If we own 5 Construction Vehicles having life of 8 years as per IT rules. lets say all purchased in 2017 and we decide to sell 1 among them in 2020 itself. Assuming in 2020 WDV of that 1 Vehicle is 10L but its sold for 3 Lakhs. What will be the effects of the sale of that 1 vehicle on depreciation,P&L as per IT rules.? And what about the 7 lakhs loss on that vehicle do we transfer it to P&L in that year or we take depreciation on that 7 lakh every year till life span is over?
Nothing just the WDV would reduce by 3 lakh and you can claim depreciation on remaining 7 lakh as the block is still there.
In books of accounts you need to transfer but in case of income tax there wont be any loss until all the asset in the block are sold or the becomes nil.
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Hi
Under the Income tax, the concept of block of assets is followed. So all your vehicles shall be grouped in 1 block.
If one vehicle is sold, the block of asset shall still be there and depreciation shall be allowed on the remaining WDV of the block.
Assuming WDV of the block will be 50 lac in 2020, 3 lac being selling price, depreciation shall be allowed on 47 lacs.
Hello,
Under income tax, block system is followed. If you sell some of the asset from the block, block still continuous. Sale price/disposed consideration would be reduced from the block.
In your case, sale price Rs. 3 lakhs would be reduced from the block of vehicles.
I hope this answer satisfies your requirement.
Regards,
CA Hunny Badlani
- Under income tax, depreciation is calculated on block of assets. In your case, sale value of one P&M will be reduced from the opening WDV and additions made during the year. Rs.3 lacs will be deducted from the opening WDV and additions.
- In respect to loss, what is the nature of constitution of the business i.e. sole proprietor, company etc.
Its a partnership firm. And what if the vehicle had accident or is very damaged and needs to be scraped still we cannot book the loss one time? we still need to go by depreciation?
- Under IT Act, depreciation is allowed on put to use basis. Until the vehicle is sold, don't claim any depreciation.
Dear Sir,
Hope you are doing well !!
Treatment as per companies Act As it is loss it should be taken to P&L as usual.
Entry P&L A/c Dr. 700000
To Loss on sale of Car A/c 700000
Treatment as per Income tax act
If there is no other asset in the Block of asset of which the vehicle is a part , it can be claimed as a business expenditure. If there is any other asset in the block then only depreciation can be claimed and sale price would be reduced from block of assets.
No, you can not claim depreciation .
The deprecation is calculated from the date of Put to use.
Under Income Tax, such loss on sale/scrap of the asset would be recognized only at the time of such block of assets became Nil or WDV goes to zero or negative only.
The loss on sale of asset will be termed as short term capital loss if the block ceases to exist.
Income tax works on block concept till the time there is any asset in the block you can claim depreciation on entire block even if one vehicle is damaged or scrapped.