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Direct Tax Laws and International Taxation · Business Restructuring

Slump Sale and Business Transfer: Capital Gain and Net Worth

Updated 11 October 2026 · Fact-checked

A slump sale is the transfer of an undertaking or division for a lump sum, without values assigned to individual assets. Capital gain = fair market value deemed as consideration (section 77(3)(b)) minus net worth. It is long-term if held more than 36 months, otherwise short-term. An accountant's report is required.

Understand Slump Sale and Business Transfer

A slump sale is a sale of a whole undertaking or division for a single price. The buyer does not pay separate prices for each asset or liability. You sell the business as a going concern.

The Act does not tax the gain asset by asset. Section 77 treats the undertaking as one capital asset. The profit is a capital gain, taxed in the tax year in which the transfer took place.

The holding period decides the character of the gain. If you owned the undertaking for more than 36 months before transfer, the gain is long-term. If you owned it for 36 months or less, it is short-term (section 77(2)). The long-term gain is taxed at 12.5% under section 197(1)(b). The short-term gain goes into total income and is taxed at normal rates.

The cost is not the actual purchase cost. The net worth of the undertaking is deemed to be both the cost of acquisition and the cost of improvement (section 77(3)(a)). Net worth is the aggregate value of total assets minus liabilities, as in the books. Revaluation changes are ignored.

The consideration is also special. The fair market value of the capital assets on the date of transfer, calculated as prescribed, is deemed to be the full value of consideration (section 77(3)(b)). An accountant's report certifying net worth must be furnished in the prescribed form before the specified date referred to in section 63 (section 77(4)).

In an itemised sale, each asset is sold at its own price. Each asset is then taxed on its own, with its own cost, holding period and character. Depreciable assets, inventory and goodwill each follow different rules. A slump sale gives one computation for the whole business.

Key rules to remember

Capital gain on slump sale
Capital gain = Full value of consideration (FMV of capital assets) − Net worth
Net worth is deemed to be the cost of acquisition and the cost of improvement (section 77(3)). Do not deduct any other cost of acquisition or improvement.
Net worth
Net worth = Aggregate value of total assets − Value of liabilities (as per books)
Revaluation of assets is ignored (section 77(5)(a)).
Value of assets for net worth
Depreciable assets = WDV of block under section 41(1)(c); goodwill not purchased from previous owner = nil; assets whose entire expenditure is allowed or allowable under section 46 = nil; other assets = book value
These are the rules in section 77(5)(b). Purchased goodwill is taken at book value.
Character of gain
Undertaking held for 36 months or less = short-term; otherwise = long-term
Section 77(1) and (2). The test is on the undertaking, not on each asset.
Tax on long-term gain
Tax = 12.5% × long-term capital gain
Section 197(1)(b). The 12.5% rate applies to the gain itself; the rest of total income is taxed at normal rates.

How to solve Slump Sale and Business Transfer questions

Use this order for any slump sale problem. It keeps the working clean and each step earns marks.

  1. 1Confirm it is a slump sale: an undertaking or division is transferred for a lump sum, with no separate values fixed for individual assets.
  2. 2Find the holding period of the undertaking up to the transfer date. More than 36 months gives long-term; 36 months or less gives short-term.
  3. 3Take the full value of consideration as the fair market value of the capital assets on the transfer date, calculated as prescribed. If the question gives only the lump sum, use it and say so.
  4. 4List the assets as per books. Take depreciable assets at the WDV of the block under section 41(1)(c), non-purchased goodwill at nil, section 46 assets at nil, and others at book value. Ignore revaluation.
  5. 5Deduct the liabilities as per books to get the net worth.
  6. 6Compute capital gain = consideration − net worth. Do not allow indexation or any other cost.
  7. 7Classify the gain as long-term or short-term and apply the rate. Use 12.5% for long-term under section 197. Mention the accountant's report in your answer.

Quickest way: Three-line slump sale shortcut

When to use it: Use it when the question gives a balance sheet with a lump-sum price and you have limited time.

  1. Write the net worth first: adjusted assets (WDV, nil items, book values) minus liabilities.
  2. Gain = lump sum (or FMV) − net worth. Check the 36-month test and label the gain.
  3. Apply 12.5% for a long-term gain, add one line on the accountant's report, and finish.

Common mistakes in Slump Sale and Business Transfer

  • Using revalued figures of assets in net worth.

    The balance sheet shows the higher value, so it looks like the correct figure.

    Fix: Ignore any revaluation. Use book values without revaluation effects, as section 77(5)(a) says.

  • Taking depreciable assets at book value instead of the WDV of the block.

    Students treat all assets alike and use the balance sheet figure.

    Fix: Take depreciable assets at the WDV of the block under section 41(1)(c). Only other assets go at book value.

  • Treating self-generated goodwill as an asset at book value.

    The balance sheet may show it, and students forget the special rule.

    Fix: Goodwill not acquired by purchase from a previous owner is nil. Purchased goodwill stays at book value.

  • Applying the 36-month test to each asset separately.

    This is how itemised sales work, so the habit carries over.

    Fix: Test the holding of the undertaking or division as a whole.

  • Deducting indexed cost or actual cost of the undertaking.

    Students apply the normal capital gains formula.

    Fix: The cost of acquisition and the cost of improvement are both deemed to be the net worth. Nothing else is deducted.

  • Forgetting the accountant's report.

    It is a compliance point, not a calculation.

    Fix: State that a report certifying net worth must be filed in the prescribed form before the specified date referred to in section 63.

Worked examples

Example 1

Sunrise Textiles Ltd transfers its Surat division on 1 October 2026 to Vastra Ltd for a lump sum of ₹9,00,000 (accepted as the fair market value of the capital assets). The division was set up in 2019. Books show: building block WDV (section 41(1)(c)) ₹2,00,000; plant (block WDV) ₹3,00,000; inventory ₹1,50,000; debtors ₹1,00,000; self-generated goodwill shown at ₹50,000 after revaluation; liabilities ₹1,20,000. Compute the capital gain and tax on it at 12.5%.

Show the solution
  1. Holding period: set up in 2019, so held for more than 36 months. The gain is long-term.
  2. Building block WDV = ₹2,00,000.
  3. Plant block WDV = ₹3,00,000.
  4. Inventory at book value = ₹1,50,000.
  5. Debtors at book value = ₹1,00,000.
  6. Self-generated goodwill is nil.
  7. Aggregate value of total assets = 2,00,000 + 3,00,000 + 1,50,000 + 1,00,000 + 0 = ₹7,50,000.
  8. Net worth = 7,50,000 − 1,20,000 = ₹6,30,000.
  9. Long-term capital gain = 9,00,000 − 6,30,000 = ₹2,70,000.
  10. Tax at 12.5% = 2,70,000 × 12.5% = ₹33,750 (before cess, if any).

Answer: Long-term capital gain is ₹2,70,000. Tax at 12.5% is ₹33,750. An accountant's report on net worth must be furnished.

Example 2

Meera Pharma Pvt Ltd sells its API unit to Arogya Ltd for ₹14,00,000 (taken as fair market value) on 15 March 2027. The unit was started on 1 January 2025. Net worth as per books is ₹10,50,000 after the adjustments required by the Act. Find the capital gain and state its nature.

Show the solution
  1. Holding period: 1 January 2025 to 15 March 2027 is about 26 months, which is 36 months or less.
  2. So the gain is short-term under section 77(2).
  3. Consideration = ₹14,00,000.
  4. Net worth = ₹10,50,000, deemed to be both cost of acquisition and cost of improvement.
  5. Short-term capital gain = 14,00,000 − 10,50,000 = ₹3,50,000.
  6. This is added to total income and taxed at the normal rates applicable to the assessee; the 12.5% rate does not apply.

Answer: Short-term capital gain of ₹3,50,000, taxed with the rest of total income at normal rates. The accountant's report is required.

Exam tips

  • Write the net worth working in a neat table. Examiners award marks for each asset treatment (WDV, nil, book value).
  • State section 77 and the three key rules: gain is long-term or short-term, net worth is cost, and revaluation is ignored.
  • In a comparison question, set out slump sale against itemised sale on price, cost, holding period, depreciation and the accountant's report.
  • In MCQs, watch for the traps: self-generated goodwill is nil, depreciable assets use block WDV, and no indexation applies.
  • Read the date facts carefully to apply the 36-month test.

Practice questions from Business Restructuring

Slump Sale and Business Transfer in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Slump Sale and Business Transfer: frequently asked questions

What is a slump sale under the Income-tax Act, 2025?

It is the transfer of an undertaking or division for a lump sum without separate values for individual assets. Section 77 taxes the profit as capital gains. The gain is long-term or short-term depending on the holding period of the undertaking.

How is net worth computed in a slump sale?

Net worth is the aggregate value of total assets less liabilities as per books. Depreciable assets are taken at the WDV of the block, non-purchased goodwill and section 46 assets at nil, and other assets at book value. Revaluation is ignored.

What is the difference between slump sale and itemised sale?

In a slump sale the business is sold for one price and gain is computed once, against net worth. In an itemised sale each asset has its own price, cost, holding period and tax treatment.

What is the tax rate on long-term capital gain from a slump sale?

Under section 197(1)(b), long-term capital gain is taxed at 12.5%. A short-term gain from a slump sale goes into total income and is taxed at normal rates.