sale of car tax treatment

Page no : 2

Vrnanda (auditor) (110 Points)
Replied 26 April 2009

Hi Dipak,

Here in your case, As Mr. Raju suggested, Car used for personal use will not be treated as capital asset. Hence the sale proceeds of your call are not subject to capital gains. This is based on the assuption that though you have stated that, you have shown the car in the books, it is only to explain your situation.

Next if you really shown you car in you books, i dont know the reason why you have not claimed the depreciation as you are a business man preparing books of accounts and showing car on the assets side at Cost.

It is very interesting argument that the vijay has made, very impressive questions. But i am not happy with the explanation given by Mr. Raju Chandak.

Mr. Raju Could you just tell me how it iwll avoid queries by Income tax department when Mr. Dipak has purchased from his personal account, it has the same effect whether he has disclosed or not in the books. and why there won't be any queries by Income Tax Department for not claiming depreciation. As Mr. Vijay has pointed out, claiming depreciation is a must for tax accounts. Does it mean Mr. Deepak is showing more income.

Dear Deepak There will be alternative opinions and suggestions unless you place the question without amibiguity stating the following

1. What do u mean books, is it your personal records or books of accounts of your business.

2. year of purchase of car.

3. intended and actual purpose of car (personal/business).

4. date (year) of capitalisation in the books and at what amount.

5. year of sale and sale proceeds.

Thank you.

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Balaji (Knowledge Seeker) (317 Points)
Replied 26 April 2009

Dear Nanda,

I trust you would have read my points/queries in this discussion.Based on the following data,could you provide a clarification?

1.Car purchased in July 2000 for Rs.4,75,000/-.Sold in January 2009 for Rs.1,25,000/-.

2.I do not have any business income.The car is only for personal use.

3.I need to maintain my personal Balance-sheet and Capital A/c since the same is asked for by the ITO during scrutiny assessment.

My Query: Do I need to capitalise the purchase of the car?If so,do I carry it at cost till sale(since I have no business income and depreciation cannot be provided).Then,how do I treat the loss on sale of the car?Also,would I not be showing inflated value for my car in my capital A/c since I know that the re-sale value would be much less?Since I have no business income(and hence the car would be treated as a personal effect and not a capital asset)can the cost of the car be directly charged to Drawings?

Would highly appreciate your early response.Thanks.

DIPAK AGARWAL (Service) (554 Points)
Replied 27 April 2009

Originally posted by :Balaji
"	Thanks Raju.This means a person without business income will carry the cost of the car at cost in his capital A/c until such time that he sells the car.For example,if a car is purchased in July 2000 for Rs.4,75,000/- and sold in January 2009 for Rs.1,25,000/-,the person would show the cost of the car(Rs.4.75 lakhs) in his Balance-sheet under Fixed Assets from F.Y.2000-01 till F.Y.2007-08.What does he do to the loss of Rs.3,50,000/- on sale of car in F.Y.2008-09?Does he debit his Capital A/c as loss on sale of car?[A related query would be that since no depreciation is being provided on the car,the capital A/c of the individual would be inflated thro' the years since he knows that his car's worth is much less than what he is carrying in his books].Kindly provide your insights.Regards.	"

Thank you all for solving my query though so many discussions. Actually i had shown the car in BS for personal use only. Now i can only reduce the car A/c by net amt & reduce the Capital A/c too by Rs. 5 Lacs & there will be not LTCG/STCG..

LTCG/STCG & Depreciation only come when it was used for business purposes.

am i concluding correctly?

damodar sharma (fcatory manager) (80 Points)
Replied 07 March 2010

the car is purchased for personal use so there is no question depreciation allownance in this case.

the car is an assets of mr.agarwal.

if he sells it may be a capital loss or gain.

in thiscase there is capital loss and this would be adjusted with capital account only.

damodar sharma

damodar sharma (fcatory manager) (80 Points)
Replied 07 March 2010

the car is purchased for personal use so there is no question depreciation allownance in this case.

the car is an assets of mr.agarwal.

if he sells it may be a capital loss or gain.

in thiscase there is capital loss and this would be adjusted with capital account only.

damodar sharma

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Balaji (Knowledge Seeker) (317 Points)
Replied 07 March 2010

Dear Mr.Sharma,

Just one clarification-If the car is taken under Fixed Assets(in case of an individual who has NO business interests),then would not the person's Capital A/c show an inflated figure thro' all the years till he actually sells the Car?(Because the car is a depreciating asset but the person will not be able to provide depreciation since it is a personal effect).

Balaji (Knowledge Seeker) (317 Points)
Replied 07 March 2010

Dear Mr.Sharma,

Anshul (Article) (21 Points)
Replied 29 July 2013

Hello Guys, My doubt on sales of Car is, If the car was purchased in assessment year 2010-11 by director on its own name and now car is sold in assessment year 13-14, then what is the tax treatement on this transaction..??

Whether is this allowed for dep or not under business & profession head..??

Is this taxable under long term capital gain in the hands of Director..??

It is exemption to Capital Gain as personal effect..??