Profit on sale of fixed assets

[Kanishk Manglik]

Respected faculty,

I have been very confused regarding taxability on sale of fixed assets. Now since we are preparing depreciation as per companies act , what happens if there is profit on sale of fixed assets. . Do we add the cap gain in net profit and then disallow it in computation of income and add the the profit that come out through income tax act. Just like we do with depreciation. or is there some other way ?

[Atul Mehrotra]

The WDV as per Companies Act and Income Tax Act will most likely be different. While computing business income, profit on sale of fixed asset will be deducted because it will be separately calculated as per capital gain provisions. However, in the P&L Statement, profit on sale will be disclosed under 'Other Income', below 'Revenue from Operations' i.e. it will be a part of Net Profit.

AI Summary

Capital gain treatment: profit on sale of fixed assets appears in accounting net profit but is taxed under capital gain rules. Profit on sale of a fixed asset is shown in the P&L under Other Income and included in net profit for accounting. For tax computation the Companies Act and Income Tax Act bases may differ, and the sale profit is treated under capital gain provisions and addressed separately when computing taxable business income.