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CS Executive · Tax Laws and Practice · Capital Gains

Under the Income-tax Act, 2025, Aarav Traders Ltd transfers an undertaking by way of slump sale after owning and holding it for 30 months immediately before the transfer. How is the profit or gain from this slump sale treated?

The gain is short-term capital gain. Under the Income-tax Act, 2025, a slump sale of an undertaking or division owned and held for thirty-six months or less before transfer is treated as short-term, and only longer holding gives long-term treatment. Here the holding is 30 months.

  1. AShort-term capital gains, because the undertaking was held for 36 months or lessCorrect
  2. BLong-term capital gains, because every slump sale is long-term
  3. CBusiness income, because an undertaking is stock-in-trade
  4. DExempt, because slump sale of an undertaking is not a transfer

Explanation

Section 77(2) provides that where an undertaking or division is owned and held for thirty-six months or less immediately before transfer, the profit from the slump sale is treated as short-term capital gains. Section 77(1) gives long-term treatment only as the general rule, subject to this exception. Since 30 months is below 36 months, the long-term option is wrong.

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