Block of Assets: Why Selling One Machine Changes Nothing

Sell a machine from your factory and your accountant records a profit or loss on disposal. Your tax computation records neither. That is not an oversight. For income tax you do not depreciate machines at all; you depreciate a block, and individual assets inside it lose their separate identity the moment they enter.

This one idea explains most of the confusion around fixed assets in an Indian tax computation.

What a block actually is

Rule 25(1) of the Income-tax Rules, 2026 computes the allowance under section 33(3) of the Income-tax Act, 2025 on the written down value of the block of assets specified in column (2) of Appendix I, at the percentage in column (3).

A block is therefore a pairing of two things: a class of asset, and a rate. Plant and machinery at 15% is one block. Computers including computer software at 40% is a different block. Furniture and fittings at 10% is a third. A building used mainly for residential purposes at 5% is a fourth, and non-residential buildings at 10% a fifth.

Two lathes bought four years apart, one costing ₹4,00,000 and one ₹11,00,000, are not two assets in the tax computation. They are one number.

The arithmetic, in the order the rule applies it

For any block in any tax year:

1. Start with the opening written down value.
2. Add the actual cost of assets acquired and put to use during the year.
3. Subtract the money received or receivable on any asset of that block sold, discarded, demolished or destroyed during the year.
4. Apply the Appendix I percentage to what remains.

Step 3 is where the surprise lives. Sale proceeds are subtracted from the block. They are not matched against the cost of the thing that was sold.

Worked example

A workshop’s plant and machinery block, 15%.

Notice what is absent. The lathe originally cost ₹4,00,000 and its share of accumulated depreciation, had anyone tracked it, might have been ₹2,60,000, giving a book value of ₹1,40,000 and a book profit of ₹40,000 on a ₹1,80,000 sale.

That ₹40,000 appears nowhere in the tax computation. The ₹1,80,000 simply reduced the block. The effect is real but indirect: a smaller block earns less depreciation this year and every year after, so the gain is recovered slowly rather than taxed at once.

Two cases where a gain does arise

The block absorbs disposals until it cannot. There are exactly two ways it fails.

The proceeds exceed the block. If that workshop had opening WDV of ₹1,20,000, no additions, and sold the lathe for ₹1,80,000, the subtraction cannot be completed. The block cannot go negative. The ₹60,000 excess is charged, and depreciation for the year is nil because nothing remains to depreciate.

The block empties. If every asset in a block is transferred during the year, the block ceases to exist. The proceeds are compared with the opening written down value plus that year’s additions, and the result is a short-term capital gain, or a short-term capital loss if the proceeds fall short. A block with no assets in it cannot carry a written down value forward.

Both outcomes are dealt with by section 74 of the Income-tax Act, 2025, which replaces section 50 of the 1961 Act. Section 74(2) treats proceeds above the opening written down value plus the year’s additions and transfer expenses as short-term capital gains. Section 74(3) covers a block that ceases to exist because all its assets are transferred. Either way the result is short-term, however long the assets were held.

Why this changes how you plan

Timing an asset sale does less than people expect. Selling in March rather than April moves ₹1,80,000 out of the block a year earlier, which costs you 15% of it in depreciation, or ₹27,000, at a 30% marginal rate about ₹8,100 of tax. Useful to know, not usually a reason to change a commercial decision.

Timing a purchase does more. An asset put to use for fewer than 180 days in the year of acquisition attracts half the normal rate for that year. Buy the ₹5,00,000 press in February rather than June and the first-year allowance falls from ₹75,000 to ₹37,500. The remainder is not lost, but it is deferred.

Classification is worth more than either. A laptop in the computers block earns 40%; the same laptop swept into general plant and machinery earns 15%. On ₹1,00,000 that is ₹40,000 of first-year allowance against ₹15,000. Getting the block right is the highest-value thing on this page.

Run your own figures through the depreciation calculator.

Where the block idea does not apply

Your financial statements know nothing about blocks. Schedule II of the Companies Act, 2013 works asset by asset, on useful lives, and it produces exactly the profit or loss on disposal that the tax computation ignores. The two systems are meant to differ, and the reconciliation between them is a normal part of preparing accounts rather than a sign that something has gone wrong.

Nor does the block affect your fixed asset register. You still track individual assets for control, insurance and audit. You simply do not use that detail to compute the tax allowance.

Where this fits

• The two systems side by side: income tax vs Companies Act depreciation
• Deriving book rates from useful lives: Schedule II depreciation
• Method selection, and where you have none: WDV or SLM
• Your own figures: depreciation calculator
• First principles: the depreciation lesson
• Terms used here: accounting glossary

Sources

• Income-tax Rules, 2026, rule 25(1) and Appendix I, as notified in the Gazette of India, Extraordinary, Part II section 3(i), 20 March 2026.
• Income-tax Act, 2025, section 33(3). In force 1 April 2026.