Goodwill Tax on Business Sale: Cost, Gain and No Depreciation
Reviewed by CA Nikhil Gupta · Last reviewed 2 August 2026
Goodwill is not depreciable under section 33 of the Income-tax Act, 2025.
On transfer, purchased goodwill uses the legally adjusted purchase cost, while self-generated goodwill generally has nil statutory cost unless a specific rule applies.
Legal or Computational Framework
Governing rule
A business sale can transfer goodwill separately, through itemised assets, or within a slump sale. Character, consideration allocation, prior depreciation allowed before the law change and connected-party valuation all affect the taxable gain.
Correct calculation method
Identify purchased or self-generated goodwill; trace original cost and prior depreciation; review sale agreement allocation; test fair value and slump-sale rules; compute capital gain and TDS/GST implications separately.
Step-by-step workflow
- Identify purchased or self-generated goodwill.
- trace original cost and prior depreciation.
- review sale agreement allocation.
- test fair value and slump-sale rules.
- compute capital gain and TDS/GST implications separately.
Worked example
Purchased goodwill cost ₹30 lakh and ₹6 lakh depreciation had been allowed before goodwill became non-depreciable. If sold separately for ₹40 lakh, the adjusted statutory cost—not ₹30 lakh automatically—is used in the gain calculation.
The example is an illustration, not a substitute for the taxpayer's facts. A change in status, period, payment mode, document, city, asset, relationship or scheme can change the result.
Why generic pages get this wrong
Search pages often state a rate or limit without identifying the governing base. The calculation must distinguish gross receipt from taxable profit, tax from TDS, a deduction from an exemption, salary from business income, and an accounting entry from the tax treatment.
Decision matrix
| Decision point | Required treatment |
|---|---|
| Legal year | Use the Act, rules and notification effective for the income or transaction period |
| Taxpayer category | Confirm residence, age, entity, employee/business status and regime |
| Calculation base | Use the statutory definition rather than CTC, net bank receipt or accounting label |
| Ceiling or rate | Apply actual-amount, percentage, shared, lifetime and gross-income limits in sequence |
| Documentation | Link every input to an invoice, statement, contract, certificate or official record |
| Final output | Show tax, surcharge, cess, interest and TDS/TCS credits separately |
Entity and topical coverage
This page is written around the entities and concepts search engines expect for the topic: goodwill, slump sale, section 77, fair market value, net worth. They are used only where relevant and are connected to the live calculator and knowledge hub rather than repeated mechanically.
Use the ITR Form Selector — AY 2026–27 to work through the related inputs before acting.
What Generic Pages Miss
- Claiming depreciation on goodwill.
- Accepting contract allocation without valuation.
- Ignoring prior depreciation.
- Confusing itemised and slump sale.
- Omitting accountant report.
For the connected rule, example or next step, see Margin Trading Facility Interest: Capital Gain Cost or Business Expense?.
Practical Documentation Checklist
- Business transfer agreement
- Valuation report
- Asset/liability schedule
- Tax WDV and net worth
- Prior depreciation record
- Accountant report
See the broader Income-tax Act 2025 study guide hub for related rules and calculators on this topic.
Finin2min Summary
Goodwill is not depreciable under section 33 of the Income-tax Act, 2025. On transfer, purchased goodwill uses the legally adjusted purchase cost, while self-generated goodwill generally has nil statutory cost unless a specific rule applies.
Finin2min rule: establish eligibility, calculate transparently, and preserve an audit trail.
Frequently Asked Questions
Source and review trail
Use the current official instrument, portal or regulator publication before acting. This panel separates the category authority from page-specific references.
- Primary category
- Income Tax
- Official starting point
- www.incometax.gov.in
Page source links
- Income Tax Department — Section 33, depreciation under the 2025 Act
- Income Tax Department — Fair Market Value and slump-sale valuation
- Income Tax Department — Section 77, slump sale under the 2025 Act
- Income Tax Department — Income Tax Returns FAQs under the 2025 Act
- Income-tax Act, 2025 and Income-tax Rules, 2026 official hub
Primary sources & related provisions
Statutory provisions referenced in this guide: