Purchased vs Self-Generated Goodwill: Cost and Depreciation
Reviewed by CA Nikhil Gupta · Last reviewed 5 August 2026
Purchased goodwill can have statutory acquisition cost adjusted for depreciation previously allowed. Self-generated goodwill generally has nil cost.
Purchased goodwill can have statutory acquisition cost adjusted for depreciation previously allowed. Self-generated goodwill generally has nil cost. Neither qualifies for current depreciation under section 33.
Legal or Computational Framework
Governing rule
Sale agreement allocation, prior depreciation and whether the transaction is itemised or a slump sale change the computation.
Correct calculation method
Trace purchase price and earlier depreciation; classify self-generated elements; allocate consideration; apply capital-gain or slump-sale rules.
Step-by-step workflow
- Trace purchase price and earlier depreciation.
- classify self-generated elements.
- allocate consideration.
- apply capital-gain or slump-sale rules.
- Reconcile the input with official statements and supporting records.
- Calculate both legal eligibility and final tax impact.
- Record the effective date and review trigger.
Worked example
Goodwill purchased for ₹20 lakh with ₹5 lakh historic depreciation and sold for ₹28 lakh uses an adjusted cost, while self-generated brand goodwill sold separately normally has nil statutory cost.
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.
Practical Documentation Checklist
- Business transfer agreement
- Valuation report
- Asset/liability schedule
- Tax WDV and net worth
- Prior depreciation record
- Accountant report
For the complete rules on this topic, see the core guide: Goodwill Tax on Business Sale: Cost, Gain and No Depreciation.
See the broader Income-tax Act 2025 study guide hub for related rules and calculators on this topic.
Finin2min Summary
Purchased goodwill can have statutory acquisition cost adjusted for depreciation previously allowed. Self-generated goodwill generally has nil cost. Neither qualifies for current depreciation under section 33.
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: