Capital Gains on Slump Sale
Introduction:
A slump sale involves transferring one or more undertakings for a lump sum consideration without assigning individual values to assets and liabilities. Capital gains are computed as the excess of the fair market value (FMV) of the undertaking over its net worth. [Section 50B]
Definition:
‘Slump sale’ means transfer of one or more undertaking by any means for a lump-sum consideration without being values assigned to the individual assets and liabilities in such transfer.
Computation of Capital Gains:
| Particulars | Amount (₹) |
| Full value of consideration (FMV) | xxx |
| Less: Expenditure on transfer | (xxx) |
| Less: Net worth of the undertaking | (xxx) |
| Less: Exemptions (Sections 54–54GB) | (xxx) |
| Capital Gains | xxx |
Key Factors for Capital Gains Computation:
- Period of Holding:
- Short-term if held ≤36 months.
- Long-term if held for >36 months.
- Full Value of Consideration:
In slump-sale, FMV of transferred assets (as per Rule 11UAE ) is deemed full consideration. - Net Worth (Deemed to be Cost of Acquisition and Cost of Improvement):
- Full Value of Consideration:
- Computed as: Written-down value of depreciable assets + Book value of non-depreciable assets – Liabilities.
- Adjustments:
- Assets fully deductible under Section 35AD: Value = Nil.
- Self-generated goodwill: Value = Nil.
Note: Any change in the value of assets due to revaluation shall be ignored while computing the net worth.
- Exemptions:
Exemptions under Sections 54 to 54GB are available, subject to fulfilment of certain conditions.
Year of Taxability:
Tax liability arises in the year the undertaking is transferred, through a slump sale.
Net Worth Certification
- A Chartered Accountant’s report in Form 3CEA certifying the net worth computation must be submitted one month before the due date for filing the return under Section 139(1).