immovable property), you get the benefit of long-term capital gains — lower tax rates, indexation, etc. But Section 50 says: not for depreciable assets. If the asset is part of a block of assets (the same WDV pool your depreciation is calculated on), the gain is always short-term capital gain, regardless of how long you've held it. That's the core rule — period.
Why does this exist? Because depreciable assets have already given you a tax benefit through depreciation deductions year after year. The government decided it would be unfair to also give you LTCG benefits on the same asset. So Section 50 overrides the holding period definition in Section 2(42A) and forces the gain into short-term territory.
There are two scenarios to master for the exam. Scenario 1 (Partial transfer): Some assets in the block are sold, but the block still survives. Here, the formula is: Gain = [Total sale consideration from transferred assets] − [Transfer expenses + WDV of block at start of year + Cost of any new assets added to the block during the year]. If this number is positive, it's a short-term capital gain. Crucially, if it's negative, there is no loss — the negative figure simply reduces the WDV of the remaining block. Scenario 2 (Block ceases to exist): All assets in the block are sold during the year. Now the entire block disappears. The cost of acquisition = WDV at start of year + cost of assets acquired during the year. Sale proceeds minus this cost = short-term capital gain (or loss, which IS allowed here). This is the only situation under Section 50 where a capital loss can arise.
One more important point: Section 50 applies only where depreciation has actually been allowed on the asset. If for some reason depreciation was never claimed (say, an asset was purchased but never put to use), Section 50 does not apply, and normal capital gain rules kick in.
Example 1 — Partial Transfer (Block Survives)
Rajesh & Co. Pvt. Ltd. owns a block of Plant & Machinery. Details for FY 2025-26:
- WDV of block on 1 April 2025: ₹8,00,000
- New machinery purchased during the year: ₹2,00,000
- One old machine sold for: ₹12,00,000
- Transfer expenses (brokerage, etc.): ₹20,000
Working:
| Item | Amount |
|---|---|
| Sale consideration | ₹12,00,000 |
| Less: Transfer expenses | (₹20,000) |
| Less: WDV at beginning | (₹8,00,000) |
| Less: Cost of assets added | (₹2,00,000) |
| Short-Term Capital Gain | ₹1,80,000 |
The block still has surviving assets, so this ₹1,80,000 is taxed as STCG. The WDV of the remaining block becomes nil (since total deductions exceeded WDV, but sale proceeds were higher).
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Example 2 — Block Ceases to Exist
Ms. Iyer sells ALL assets in her furniture block during FY 2025-26:
- WDV of block on 1 April 2025: ₹5,00,000
- New asset added during year: ₹1,00,000
- Total sale proceeds from all assets: ₹4,50,000
- Transfer expenses: ₹10,000
Working:
| Item | Amount |
|---|---|
| Sale consideration | ₹4,50,000 |
| Less: Transfer expenses | (₹10,000) |
| Net consideration | ₹4,40,000 |
| Less: Cost (WDV + additions) | (₹6,00,000) |
| Short-Term Capital Loss | (₹1,60,000) |
Final answer: STCL of ₹1,60,000 — this can be set off against any other capital gain (short or long term) in the same year.
📖 Bare Act text — Section 50, Income Tax Act 1961
(click to expand)
Notwithstanding anything contained in clause (42A) of section 2, where the capital asset is an asset forming part of a block of assets in respect of which depreciation has been allowed under this Act or under the Indian Income-tax Act, 1922 (11 of 1922), the provisions of sections 48 and 49 shall be subject to the following modifications:—(1) where the full value of the consideration received or accruing as a result of the transfer of the asset together with the full value of such consideration received or accruing as a result of the transfer of any other capital asset falling within the block of the assets during the previous year, exceeds the aggregate of the following amounts, namely:—(i) expenditure incurred wholly and exclusively in connection with such transfer or transfers;(ii) the written down value of the block of assets at the beginning of the previous year; and(iii) the actual cost of any asset falling within the block of assets acquired during the previous year,such excess shall be deemed to be the capital gains arising from the transfer of short-term capital assets;(2) where any block of assets ceases to exist as such, for the reason that all the assets in that block are transferred during the previous year, 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 previous year, as increased by the actual cost of any asset falling within that block of assets, acquired by the assessee during the previous year and the income received or accruing as a result of such transfer or transfers shall be deemed to be the capital gains arising from the transfer of short-term capital assets.