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A car purchased on 10.8.2022 for Rs 5,25,000 for personal use was brought into professional use on 1.7.2025, when its market value was Rs 2,50,000. Depreciation (15% rate) for A.Y. 2026-27 is computed on:
ARs 5,25,000, the original purchase price of the car
BRs 2,50,000, the market value on date of conversion
CRs 3,15,000, cost reduced by three years of wear
DRs 1,25,000, being half of the market value figure
Answer & Solution
Correct answer: A. Rs 5,25,000, the original purchase price of the car
1. Actual cost under section 43(1) is the cost of the asset TO THE ASSESSEE — Rs 5,25,000.
2. Explanation 5 to section 43(1), which substitutes cost minus notional depreciation for assets previously used personally, applies ONLY to buildings.
3. For a car (not a building), neither the market value on conversion nor notional depreciation for the personal-use period affects the actual cost.
4. Depreciation for A.Y. 2026-27 = 15% x 5,25,000 = Rs 78,750 (used for more than 180 days from 1.7.2025).
5. Option B applies the market-value idea the law does not adopt; option C manufactures a notional-depreciation reduction reserved for buildings; option D halves the wrong base.
_Source: ICAI CA Inter P3(A) Income-tax SM (May 2026), Ch 3 Unit 3 PGBP, PDF p. 32_
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