CBDT Latest Updates for Taxation Rules on Goodwill

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There’s an important notification for taxpayers as the CBDT has set the latest updates about new taxation rules relating to Goodwill. The Central Board of Direct Taxes (CBDT) has issued new guidelines for calculating short-term capital gains (STCG) and write down value (WDV) in cases where goodwill depreciation has been received, possibly raising tax obligations for companies that have recently merged or acquired. In this article, we will read about CBDT Latest Updates for Taxation rules on Goodwill.

What is Goodwill?

Goodwill is a type of intangible asset. Intangible assets means a non-physical asset which are valuable because they give a competitive edge, communication platform, and the ability to make decisions.

These assets also help in building relationships with customers, securing brand value, etc. Thus, Intangible assets can be of multiple types. For instance, goodwill, brand awareness. Furthermore, intellectual property like patents, trademarks, and copyrights are also valuable and intangible assets.

Goodwill shall be computed as the amount of premium that is paid by the buyer over the written down value of an asset.

CBDT Latest Updates for Taxation rules on Goodwill

Businesses that have made recent acquisitions on premium should be aware of the new tax regulations announced by CBDT on accounting for goodwill and the tax obligation deriving from such transactions

The government has amended the Income Tax Act. This modification prevents goodwill from being considered as an intangible asset and denies depreciation benefits on it.

As a consequence, Businesses now have to erase goodwill from their block of assets as on 1 April, 2020 and can not claim depreciation on it. In simple words, from now onwards Goodwill won’t be treated as  intangible assets and taxpayers have to remove the value of goodwill from their books.

Computation of Taxes when removing Goodwill from Assets Lists

The notification indicates that when the amount of net goodwill taken from the block exceeds the opening written down value as of 1 April 2020, the excess will now be taxed as short term capital gain(STCG).

Consequently, taxpayers will have to file income tax returns and pay short term capital gains.

However, There is no tax impact in cases when goodwill is the only asset in the block.

Higher TDS deduction if Income Tax Return not filed for 2 Years

Moreover, If you want any other guidance concerning ITR Filing, please feel free to talk to our business advisors at 8881-069-069.

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