Saturday Brain Storming Thought (187) 02/09/2023


Capital Gains may be realised on some forms of intangible Property, when the asset is sold for a higher price than its purchase price.

Patents and musical compositions are examples of intangible properties that are taxed at the capital gain rate are intangible assets considered as capital asset

Paragraph 19 of statement 34 defines capital assets to include all tangible and intangible assets that are used in operations and that have initial useful lives extending beyond a single reporting period

Intangible Assets

Intangible Assets refer to assets which do not appear in physical form ie it cannot be seen or touched

Types of Intangible Assets

1) Self generated

2) Acquired (purchase from someone else)

Cost of Acquisition in case of Intangible Assets

1) Self generated intangible assets

COA = Nil

2) Acquired intangible assets

COA = purchase price

Capital Gains applicable for intangible assets

1) Goodwill of a business

2) trade mark or brand name associated with a business

3) right to manufacture, produce or process any article or thing

4) right to carry on any business

5) tenancy rights

6) stage carriage permits

7) loom hours

Other assets like Goodwill of Profession not covered, hence no capital gains on sale of goodwill of profession

examples of intangible capital assets

Intangible Assets are the resources a business owns that are not physical, but still provide real value

Songs, designs, trademarks, software licenses, motion pictures, customer lists and franchises

Definition of tax fixed intangible assets

Tax fixed intangible assets are acquired non-financial resources which

1) have no physical substance

2) are used for a period longer than 12 months

3) have a limited period of useful life

4) have a value that either equals or exceeds the lower value of the following ones

The value threshold of significance of the fixed intangible asset specified in the accounting policy of the taxable person

Classification of Intangible Assets

1) Assets related

Copyrights (photos, videos, audio materials)

2) Consumer related

Customer lists, contractual customer relationships etc

3) Contract related

Franchises, licensing agreements, broadcast rights, construction permits, exploration permits, import and export permits, service contracts etc

4) Goodwill

Defined only with a business as a whole

5) Market related

Trademarks, brand names, internet domain names, magazine mastheads etc

6) Technology related

Patents, trade secrets, computer programs, production formula etc

Tax implications of intangible assets

The annual tax amortization rate for the tax fixed intangible assets is upto a 15% (except in case of softwares)

TDS applicable on Intangible Assets l

Software purchased in intangible asset and it’s installation cost is incidental expense which should be added to the cost of software and because it is intangible asset not an expenditure so liability to deduct TDS not arises

Compiled by:

Er. Avinash Kulkarni

Chartered Engineer, Govt Regd Valuer, IBBI Regd Valuer

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