Capital Gain Tax on sale of Car or other personal things? - Professionals - Taxation - TIK Share
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Capital Gain Tax on sale of Car or other personal things?


Rahul Rai

2014-02-01

Capital Gain is attracted on transfer of Capital Assets. Some time people ask, is capital gain tax applicable to sale of Cars, Vehicles etc.?

If we read the section 45 of Income Tax Act, the tax is chargeable on the transfer of Capital Assets.

Section 2(14), explains the meaning of Capital Assets. Capital Assets includes property of any kind, whether fixed or circulating, mmovable or immovable....................

However the following are excluded from meaning of Capital Assets:

  1. Stock in trade, consumable stores or raw material held for business or profession
  2. Personal Effects of the assessee (Cars, furniture, wearinf apparel held for his personal use or for personal use of any of his family member dependent upon him), however Jewellery, archaeological collections, drawings, paintings, sculptures or any work of art are treated as capital assets.
  3. Agricultural land in rural India.........

 

By reading the section we can conclude that things used for personal use are not taxable if sold. Cars or vehicle used for personal use are not taxable under the head Income from Capital Gains.

Prakash mehta

2014-02-01

I got a doubt. If the profit earned by selling car or vehicles is not taxed under the Income from Capital Gains, will it taxed under the head Income from Other Sources?

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Vedanta Deshika

2014-02-01

Dear Prakash Mehta,

There is no scope for taxing personal effects in Indian Income tax law. Hence, profit on sale of car  (eventhough undoubtedly there cant be any gain since definitely car would be sold as second hand which will be below cost) , if any will not be subject to Tax under an Head whatsoever.

However, the situation would be different if the motor car was also used for business and assessee is claiming depreciation on that.

 

Revert for further clarification

 

 

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Prakash mehta

2014-02-01

Section 56(1) says, any income which is not chargeable under any other head shall be charged in this head.

And also section 56(2) says that any casual income should be included here.

Is the income from sale of car is not casual income?

Which section specifically says that personal effects should not be taxed?

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Vedanta Deshika

2014-02-01

Mr prakash Mehta. You tell me under which section you can tax this income under IOS, i will tell you under which section you cannot charge it to tax

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Prakash mehta

2014-02-01

The income is chargeable under section 56(2).

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Vedanta Deshika

2014-02-01

ok. what amount will you offer for tax ?? Will you offer whole proceedings form sale of car ?? or will you offer only profit from sale of car? Does this section allow u to take cost deduction of car to arrive at profit ??

Practically, these things cannot happen. You will have to offer whole amount of proceeds to IOS, which no one will accept.

Kindly think all these before applying Sec 56(2) for the sale of personal effects.

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Prakash mehta

2014-02-01

Section 57 of Income Tax Act allows deductions. One can claim deduction of expenses incurred to earn income from other sources.

Suppose i buy a car for 1 lakh and sale it in 1.5 lakh, than the income will be chargeable under section 56(2) after deducting cost under section 57.???

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Vedanta Deshika

2014-02-01

Pls go through Sec 57 , under clause 4 it clearly says, any othr exp ( not being capital exp) wholly and exclusively for the purpose of earning such income. 

Sec 58 talks about amounts not deductible. The Sec 58(1) (a) (i) clearly says no personal expense of the assessee are deductible .

Hence on a combined reading of both the sections, we can say there is no deduction to claim, we can only offer the whole proceeds to tax, if you wish to. 

 

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Kalpit Sultania

2016-05-28

Nice Debate..

 

was just looking for an ans and the above debate definately helped. 

 

Howvere, in case of car bought and sold, assuming that a car bought and sold is never used personally, it's not a personal effect as covered under defination of capital asset, hence it will be charged to Tax.  Only personal assets are exempt from income tax i.e assets personally used... as alreadt stated by Vedanta above.

Moreover, Vedanta is absolutely correct in my opinion as far as whatever she has quoted in the aforesaid debate.

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