How capital gain shall be calculated in case of slump sale of business as a whole?

1st Oct, 2025| 5 Min read.

In case of a slump sale of business (i.e sale with full assets and liabilities), capital gains are calculated under a special mechanism given in Section 50B of the Income Tax Act, 1961.

 

1. What is a Slump Sale?

• Defined in Section 2(42C):

"Slump sale means transfer of one or more undertakings as a result of the sale for a lump sum consideration without values being assigned to individual assets and liabilities."

👉 Key features:

• Entire undertaking is transferred (business on going-concern basis).
• Sale consideration is lump-sum.
• No separate valuation is attached to assets/liabilities in the agreement.
• Transfer may be of entire business or one of the units/divisions.

 

2. Tax Treatment

• Section 50B is the special provision for computation of capital gains in slump sale.
• The "undertaking" itself is treated as a capital asset.
• Type of gain depends on period of holding of undertaking (not of individual assets):
• Held > 36 months → Long Term Capital Gain (LTCG)
• Held ≤ 36 months → Short Term Capital Gain (STCG)

⚠️ Note: Even if individual assets include stock-in-trade or short-term assets, period of holding of undertaking decides tax treatment.

BizzXchange helps in slump sale tax treatment

 

3. Computation of Capital Gain (Sec 50B)

Formula: Capital Gain = Full Value of Consideration – Net Worth of Undertaking

(a) Full Value of Consideration

• Lump sum sale price as per agreement.
• From A.Y. 2021-22 onwards → As per Sec 50B(2A), if sale consideration is less than Fair Market Value (FMV) of undertaking (calculated as per Rule 11UAE), then FMV is deemed consideration.

(b) Net Worth (Explanation 1 to Sec 50B)

Net Worth = Aggregate Value of Assets – Liabilities

1. Assets Valuation
• Depreciable assets → Written Down Value (WDV) as per Income Tax Act (Sec 43(6)(c)).
• Non-depreciable assets (like land) → Book Value as per balance sheet.
• Other assets (like current assets, investments) → Book Value.
• Revaluation → ignored (not included).
2. Liabilities
• Taken as per books of account (book value).

 

(c) Special Points

• No indexation benefit available for Net Worth.
• Net worth once calculated is deemed cost of acquisition & improvement (Explanation 2 to Sec 50B).
• Slump sale loss (if consideration < net worth) → Allowed to set-off as per normal capital gain rules.

 

4. Example

Suppose XYZ Ltd sells one of its divisions as slump sale:

• Lump sum consideration = ₹15 crore
• Assets & Liabilities in Books:
• Depreciable Assets (WDV) = ₹6 crore
• Land (Book Value) = ₹2 crore
• Current Assets = ₹4 crore
• Liabilities = ₹3 crore

👉 Net Worth = (6 + 2 + 4) – 3 = ₹9 crore

Capital Gain = 15 – 9 = ₹6 crore

If held for > 36 months → LTCG.
If ≤ 36 months → STCG.

 

5. Important Points

• No indexation benefit is available for slump sale.
• Form 3CEA (CA certificate) is required to certify computation of Net Worth.
• If slump exchange (consideration not in money but shares, etc.) → Not covered under 50B, other provisions may apply.

 

BizzXchange at any stage of Slump sale helps the business.