Section 41(2) - Balancing Charge - Income Tax - Ready Reckoner - Income Tax

Section 41(2) : Balancing Charge and Capital Gain u/s 50A Step I Find out the written down value of the depreciable asset on the first day of the previous year in which such asset is sold, discarded, demolished or destroyed. Step II Find out the sale consideration. It is the actual money and it does not include any other thing or benefit which can be converted in terms of money. If the amount calculated under Step II is more than the amount of Step I , then tax treatment of such surplus is as follows: So much of the surplus which is equal to the amount of depreciation already claimed, is taxable as balancing charge u/s 41(2) as business income. The remaining surplus (if any) is taxable under the head Capital Gains Where an asset is sold, discarded etc. in the previous year in which it is first put to use, any profit arising therefrom will not be chargeable to tax as balancing charge but will be treated as Capital Gains. NOTE: Balancing Charge is taxable u/s 41(2) in the previous year in which sale price, insurance, salvage or compensation money becoming due. If the assessee s business is acquired by the Government, the amount of compensation received is taxable in the year of receipt of such compensation. If any additional compensation is received, it will be taxable in the year of receipt. Where an asset is sold, discards etc. in the previous Year which it is first put to use, any profit arising there form will not chargeable to tax as balancing charge but will be treated as capital gain and chargeable to tax u/s 45 under the head Capital Gain . Balance charge is taxable u/s 41(2) in the previous year in which sale price, Insurance, salvage or compensation money becoming due. if the assessee s business is acquired by the government, the amount compensation received is taxable in the year of receipt of such compensation. If any additional compensation is received, it will be taxable in the year of receipt. [ CIT v. United Provinces Electric Supply Company 2018 (5) TMI 358 - SC ]