Analyasis of new Income Tax Rule 8AC
Rule 8AC. Computation of short term capital gains and written down value under section 50 where depreciation on goodwill has been obtained.
New rule 8AC of Income tax Amendment (19th Amendment), Rules, 2021
(a) The written down value (WDV) of the block of the asset and
(b) Short term capital gains, if any, for the previous year relevant to the assessment year commencing on the 1st day of April, 2021
shall be determined in accordance with rule 8AC for the purposes of proviso to section 50 in respect of goodwill has been obtained.
According to rule 8AC, 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 depreciation was obtained by the assessee in the assessment year beginning on the 1st day of April, 2020, the written down value of this block of asset for the previous year relevant to the assessment year commencing on the 1st day of April, 2021 shall be determined in accordance with the provisions of item (ii) of sub-clause (c) of clause (6) of section 43.
How to calculate short term capital gain According to rule 8AC
According to rule 8AC, where the reduction under sub-item (B) of item (ii) of sub-clause (c) of clause (6) of section 43, for the previous year relevant to the assessment year commencing on the 1st day of April, 2021, exceeds the aggregate of the following amounts, namely:-
(i) the written down value of the block of assets at the beginning of the previous year relevant to the assessment year commencing on the 1 st day of April, 2021 without giving effect to reduction under sub-item (B) of item (ii) of sub-clause (c) of clause (6) of section 43; and
(ii) the actual cost of any asset falling within the block of assets “intangible”, other than goodwill, acquired during the previous year relevant to the assessment year commencing on the 1st day of April, 2021,
such excess shall be deemed to be the capital gains arising from the transfer of short-term capital assets according to rule 8AC.
Important Point in respect of rule 8AC
However as per rule 8AC, Without prejudice to the provisions of sub-rule (3) and section 55, where the goodwill of the business or profession was the only asset in the block of asset “intangible” for which depreciation was obtained by the assessee in the assessment year beginning on the 1st day of April, 2020, and the block of asset ceases to exist on account of there being no further asset acquired during the previous year relevant to the assessment year commencing on the 1st day of April, 2021 in that block, there will not be any capital gains or loss on account of the block of asset having ceased to exist. (Rule 8AC)
According to rule 8AC, the capital gains or loss on transfer of goodwill, during the previous years relevant to the assessment year 2021-22 or subsequent assessment years, shall be determined in accordance with the provisions of section 48, section 49 and clause (a) of sub-section (2) of section 55. (Rule 8AC)
For more detail, Please read :-[Notification No. 77/2021/ F. No. 370142/23/2021-TPL] Date 7th July, 2021 CBDT