CS Executive · Tax Laws and Practice · Capital Gains
Mehta Traders transfers an undertaking by slump sale after owning it for 30 months. Under the Income-tax Act, 2025, how is the profit from this slump sale treated?
The gain is short-term capital gains. Although slump sale profits are generally long-term, the Act treats them as short-term where the undertaking was owned for thirty-six months or less before transfer, and 30 months falls within that limit.
- ALong-term capital gains, as slump sale gains are always long-term
- BShort-term capital gains, as the undertaking was held for 36 months or lessCorrect
- CBusiness income, as an undertaking is stock-in-trade
- DNot chargeable, as the net worth equals the cost
Explanation
Section 77(2) treats profits from a slump sale of an undertaking held for thirty-six months or less as short-term capital gains. Holding of 30 months is within this limit. Option 1 ignores this exception to the general long-term rule.
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