Tax Rate on Slump Sale: Section 50B, Net Worth, and Form 3CEA

The tax rate on a slump sale in India is 12.5% on long-term capital gains for transfers on or after July 23, 2024, plus applicable surcharge and health-and-education cess. If the undertaking was held for 36 months or less, the gain is short-term and taxed at your normal slab rate instead. The gain itself is computed under Section 50B of the Income Tax Act, 1961 as the fair market value of the undertaking on the transfer date minus its net worth.¹

The Long-Term Rate and What Sits on Top of It

When the seller has held the undertaking for more than 36 months, the entire profit is long-term capital gain. The flat rate is 12.5% with no indexation.² Transfers completed before July 23, 2024 attracted the earlier 20% rate. Section 50B expressly excludes the indexation provision in the second proviso to Section 48, so the net worth cannot be adjusted for inflation regardless of how long the business ran.¹

Surcharge and cess apply above the base rate. For capital gains taxed under Sections 111A, 112, and 112A, surcharge is capped at 15% no matter how high the seller’s income.³ Health and education cess of 4% then applies on tax plus surcharge.⁴ Effective rates for most long-term sellers land roughly between 13% and 14.3%, depending on which surcharge slab the total income falls into.

When the Sale Is Short-Term Instead

If the undertaking was owned for 36 months or less on the transfer date, the profit is short-term capital gain.¹ Short-term gains from a slump sale are added to the seller’s total income and taxed at slab rates.² For a domestic company that means the applicable 25% or 30% corporate rate; for an individual, it can reach 30% before surcharge and cess. The tax cost of selling a newer undertaking is therefore materially higher than selling a mature one at the same profit.

How the 36-Month Holding Period Is Counted

The holding period looks at the undertaking as a whole, not at each asset inside it. This is one of the structural advantages of a slump sale. A division that has been running for five years qualifies as long-term even if it bought new machinery six months before the transfer.¹ The same equipment sold as part of an itemized asset transfer would produce a short-term gain.

The clock starts on the date the seller established or acquired the business unit and ends on the transfer date. If more than 36 months have passed by the transfer, the whole gain is long-term.⁵

Computing the Taxable Gain

Section 50B fixes the arithmetic. The fair market value of the undertaking on the transfer date is treated as the full value of consideration, and the net worth of the undertaking is treated as the cost of acquisition and cost of improvement. Capital gain equals FMV minus net worth.¹

FMV must be calculated in the prescribed manner, which points to Rule 11UAE of the Income-tax Rules. The actual lump-sum price the buyer pays can differ from the FMV, but for the capital gain calculation the FMV is what controls. This rule was introduced to stop parties from reporting an artificially low sale price to compress the tax.

How Net Worth Is Built

Net worth is the deemed cost of acquisition, so its size drives the tax bill directly. Start with the assets of the undertaking on the books and apply the adjustments Section 50B requires.

Depreciable assets are taken at the written-down value computed under Section 43(6)(c), not at original cost or balance-sheet value.⁶
Non-depreciable assets are taken at book value.
Self-generated goodwill is valued at nil; internally generated goodwill that was never purchased cannot be added in.²
Assets on which a deduction was claimed under Section 35AD are valued at nil.
Any upward revaluation of assets is ignored entirely.¹

Sum the adjusted assets, then subtract all liabilities of the undertaking as they appear in the books. What remains is net worth. Sellers sometimes find that years of depreciation have driven the written-down value down far enough to produce a large taxable gain on a modest sale price. If net worth is zero or negative because liabilities exceed assets, the entire FMV is taxable; there is no floor.

What Breaks Slump Sale Treatment

Section 2(42C) defines a slump sale as the transfer of one or more undertakings for a lump sum without assigning individual values to the assets and liabilities.⁵ Once the purchase price is broken out and assigned to specific assets, the transaction stops being a slump sale and becomes an itemized asset transfer with different tax consequences, most notably a separate holding period on every asset.

What is being sold must also be an “undertaking,” meaning a self-contained business unit, division, or branch that operates as a business activity on its own. A bundle of unrelated assets collected for convenience does not qualify.⁵ Section 50B does not apply to such a sale, and gains are computed asset by asset.

GST is a separate question. A slump sale structured as the transfer of a going concern can qualify for GST exemption under Notification No. 12/2017 – Central Tax (Rate), but the exemption is not automatic and depends on whether the business is genuinely transferred as an operational whole. A deal that qualifies as a slump sale for income tax may still attract GST if key liabilities are carved out, so a specific opinion on GST is worth obtaining before signing.

CA Certification in Form 3CEA

Every slump sale requires certification by a Chartered Accountant. The CA verifies the net worth computation and the capital gains calculation and issues the report in Form No. 3CEA, also designated Form No. 28.⁷ The form now includes computation of fair market value under Rule 11UAE, added after the 2021 amendments to Section 50B.

Certification is not optional. Without it, the tax authorities can dispute the entire net worth calculation and reassess the capital gain at a higher figure. Preparing the report well before the return deadline gives both sides time to reconcile balance-sheet figures.

Filing and Advance Tax

Report the slump sale in the return for the financial year in which the transfer took place. For entities requiring a tax audit, the return is due by October 31; for AY 2026-27, the tax audit report itself must be filed by September 30, one month earlier.⁸ Transfer pricing cases have until November 30.

Form 3CEA is uploaded to the e-filing portal with the return, and the portal validates its figures against the reported capital gain. Because a slump sale usually generates a large one-time gain, the tax due can be substantial, and interest under Sections 234B and 234C runs when advance tax is short. Sellers completing a slump sale mid-year should recompute their advance tax obligation in the quarter of the transfer rather than waiting for the return.

1
Indian Kanoon. Income Tax Act 1961 – Section 50B
2
Income Tax Department. Capital Gain
3
Income Tax Department. Individual Having Income From Business or Profession for AY 2026-2027
4
Income Tax Department. Domestic Company for AY 2026-27
5
Bombay Chartered Accountant Society. Slump Sale
6
Indian Kanoon. Income Tax Act 1961 – Section 43(6)
7
Income Tax Department. Form No 28 – Form No 3CEA
8
Income Tax Department. Income Tax Returns