Question

Four years ago, at the beginning of her college career, Tammy, a “trust fund baby,” bought a new car for herself for $40,000. Now that she’s about to gradu-ate and since she’s planning to move to France immediately thereafter, Tammy sells that car for $19,000. What advice do you give Tammy as to what she should anticipate reporting on her 2020 tax return with respect to this sale?

Answer 1

As per Income Tax Act, 1961 Sale of any Capital Asset will be chargeable to Capital gain based on the period of holding such asset , such capital gain will be taxable as Long Term Capital Gain or Short Term Capital Gain. However, the question lies here whether the Car is consider as Capital Asset or not.

Capital Asset is the asset that is held by the assessee whether in a personal capacity or for the furtherance of business. However, the used or second hand car is not considered as Capital asset as it will not enhance the value with the passage of time but will decrease and therefore will not be chargeable by direct tax