Goods and Services Tax (GST) and Corporate Tax Planning · Tax Planning and Business Restructuring

Tax Treatment of Slump Sale under the Income-tax Act, 2025

Updated 11 October 2026 · Fact-checked

A slump sale is a transfer of an undertaking or division for a lump sum, without values assigned to individual assets and liabilities. Under section 77, gain is long-term unless held 36 months or less, when it is short-term. Gain = deemed consideration (FMV of the capital assets on transfer date) minus net worth. A report of an accountant is required.

Understand Tax Treatment of Slump Sale

A slump sale is the sale of a whole undertaking or division as a going concern for one lump sum. The price is not split across individual assets. You are buying a business, not a list of items.

Compare this with an itemised sale, where each asset is sold at its own price. Each asset then gets its own gain or loss, with its own holding period and its own cost. In a slump sale there is one gain for the whole undertaking.

Section 77 of the Income-tax Act, 2025 gives the rules. Gain from a slump sale is taxed as long-term capital gains. The exception is an undertaking or division held for 36 months or less immediately before transfer. That gain is short-term. The gain is income of the tax year in which the transfer took place.

The cost is not the actual purchase price of assets. The law deems the net worth of the undertaking to be both the cost of acquisition and the cost of improvement. The full value of consideration is also deemed. Under section 77(3)(b), it is the fair market value of the capital assets on the date of transfer, calculated in the manner prescribed. It is not simply the lump sum price. So the gain is that deemed fair market value minus net worth.

Net worth is total assets, valued by special rules, less liabilities as in the books. Revaluation of assets is ignored. The assessee must furnish a report of an accountant that computes net worth and certifies it is correct, before the specified date referred to in section 63.

Key rules to remember

Capital gain on slump sale: Capital gain = Full value of consideration − Net worth; Full value of consideration is deemed to be the FMV of the capital assets on the date of transfer, calculated in the prescribed manner (section 77(3)(b)). Net worth is deemed to be both cost of acquisition and cost of improvement (section 77(3)(a)).
Net worth: Net worth = Aggregate value of total assets − Value of liabilities (as in books); Revaluation changes in asset value are ignored (section 77(5)(a)).
Depreciable assets: Value = WDV of the block of assets under section 41(1)(c); Use block WDV, not book value, for depreciable assets.
Self-generated goodwill: Value = nil; Applies to goodwill not acquired by purchase from a previous owner. Purchased goodwill is taken at book value as an 'other asset'.
Assets fully deducted under section 46: Value = nil; Applies where the entire expenditure has been or is allowable as a deduction under section 46.
Other assets: Value = book value; Includes current assets, land and investments at book value.
Nature of gain: Held 36 months or less → short-term; otherwise long-term; Holding period is of the undertaking or division, not of individual assets.

How to solve Tax Treatment of Slump Sale questions

Use this order for any slump sale question. It follows the structure of section 77.

1Confirm it is a slump sale: an undertaking or division transferred for a lump sum, with no values assigned to individual assets and liabilities. If values are assigned, it may be an itemised sale.
2Find how long the seller has owned and held the undertaking. 36 months or less means short-term. Otherwise long-term.
3List all assets of the undertaking and value each as per section 77(5)(b): block WDV for depreciable assets, nil for self-generated goodwill and for assets fully deducted under section 46, book value for the rest.
4Subtract liabilities as appearing in the books. Ignore any revaluation. The result is net worth.
5Take the fair market value of the capital assets on the date of transfer, calculated in the prescribed manner, as the deemed full value of consideration (section 77(3)(b)). If the question gives only a lump sum price and no FMV, say so and state that you use the lump sum as the FMV. Subtract net worth to get the capital gain.
6State the nature of the gain (short-term or long-term) and the tax year of charge.
7Add the compliance point: the report of an accountant on net worth, in the prescribed form, before the specified date referred to in section 63.

Quickest way: Three-line net worth check

When to use it: When time is short and the question gives a balance sheet of the undertaking.

Go through the asset side and mark each item: depreciable (use block WDV), self-generated goodwill (nil), section 46 fully deducted (nil), other (book value).
Total the revised assets and subtract book liabilities. Do not touch revaluation.
Gain = deemed consideration (FMV of the capital assets on the transfer date) − net worth. Then write the holding period test in one line.

Common mistakes in Tax Treatment of Slump Sale

Using the book value of depreciable assets in net worth.
Students treat every asset as an 'other asset'.
Fix: Use the written down value of the block of assets under section 41(1)(c) for depreciable assets.
Including self-generated goodwill at its book value.
The balance sheet may show it, so students carry it forward.
Fix: Self-generated goodwill not acquired by purchase from a previous owner is nil. Purchased goodwill is not covered by this nil rule.
Adding revaluation surplus to net worth.
Students follow the revalued balance sheet.
Fix: Ignore any change in asset value due to revaluation when computing net worth.
Testing the 36 month period asset by asset.
This is how capital gains on itemised sales are tested.
Fix: Apply the test to the undertaking or division as a whole. Held 36 months or less is short-term.
Allocating the price to individual assets.
Students calculate gain on each asset separately.
Fix: A slump sale yields one gain: deemed full value of consideration (FMV of the capital assets on the transfer date, as prescribed) minus net worth.
Forgetting the accountant's report.
It is seen as a mere formality.
Fix: Mention that the report of an accountant, computing net worth and certifying it, must be furnished in the prescribed form before the specified date referred to in section 63.

Worked examples

Example 1

Alpha Ltd sells its Pune division, held for 5 years, as a going concern for a lump sum of ₹9,00,000 on 1 July. The fair market value of the capital assets on the date of transfer, calculated in the prescribed manner, is ₹9,50,000. Book values: land ₹2,00,000; plant (block WDV under section 41(1)(c)) ₹3,00,000, book value ₹4,00,000; self-generated goodwill ₹50,000; inventory ₹1,50,000. Book liabilities: ₹1,20,000. Compute the capital gain.

Show the solution

Land: other asset, book value ₹2,00,000.
Plant: depreciable, use block WDV ₹3,00,000, not ₹4,00,000.
Self-generated goodwill: nil.
Inventory: book value ₹1,50,000.
Total assets = 2,00,000 + 3,00,000 + 0 + 1,50,000 = ₹6,50,000.
Net worth = 6,50,000 − 1,20,000 = ₹5,30,000.
Full value of consideration is deemed to be the FMV of the capital assets under section 77(3)(b) = ₹9,50,000. The lump sum of ₹9,00,000 is not used.
Capital gain = 9,50,000 − 5,30,000 = ₹4,20,000.
The division was held for 5 years, which exceeds 36 months, so the gain is long-term.

Answer: Long-term capital gain of ₹4,20,000, supported by an accountant's report on net worth.

Example 2

Beta Ltd transfers a unit, owned for 30 months, for a lump sum of ₹14,00,000. The fair market value of the capital assets on the date of transfer, calculated in the prescribed manner, is ₹13,50,000. Book value of assets: building ₹6,00,000 (revalued upward by ₹1,00,000 and included in this figure); machinery with block WDV ₹4,00,000; other assets ₹2,00,000 at book value. Liabilities in books are ₹3,00,000. Compute the gain and its nature.

Show the solution

Building: other asset, but revaluation is ignored. Value = 6,00,000 − 1,00,000 = ₹5,00,000.
Machinery: block WDV ₹4,00,000.
Other assets: ₹2,00,000.
Total assets = 5,00,000 + 4,00,000 + 2,00,000 = ₹11,00,000.
Net worth = 11,00,000 − 3,00,000 = ₹8,00,000.
Full value of consideration is deemed to be the FMV of the capital assets under section 77(3)(b) = ₹13,50,000. The lump sum of ₹14,00,000 is not used.
Gain = 13,50,000 − 8,00,000 = ₹5,50,000.
Holding is 30 months, which is 36 months or less, so the gain is short-term.

Answer: Short-term capital gain of ₹5,50,000.

Exam tips

Always show the net worth working in a table-like list. Marks go to each asset treatment.
Quote the rule for each asset: block WDV, nil for self-generated goodwill, nil for section 46 assets, book value for others.
State the 36-month test on the undertaking and write the nature of the gain clearly.
Close with the compliance point: accountant's report in the prescribed form before the specified date referred to in section 63.
In planning questions, compare slump sale with itemised sale and mention that a lump sum price removes asset-wise allocation.

Practice questions from Tax Planning and Business Restructuring

Tax Treatment of Slump Sale in other exams

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

CMA FinalSlump Sale and Business Transfer

Tax Treatment of Slump Sale: frequently asked questions

What is the difference between slump sale and itemised sale?

In a slump sale the undertaking is sold as a whole for a lump sum, with no values assigned to individual assets and liabilities. In an itemised sale each asset has its own price and its own gain or loss. Slump sale gain is computed on net worth.

How is net worth computed for a slump sale?

Net worth is the aggregate value of total assets minus liabilities as in the books. Depreciable assets take block WDV, self-generated goodwill and section 46 fully deducted assets are nil, and others take book value. Revaluation is ignored.

When is slump sale gain short-term?

When the undertaking or division has been owned and held for 36 months or less immediately before transfer. Otherwise the gain is long-term.

Is an accountant's report needed for a slump sale?

Yes. The assessee must furnish in the prescribed form a report of an accountant before the specified date referred to in section 63. It must compute net worth and certify it was correctly arrived at.