What Is Slump Sale in Income Tax? Section 50B, Net Worth, and FMV Rules

A slump sale in income tax is the transfer of an entire business undertaking for a single lump-sum price, without values being assigned to individual assets and liabilities in the sale agreement. Under Indian tax law, this kind of sale is taxed on a special formula: the fair market value of the undertaking’s assets is treated as the sale price, the undertaking’s net worth is treated as the cost, and the difference is the capital gain. From April 1, 2026, the rules sit in Section 77 of the Income Tax Act, 2025, carrying forward the framework earlier found in Section 50B of the Income Tax Act, 1961.¹

What Makes a Transaction a Slump Sale

Three elements have to be present.² The buyer pays a single, undivided amount for the business unit. What is being sold is a functioning undertaking, not a loose collection of assets. And the sale agreement does not assign commercial values to individual assets and liabilities. Assigning values only for stamp duty or registration purposes is allowed; the restriction is on commercial valuation inside the agreement itself.

If the agreement itemises machines, buildings, or contracts with separate prices, the transaction can fall out of the slump sale definition altogether and revert to piecemeal asset-sale taxation, where every item triggers its own capital gains calculation.

What Counts as an Undertaking

An undertaking is any part of a business, unit, or division that represents a distinct business activity and is capable of continuing operations independently after the transfer. Even a small division of a larger company can qualify if it has its own management, revenue, and operational infrastructure. Idle equipment and expired contracts do not. All rights, obligations, contracts, and operational components tied to that trade transfer with the undertaking.

Long-Term or Short-Term

Gains from a slump sale are long-term by default. They become short-term only if the seller held the undertaking for 36 months or less before the transfer.³ The holding period runs from when the undertaking was established or acquired, not from when individual assets inside it were bought. New machinery purchased six months before the sale does not turn a five-year-old business unit into a short-term asset.

How the Capital Gain Is Calculated

Section 77 sets a formula that ignores what the parties actually agreed to pay.³

The full value of consideration is the fair market value of the capital assets on the date of transfer, computed under the prescribed rules.
The cost of acquisition and cost of improvement are both deemed to be the net worth of the undertaking. No other cost basis is recognised.
Capital gain equals FMV of assets minus net worth.

The consequence is that the negotiated sale price does not directly drive the tax. Even a below-market sale is taxed on the fair market value of what was transferred.

Working Out Net Worth

Net worth is the aggregate value of the undertaking’s assets, reduced by its liabilities as they appear in the books. Each category has a specific valuation rule:³

Depreciable assets are taken at the written down value of the block, not book value or market value.
Self-generated goodwill is valued at nil unless it was acquired by purchase from a previous owner.
An asset whose entire cost has already been claimed as a deduction is valued at nil.
Everything else is taken at book value.

Any upward revaluation of assets is stripped out. Inflating land or building values in the books before a sale will not inflate the net worth used for tax.

Fair Market Value Under Rule 11UAE

Rule 11UAE fixes the FMV that becomes the deemed sale consideration. It is the higher of two figures.

FMV1 is an adjusted net asset value calculation. It uses book value for most assets, open-market value from a registered valuer for jewellery and artistic works, Rule 11UA values for shares and securities, and stamp duty value for immovable property, then subtracts liabilities. Certain items on the liability side, including paid-up equity capital, undeclared dividends, reserves and surplus, and contingent liabilities, are excluded from the subtraction.

FMV2 is the total value of all monetary and non-monetary consideration the seller actually received. Whichever of FMV1 and FMV2 is higher becomes the deemed sale price. If either the assets or the price paid points to a larger number, the department uses the larger number.

Tax Rate and Why Indexation Is Missing

Long-term capital gains from a slump sale are taxed at 12.5% without indexation.⁴ Short-term gains are taxed at the seller’s applicable slab rates.

The absence of indexation is one of the biggest surprises for sellers of long-held businesses. In an ordinary long-term capital gains calculation, the cost of acquisition is adjusted for inflation using the Cost Inflation Index, which can substantially reduce the taxable gain. Section 77 explicitly excludes that benefit for slump sales.³ Net worth stands as-is regardless of how long the undertaking has been held. For a business built up over decades with assets recorded at historical cost, the taxable gain can be much larger than sellers expect.

The Chartered Accountant’s Report

Every seller must obtain a report from a chartered accountant in the prescribed form, Form No. 28 (also referred to as Form 3CEA), computing the undertaking’s net worth and certifying that it has been correctly calculated.³ The report has to be filed on or before the due date for filing the seller’s income tax return.⁵

The accountant needs the undertaking’s full books of account, WDV schedules for depreciable assets, liability records, and valuation reports for immovable property and securities. When the undertaking has complex asset structures or multiple locations, gathering this documentation often takes longer than sellers assume. The figures from Form 3CEA feed directly into the capital gains schedule of the return, and the department uses the report to verify the declared gain.

GST and Stamp Duty

These are separate levies that a slump sale can trigger, and they are worth knowing about before signing the business transfer agreement.

On the GST side, services by way of transfer of a going concern, as a whole or as an independent part, are taxed at a nil rate under Notification No. 12/2017 (Central Tax – Rate). A qualifying slump sale structured as a going concern transfer therefore attracts no GST. The exemption is not automatic. If the transaction excludes key liabilities or operational elements so that the buyer is not receiving a functioning business, the nil rate can be denied. An Authority for Advance Ruling has refused the exemption where the business transfer agreement excluded liabilities, holding the transaction did not amount to a going concern transfer.⁶ Including all assets and liabilities of the undertaking is the safer route.

Stamp duty is governed by state Stamp Acts, and rates and methods differ across states. There is no specific stamp duty entry for the transfer of a “business” as such, so the liability is worked out by looking at the assets involved, particularly any immovable property. A business transfer agreement covering both movable and immovable property can be treated as a conveyance and stamped at the corresponding rate. Penalties for understamping can run up to ten times the duty payable, so the stamp duty analysis should be done before, not after, the agreement is signed.

What Changed on April 1, 2026

The Income Tax Act, 2025 took effect on April 1, 2026 and applies from tax year 2026-27 onward.¹ Slump sales completed before that date remain under Sections 2(42C) and 50B of the Income Tax Act, 1961. Slump sales from that date onward sit under Section 77 of the 2025 Act, with the definition in Section 103(a).

The substance is largely unchanged. The 36-month threshold, net worth as deemed cost, FMV as deemed consideration, the accountant’s report requirement, and the exclusion of indexation all carry over. What changes is the section numbering, and returns filed for a slump sale in 2026-27 should reference the new Act, with the accountant’s report citing Section 77 rather than Section 50B.

1
Press Information Bureau. Understanding the Income Tax Act 2025
2
Income Tax Department. Income Tax Act – Section 2
3
Indian Kanoon. Income Tax Act 2025 – Section 77
4
Income Tax Department. Capital Gain
5
Income Tax Department. Form No 28 (Form No 3CEA)
6
GST Council. AP Authority for Advance Ruling – AAR 04/2021