Section 77Capital Gainswas Section 50B in IT Act 1961

Slump Sale — Tax on Transfer of Undertaking

A slump sale is the transfer of an entire undertaking or division for a lump-sum price, with no value assigned to individual assets or liabilities. Gain or loss is computed using Fair Value of Consideration (Rule 53) less Net Worth, and taxed as LTCG or STCG based on the 3-year holding rule.

Last updated: 8 July 2026

What Is a Slump Sale?

A slump sale is the transfer of any undertaking or division for a lump-sum consideration, without assigning individual values to the assets or liabilities being transferred. The definition sits in Section 2(103) of the IT Act 2025.

Key distinction: because no per-asset price is fixed, normal capital gains rules (which need an asset-level cost and sale price) cannot apply. Instead, Section 77 uses a special formula — Fair Value of Consideration minus Net Worth — to arrive at the gain or loss.

Computing the Gain / Loss

Fair Value of Consideration (as per Rule 53)	XXX
Less: Transfer expenses	(XXX)
Less: Net Worth (Cost of Acquisition)	(XXX)
LTCG / STCG	XXX

LTCG vs STCG — The 3-Year Rule

Holding Period of the Undertaking	Classification
More than 3 years	Long-Term Capital Gain (LTCG)
3 years or less	Short-Term Capital Gain (STCG)

The holding period is measured for the undertaking or division as a whole — not for individual assets within it.

Fair Value of Consideration — Rule 53 (Higher of FMV 1 and FMV 2)

The fair value of consideration is the higher of two computations under Rule 53:

FMV 1 — Value of the Undertaking Transferred

FMV 1 = FMV of Assets − Liabilities (at the values specified below):

Item	Valuation Basis
General assets	Book value
Shares, securities, jewellery, paintings, art works	Fair Market Value (FMV)
Immovable property (land / building)	Stamp Duty Value (SDV)
Liabilities assumed by buyer	Book value

Liabilities Excluded from FMV 1

Provision for unascertained liabilities
Contingent liabilities (except arrears of cumulative preference share dividends)
Dividend amount set apart but not yet declared at the AGM
Provision for taxes other than income tax paid, to the extent tax is payable on book profit

FMV 2 — Total Consideration Received

Total monetary consideration (cash / cash equivalents)
FMV of non-monetary consideration — shares, securities, jewellery, paintings, other art works
SDV of immovable property received as consideration

The Fair Value of Consideration = Higher of FMV 1 and FMV 2. This prevents tax avoidance by understating the consideration in the sale agreement.

Net Worth — The Cost of Acquisition

Net Worth = Value of Assets − Value of Liabilities, computed as follows:

Asset / Liability Type	Value Used for Net Worth
Depreciable assets	Written Down Value (WDV)
All other assets	Book value
Liabilities taken over	Book value

Special Adjustments to Net Worth

If net worth is negative → cost of acquisition is taken as Nil (gain = FVC in full)
Self-generated goodwill → valued at Nil
Revaluation gain must be stripped out — remove it from the respective asset's value before computing net worth
Assets on which full depreciation was claimed under Section 46 → their net worth value is Nil

Other Compliance Points

No profit under Business & Profession (PGBP) arises from a slump sale, even if closing stock or other business items are transferred as part of the undertaking
The assessee must furnish a CA certificate in Form 28 under Section 63, certifying the correct computation of net worth

Tax-Efficient Alternatives to a Slump Sale

Two structuring options can achieve a similar business outcome without triggering Section 77 tax:

Alternative	Exemption Basis
Transfer the undertaking via a Demerger	Demerger is an exempt transfer under Section 70(1)(j)
Transfer after the acquirer holds 100% shares of the transferee company	Exempt transfer under Section 70(1)(d) — subsidiary-to-holding or fellow-subsidiary transfer

Both alternatives require strict compliance with the conditions laid down in the respective sub-clauses of Section 70(1). A structuring misstep can cause the exemption to fail and the entire transfer to become taxable.

Quick Reference — Key Numbers

Parameter	Rule
Holding period for LTCG	> 3 years
Holding period for STCG	≤ 3 years
FVC formula	Higher of FMV 1 and FMV 2 (Rule 53)
Net Worth — depreciable assets	WDV
Net Worth — other assets	Book value
Negative net worth treatment	COA = Nil
Compliance filing	Form 28 (CA report) under Section 63

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Disclaimer: This analysis is based on the Income Tax Act 2025 (Tax Year 2026-27) and is for educational purposes only. Tax laws are subject to change. Always verify with a Chartered Accountant or tax advisor before making decisions.

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