Section 41 Written down value of depreciable asset.

Income-tax Act, 2025

At a Glance

Document: Clause 41 of the Income Tax Bill, 2025 (Old Version), titled "Written down value of depreciable asset." It sets out how written down value (WDV) is to be computed for assets acquired in and before the tax year and for blocks of assets, and addresses special transfers (holding/subsidiary, amalgamation, demerger, conversion to LLP, corporatisation) and consequences of revaluation and agricultural income. It matters to taxpayers, transferor/transferee companies, LLPs, demerged/resulting companies, and tax administrators. Effective date or decision date: Not stated in the document.

Background & Scope

Statutory hook: Clause 41 (Bill) concerns computation of WDV for purposes of computing income under the head "Profits and gains of business or profession". The clause supplies a Table of circumstances and the corresponding WDV treatment. Definitions and explanations included in the clause: "Actual cost", "written down value", the block computation formula [(A-D)+B-C]-E with constituent parameters A, B, C, D, E defined in the note; special provisions for intra-group transfers, amalgamation, demerger, conversion to LLP, corporatisation, carried-forward depreciation (section 33(11)), revaluation adjustments where assessee was not required to compute total income for earlier years, treatment where income is partly agricultural, and reference to meaning of "sold" as in section 38(6)(a).

Statutory Provision Mode

Text & Scope

Coverage: Clause 41 prescribes the method of computing WDV for three primary circumstances: (1) asset acquired in the tax year - WDV equals actual cost to the assessee; (2) asset acquired before the tax year - WDV equals actual cost less depreciation actually allowed; (3) block of assets - WDV computed by the formula [(A-D)+B-C]-E, with defined parameters.

The clause extends the WDV concept to specified transfers: holding/subsidiary transfers (section 70(1)(c)/(d)), amalgamation to an Indian company, demerger (demerged to resulting company), conversion of private/unlisted public company to LLP (section 70(1)(ze)), corporatisation of recognised stock exchange (SEBI-approved), and succession in business u/s 313. It also deems depreciation carried forward u/s 33(11) to be "depreciation actually allowed". It addresses adjustments when assessee was not required to compute total income in earlier years (revaluation and book depreciation are accounted for), and a rule where income is partly agricultural: compute depreciation as if entire income arose from business and deem that depreciation to be 'actually allowed'.

Interpretation

Legislative intent and interpretive principles indicated: The clause aims to provide clear, rule-based computation methods for WDV to ensure uniformity across ordinary acquisitions, block computations and corporate restructurings. By providing explicit formulas and mapping treatments for transfers (holding/subsidiary, amalgamation, demerger, LLP conversion, corporatisation), the provision intends to preserve continuity of WDV in specified corporate events and to prevent artificial creation or erosion of depreciation pools. The deeming of carried-forward depreciation as "actually allowed" indicates a policy to give effect to prior accounting of depreciation even if tax was not computed earlier. The agricultural/business rule indicates intent to treat assets used partly for agriculture consistently for WDV computation by treating the asset as if wholly used in business for this purpose.

Exceptions/Provisos

Carve-outs and conditions spelled out in the clause: the block formula's parameters impose caps - C shall not exceed (A-D)+B; E shall not exceed [(A-D)+B-C]. Transfers to transferee companies or LLPs are conditional on satisfaction of the relevant subsections of section 70 (e.g., section 70(1)(c)/(d)/(ze)). The clause does not provide further procedural conditions or forms; it assumes satisfaction of statutory conditions in those sections. Any additional provisos or interpretive exceptions: Not stated in the document.

Illustrations

• Example 1 (asset acquired in tax year): Company purchases a machine for actual cost 1,00,000 in the tax year. WDV for that tax year = 1,00,000 (actual cost to the assessee).

• Example 2 (asset acquired before tax year): Assessee acquired equipment earlier for 2,00,000 and depreciation actually allowed to date totals 50,000. WDV = 2,00,000 - 50,000 = 1,50,000.

• Example 3 (block of assets): Beginning WDV (A) = 5,00,000; depreciation actually allowed in preceding year (D) = 50,000; assets added during year (B) = 1,00,000; assets sold with scrap (C) = 20,000 (not exceeding (A-D)+B); slump-sale reduction (E) computed as per note and capped at [(A-D)+B-C]. Resulting WDV = [(5,00,000 - 50,000) + 1,00,000 - 20,000] - E = [5,30,000] - E (compute E as provided).

Interplay

Interaction with other provisions: Clause 41 explicitly references section 70 (transfer conditions for holding/subsidiary, LLC conversion), section 33(11) (carried-forward depreciation), section 38(6)(a) (definition of "sold"), and section 313 (succession in business). No other Rules/Notifications/Circulars are mentioned in the clause. How the clause should be applied in conjunction with section 39 (cost of acquisition) is not directly discussed in this Bill text other than the statement that WDV in transferee is the same as in transferor at the beginning of the tax year; any express "irrespective of section 39" qualification is Not stated in the document.

Differences between Section 41 of the Income-tax Act, 2025 and Clause 41 of the Income Tax Bill, 2025 (Old Version)

• Structural and numbering differences:

Act: The Act text places the computation of written down value (WDV) rules in a single numbered subsection with multiple subparts; the Bill presents the same material in a tabular format (column C) and numbered paragraphs.

Practical impact: Largely stylistic; potential differences only in interpretive emphasis (table vs prose) but no substantive change evident in most parallel provisions.

• Definition and treatment of "E" in the block formula (slump sale):

  Bill (Old Version): E is "the actual cost of the asset falling within that block as reduced by depreciation allowable from the tax year 1988-1989 onwards, as if the asset was the only asset in the relevant block of assets, which shall not exceed [(A-D)+B-C]."

  Act: E is the actual cost reduced by (i) depreciation actually allowed in respect of tax year commencing on 1st April, 1986 or any earlier tax year; and (ii) depreciation allowable for tax year commencing on or after 1st April, 1987 under this Act or under the Income-tax Act, 1961, as if such asset was the only asset in the relevant block.

  Practical impact: The Act's formulation separates depreciation already actually allowed before 1 April 1986 and depreciation allowable from 1 April 1987 onwards, whereas the Bill references depreciation allowable from 1988-89 onwards. This difference affects which historical years' depreciation are accounted for in reducing the slump-sale asset cost (E). Tax computation for slump sales could change depending on which vintage of depreciation is brought into account; taxpayers and practitioners must reconcile which years are eligible under each text.

• Transfers between holding and subsidiary companies and treatment of actual cost / WDV:

  Bill: For transfers (holding to subsidiary and vice versa, where section 70(1)(c)/(d) satisfied) and amalgamation to Indian company, the WDV in the hands of transferee is the same as WDV in hands of transferor "at the beginning of the tax year in which such transfer took place."

  Act: Provides that the actual cost of the block in the hands of transferee shall be the same as the WDV of the block in the hands of transferor in the immediately preceding tax year as reduced by depreciation actually allowed in respect of that block in that tax year; and adds "irrespective of anything contained in section 39".

  Practical impact: The Act explicitly addresses "actual cost" treatment and reduction by depreciation actually allowed in the immediately preceding year and adds an "irrespective of section 39" clause; the Bill focuses on equality of WDV at the beginning of the tax year. The Act's language is more prescriptive about computation and interacts with section 39; the Bill's phrasing may be read as simpler but potentially ambiguous about timing (beginning of tax year vs immediately preceding tax year). This can lead to different WDV bases for transferee taxpayers and affect depreciation computations post-transfer.

• Placement of the provision deeming carried-forward depreciation to be "actually allowed":

  Bill: This appears as subsection (2) - "Any allowance in respect of any depreciation carried forward u/s 33(11) shall be deemed to be the depreciation actually allowed."

  Act: The same rule appears as subsection (8).

  Practical impact: Substance is the same; difference is only numbering and placement. No material impact.

• Consequential numbering and ordering of other ancillary provisions (revaluation adjustments, agriculture/business split, demerger rules, corporatisation, LLP conversion):

  Both texts contain these topics but with minor ordering and phrasing differences (e.g., Bill places the revaluation/depreciation adjustments as subsection (3); Act uses (9) and (10) for related matters).

  Practical impact: No substantive divergence apparent except where the Act includes explicit cross-reference language ("irrespective of anything contained in section 39") and the slump-sale depreciation-year specification noted above.

• Definition of "sold": Both texts refer to section 38(6)(a) for the meaning of "sold", but Bill places it as sub-section (5) and Act as sub-section (11).

  Practical impact: No substantive change.

Practical Implications

• Compliance and risk areas: Taxpayers must maintain clear records of actual cost, depreciation actually allowed, and book revaluation adjustments when earlier years did not require income computation. Corporate restructurings (holding/subsidiary transfers, amalgamations, demergers, conversions to LLP, corporatisation) require precise mapping of WDV at the specified point in time (beginning of tax year or immediately before demerger/transfer as the clause prescribes).
• Record-keeping/evidence: Retain originals and schedules showing actual cost, year-wise depreciation allowed, details of assets added and disposed within blocks (including scrap values and moneys payable), and computations of E for slump sales. Maintain records demonstrating satisfaction of conditions of section 70(1)(c)/(d)/(ze) where relevant. Keep evidence of revaluation adjustments and book depreciation where earlier tax computations were not required.

Key Takeaways

• Clause 41 prescribes WDV computation for assets acquired in the year, before the year, and for blocks via a clear formula [(A-D)+B-C]-E.
• Special transfer events (holding/subsidiary transfers, amalgamation, demerger, LLP conversion, corporatisation) carryforward or replicate WDV between transferor and transferee subject to conditions referenced in other sections.
• Carried-forward depreciation u/s 33(11) is deemed to be depreciation actually allowed for WDV purposes.
• Where earlier years did not require income computation, revaluation and book depreciation adjustments are specifically addressed.
• For assets used partly for agriculture, depreciation for WDV is to be computed as if the entire income were from business; that amount is deemed to be depreciation actually allowed.
• The clause cross-references section 38(6)(a), section 70, section 33(11), and section 313; interplay with section 39 and certain historical-year depreciation treatments are not specified in detail in this document.

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Full Text:

Section 41 Written down value of depreciable asset.

Written down value rules: formulaic WDV computation and continuity across specified corporate transfers ensure consistent depreciation treatment. Computation of written down value uses three treatments: actual cost for assets acquired in the year; actual cost less depreciation actually allowed for assets acquired earlier; and block computation by [(A - D) + B - C] - E with statutory caps. The provision maps WDV/actual-cost continuity across specified corporate transfers (holding/subsidiary, amalgamation, demerger, LLP conversion, corporatisation), deems carried-forward depreciation to be depreciation actually allowed, and requires revaluation/book-depreciation adjustments where earlier years lacked tax computation.