A slump sale is the transfer of an undertaking for a lump sum without assigning values to individual assets. Under s.50B the net worth of the undertaking is your cost, and since Finance Act 2021 the fair market value computed under Rule 11UAE is deemed to be the sale consideration, overriding what the parties agreed.
A slump sale is the transfer of one or more undertakings for a lump sum consideration without values being assigned to the individual assets and liabilities. Finance Act 2021 widened the definition in s.2(42C) by replacing 'as a result of sale' with 'by any means'. That was a direct response to structures where an undertaking was swapped for shares or bonds and argued not to be a sale at all; the change pulls slump exchanges and failed amalgamations and demergers into the net.
Section 50B(1) fixes the character of the gain by reference to how long you held the undertaking. If the undertaking was owned and held for not more than thirty-six months immediately preceding the transfer, the gain is short-term. Otherwise it is long-term. Note that s.50B keeps its own thirty-six month test in the statutory text, notwithstanding the general two-year rule for other assets.
Cost is net worth. Section 50B(2)(i) deems the net worth of the undertaking to be the cost of acquisition and cost of improvement, and shuts out the indexation machinery in s.48. Explanation 1 defines net worth as the aggregate value of total assets less the value of liabilities as appearing in the books, and expressly ignores any change from revaluation. Explanation 2 sets the asset values: written-down value for depreciable assets, nil for self-generated goodwill (inserted in 2021) and nil for assets on which a s.35AD deduction was allowed, and book value for everything else. A negative net worth is treated as nil cost, so the entire consideration becomes gain.
The 2021 change on the other side of the equation is the bigger one. Section 50B(2)(ii) now deems the fair market value of the capital assets as on the date of transfer, computed in the prescribed manner, to be the full value of consideration. The agreed price no longer controls. Rule 11UAE prescribes the method: compute FMV1, the fair market value of the assets of the undertaking, and FMV2, the fair market value of the consideration received including non-monetary consideration, and take the higher of the two.
So the working computation is: higher of FMV1 and FMV2, less expenditure wholly and exclusively in connection with the transfer, less net worth. The result is long-term or short-term by the thirty-six month test, with no indexation in either case.
On rate, a long-term slump sale gain falls under s.112. The CBDT's own FAQs on the Budget 2024 capital gains changes state that the rate for long-term capital gains on assets generally was rationalised to 12.5% without indexation for transfers made on or after 23 July 2024. Commentary written before that change still quotes 20%, so check the transfer date before you take a rate off a chart.
Compliance is a real condition, not a formality. Section 50B(3) requires a report of an accountant as defined in s.288 in the prescribed form, certifying that net worth has been correctly computed, furnished by the due date under s.44AB. In practice that is Form 3CEA.
Since 2021 you can be taxed on a figure you never received, because Rule 11UAE substitutes fair market value for the negotiated price. That makes valuation work a pre-signing task, not a post-closing one. The net worth rules also mean that a business carrying large liabilities can produce negative net worth and therefore gain equal to the entire consideration, which surprises sellers who expected the liabilities to reduce the tax.
The Assessing Officer says that because depreciation of a known amount was allowed on the assets over the years, that figure must be the excess over written down value and can be taxed. Nothing in our documents allocates the price. Can he do that?
We sold our land development business as a going concern for a lump sum, and the schedule to the agreement showed a figure for land. Can the officer tax a profit on the land as stock-in-trade?
The High Court admitted my appeal without framing any question of law, heard it, and then formulated questions in the judgment itself. Is that a good disposal under section 260A?
You forgot to add back something your own audit report flagged. Is that concealment?
The AO ordered a special audit of my books without hearing me first. Is that direction valid?
I am a registered income-tax practitioner under s.288(2). Can I sign a tax audit report?
My 148A notice says I never filed a return, but I did. Is that enough to get it quashed?
We bought a business under a slump sale agreement and booked the excess of price over net tangible assets as 'goodwill'. The Assessing Officer says goodwill is not depreciable. Can we still get depreciation on it?
Every page in this library links to what it was written from, so you can check it rather than take our word for it.
