Sections 74 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Sections 74 to 76 are special rules for computing capital gains. Section 74 treats the sale of assets in a depreciated block as a short-term capital gain when the sale price exceeds the block's value, section 75 sets the cost of acquisition of an asset on which depreciation has been obtained, and section 76 treats gains on market linked debentures, specified mutual fund units and unlisted bonds and debentures as short-term. This article reads them as per the Income-tax Act, 2025 as amended by the Finance Act, 2026; later amendments, rules and notifications should be checked. To work out a gain, see our capital gains calculation service.
Where assets in a block of assets are sold for more than the block's written down value plus new additions plus transfer expenses, the excess is short-term capital gains (section 74). Where depreciation has been obtained under section 33(2), the written down value is the cost of acquisition (section 75). Gains on a Market Linked Debenture, a Specified Mutual Fund unit acquired on or after 1 April 2023, and an unlisted bond or debenture transferred, redeemed or maturing on or after 23 July 2024 are short-term, computed as X = A – B – C (section 76).
Section 74: block of assets on which depreciation has been allowed
Section 74(1). Irrespective of section 2(101), for a capital asset forming part of a block of assets on which depreciation has been allowed under the Indian Income-tax Act, 1922, the Income-tax Act, 1961 or this Act (as printed), sections 72 and 73 are subject to sub-sections (2) and (3). References to the earlier Acts are quoted as printed; check those Acts. The ordinary computation and previous-owner rules are in section 72 and section 73.
Section 74(2). If during the tax year the full value of consideration received or accruing for the transfer of one or more assets in a block exceeds the total of:
- (a) expenditure incurred wholly and exclusively in connection with the transfer;
- (b) the written down value of the block of assets at the start of the tax year; and
- (c) the actual cost of any asset in the block acquired during the tax year,
the excess is deemed to be capital gains from the transfer of short-term capital assets.
Example (invented). Pinecrest Works holds a block of plant and machinery with a written down value of Rs. 10,00,000 at the start of the tax year. During the year it buys an asset in the same block for Rs. 2,00,000 and sells one asset for Rs. 15,00,000, incurring Rs. 50,000 on the sale. The total of (a), (b) and (c) = 50,000 + 10,00,000 + 2,00,000 = Rs. 12,50,000. Excess = 15,00,000 – 12,50,000 = Rs. 2,50,000, deemed short-term capital gains.
Section 74(3). If a block of assets ceases to exist because all the assets in it are transferred during the tax year:
- (a) the cost of acquisition of the block is the written down value at the beginning of the tax year, increased by the actual cost of any asset in the block acquired during the year; and
- (b) the income received or accruing from the transfer(s) is deemed to be capital gains from the transfer of short-term capital assets.
Example (invented). A block has a written down value of Rs. 4,00,000 at the start of the year. A new asset costing Rs. 1,00,000 is bought during the year, and then all the assets in the block are sold for Rs. 6,50,000. Cost of acquisition = 4,00,000 + 1,00,000 = Rs. 5,00,000. The income from the transfer, Rs. 6,50,000, is treated as short-term capital gains, with the section 72 computation applying to it as the Act provides.
Section 75: cost of acquisition where depreciation has been obtained
If depreciation has been obtained under section 33(2) for a capital asset in any tax year, sections 72 and 73 apply with the modification that the written down value, as defined in section 41, of the asset, as adjusted, is taken as the cost of acquisition. See the live notes on depreciation (section 33) and written down value (section 41). The Act does not say in section 75 how the "adjustment" is made; it is not explained further here.
Section 76: market linked debentures and certain funds
Sub-sections (1) and (2): which assets
Irrespective of section 2(101) or section 72, gains on the transfer, redemption or maturity of the following are treated as short-term capital gains:
| Clause | Capital asset |
|---|---|
| (a) | A unit of a Specified Mutual Fund acquired on or after the 1st April, 2023, or a Market Linked Debenture |
| (b) | An unlisted bond or an unlisted debenture which is transferred, redeemed or matures on or after the 23rd July, 2024 |
Sub-section (3) and (4): the formula
Short-term capital gains = X = A – B – C, where:
| Symbol | Meaning |
|---|---|
| X | Short-term capital gains |
| A | Full value of consideration received or accruing on the transfer, redemption or maturity of the debenture, unit or bond |
| B | Cost of acquisition of the debenture, unit or bond |
| C | Expenditure incurred wholly and exclusively in connection with such transfer, redemption or maturity |
Under sub-section (4), no deduction is allowed in this computation for any sum paid as securities transaction tax under Chapter VII of the Finance (No. 2) Act, 2004. That Act is another law; check it.
Example (invented). Aanya redeems a Market Linked Debenture for Rs. 1,25,000. Its cost of acquisition was Rs. 1,00,000 and expenditure on redemption was Rs. 2,000. X = 1,25,000 – 1,00,000 – 2,000 = Rs. 23,000, short-term capital gains.
Sub-section (5): definitions
- Market Linked Debenture: a security, by whatever name called, which has an underlying principal component in the form of a debt security and where returns are linked to market returns on other underlying securities or indices; it includes any security classified or regulated as a market linked debenture by the Securities and Exchange Board of India.
- Specified Mutual Fund: a Mutual Fund, by whatever name called, which invests more than 65% of its total proceeds in debt and money market instruments, or a fund which invests 65% or more of its total proceeds in units of such a Mutual Fund, subject to two conditions: the percentage is computed with reference to the annual average of the daily closing figures; and "debt and money market instruments" includes any securities, by whatever name called, classified or regulated as such by the Securities and Exchange Board of India.
Which securities the Board has so classified is not in the text consulted.
Reading the two thresholds
The 65% test in the first limb is "more than 65%" while the second limb ("a fund which invests ... in units of such Mutual Fund") is "65% or more". The difference is printed in the Act and is flagged here so the reader checks which limb applies to the fund concerned.
Need help with these capital gains rules?
Block-of-assets sales and debenture or fund redemptions look routine until the written down value and the dates are checked. Our capital gains calculation team can help you apply sections 74 to 76 to your numbers and records.
Key takeaways
- Section 74 turns an excess over the block's value (plus transfer cost and additions) into short-term capital gains.
- Section 75 makes the written down value the cost of acquisition where depreciation has been obtained under section 33(2).
- Section 76 covers Market Linked Debentures, Specified Mutual Fund units acquired on or after 1 April 2023, and unlisted bonds or debentures transferred, redeemed or maturing on or after 23 July 2024.
- Securities transaction tax is not deductible in the section 76 formula.
- The percentage tests for a Specified Mutual Fund use the annual average of daily closing figures.
Read next
- Section 77: capital gains on slump sale
- Sections 68, 69 and 71: liquidation, buy-back and withdrawal of exemption
- Section 73: cost of inherited and gifted assets
- Capital gains sections mapping
Disclaimer: Based on the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026, as consulted on 2 October 2026. It explains the words of the Act only; the Income-tax Rules, 2026, notifications, circulars, later amendments and the way the tax authorities and courts apply these provisions should be checked. This article is general information, not legal advice; check the official text before acting.