Depreciable asset
A business asset on which depreciation has been claimed under the Income Tax Act — any gain on selling one is always short-term capital gain, however many years it was actually held.
In plain language
Most capital assets are sorted into short-term or long-term based on how long they were held. A depreciable asset breaks that rule entirely.
A depreciable asset is a business asset — plant, machinery, and similar assets on which the owner has been claiming depreciation as a deduction under the Income Tax Act. Whatever the actual holding period, gain on transferring it is always treated as short-term capital gain.
How it works
The workbook states this as a flat exception, grouped with two other "always short-term" categories:
- A depreciable asset is always a short-term capital asset, irrespective of the period of holding.
- Market Linked Debentures (MLDs) and units of Specified Mutual Funds, acquired on or after 1 April 2023, are likewise always short-term.
- Unlisted debentures or bonds carry the same rule.
Because a depreciable asset never qualifies as long-term, it never gets the concessional long-term rates or indexation benefit available elsewhere in the capital gains chapter. Since it is not an STT-paid listed equity share, it also falls outside Section 111A's 20% short-term rate — the gain is simply added to the assessee's other income and taxed at the applicable slab rate, along with all "other" short-term capital gains the workbook does not specifically carve out a concessional rate for.
A worked example
Illustrative figures.
Sagar Textiles Ltd bought a weaving machine for Rs 40,00,000 in 2010, claiming depreciation on it every year as a business asset. In 2024 — fourteen years later — it sells the machine for Rs 18,00,000, by which time its written-down value for tax purposes has fallen to Rs 10,00,000.
Despite the 14-year holding period, the gain of Rs 8,00,000 (sale price of Rs 18,00,000 less the Rs 10,00,000 written-down cost) is taxed as short-term capital gain, added to the company's other income and taxed at its applicable slab/corporate rate — not at any long-term concessional rate, and with no indexation benefit, purely because the asset is depreciable.
Why NISM asks about it
Chapter 8 (Capital Gains), section 8.3, "Exception 2: No criteria of period of holding," names depreciable assets alongside MLDs and Specified Mutual Funds as always-short-term categories, with slab-rate taxation confirmed in the "other short-term capital gains" discussion. Expect a question testing that a long-held business asset still produces short-term, not long-term, capital gain.
Common exam traps
- Holding period is irrelevant for a depreciable asset — even a 20-year holding does not make the gain long-term.
- No indexation and no long-term concessional rate apply — the gain is taxed at slab rate as ordinary short-term capital gain.
- This rule groups with MLDs, Specified Mutual Funds and unlisted debentures/bonds as the workbook's "always short-term" exceptions — useful to recall together.
- Do not confuse "depreciable" with "depreciated" — the rule applies because depreciation is claimable/claimed on the asset under the Act, not merely because the asset has lost value.
Where this is taught
Free preparation for NISM Series X-BRelated terms
- Cost of acquisitionWhat an assessee is treated as having paid for a capital asset — usually the price actually paid, but overridden by special rules for bonus shares, ESOPs, gifts and inherited assets.
- Coupon bondAn ordinary bond that pays periodic interest — the coupon — over its tenure and returns the face value at maturity, taxed differently depending on whether it is listed and how long it is held.
- Stock-in-tradeSecurities or goods held for the purpose of business — excluded from the definition of capital asset, so profit on their sale is business income, not capital gains.