Slump sale taxation: section 50B, section 77 and the disputed issues

The statute makes a slump sale look simple. One capital asset, one price, one subtraction. Section 77 of the Income-tax Act, 2025 runs to five sub-sections and fits on a page.

In practice it is one of the most contested computations in direct tax, and the reason is structural rather than accidental. Section 77 deems two figures, and since 2021 the two have been drifting apart. It deems the cost to be net worth, a historical, book based number built partly out of tax written down values. And it deems the consideration to be fair market value computed under a rule that adds back reserves, ignores unascertained provisions and takes immovable property at circle rate. A historical deemed cost subtracted from a fair value deemed consideration produces a number that has no necessary relationship to anything the parties agreed, received or earned. That gap is where the tax now sits, and most of what follows is about its edges.

This is a working guide to the whole subject: what the statute says, where the Department attacks, what the courts have held, what is still open, and what a business transfer agreement has to do about it. It is written to the Income-tax Act, 2025, which governs any transfer effected on or after 1 April 2026, with the Income-tax Act, 1961 provision given alongside wherever it matters, because every reported decision and every pending appeal is under the old numbering.

Key points

• Two Acts, one subject. A transfer effected from 1 April 2026 is governed by sections 2(103) and 77 of the Income-tax Act, 2025. Anything earlier stays with sections 2(42C) and 50B of the 1961 Act, by force of section 536(2)(c). The substantive rules are materially unchanged, so the case law survives; the numbering does not.
• Characterisation is the first battleground and it runs both ways. The Department argues itemised sale when that produces more tax and slump sale when that produces more. Artex allows values to be treated as assigned on evidence outside the agreement; Electric Control Gear requires the Department to produce that evidence.
• Net worth is not what the business is worth. Depreciable assets come in at the written down value of the block, reduced by depreciation that would have been allowable whether or not it was claimed. Self-generated goodwill is nil. Assets already fully deducted as specified-business capital expenditure are nil. Revaluation is ignored.
• Negative net worth increases the gain. Because the computation subtracts net worth, a negative figure is added. A loss making undertaking sold for a small price can produce a gain several times the price. Summit Securities (Special Bench, 7 March 2012) settled that at Tribunal level; no High Court has decided it on the merits.
• The price is no longer the price. Since the Finance Act 2021 the fair market value computed under rule 53 of the Income-tax Rules, 2026 (formerly rule 11UAE) is deemed to be the full value of consideration, whatever the parties agreed. The rule takes the higher of two computed figures, and there is no reference to a Valuation Officer and no mechanism to rebut either of them.
• Thirty six months still matters here and nowhere else. The Finance (No. 2) Act 2024 abolished the thirty six month holding period across the Act. Section 77(2) keeps it for slump sale. An undertaking sold at month thirty produces a short-term gain taxed at full rates, while the land and buildings inside it would, sold separately, by then be long term at 12.5 per cent.
• Nothing else travels. Accumulated loss, unabsorbed depreciation and MAT credit stay with the seller. The buyer acquires no tax attribute, and may acquire by operation of law a slice of the seller’s own liability, which turns on an open question about whether a slump sale is a succession at all.
• The adjacent taxes decide as many deals as the income tax does. A going concern transfer is exempt from GST but can trigger an input tax credit reversal; stamp duty on the intangibles is the cost most often missed; and a special resolution under section 180(1)(a) of the Companies Act is a condition of the board’s power to sell.

On this page

Which Act governs a slump sale done today? · What exactly is a slump sale? · Slump sale, itemised sale, share sale or demerger? · What counts as an undertaking? · Slump sale or itemised sale? · Can the documents destroy it? · Transfer for shares, or under a scheme · Intra-group transfers · How the gain is computed · What goes into net worth · Negative net worth · A worked example · The thirty six month test · Indexation · Transfer expenses · Rule 53 and the deemed price · Section 50C and stock in trade · The buyer’s position · Losses and MAT · Successor liability and section 281 · GAAR · GST · Stamp duty · Companies Act · Other deal breakers · What is unsettled · What to do about it

Which Act governs a slump sale done today?

The Income-tax Act, 2025 came into force on 1 April 2026. A business transfer signed and completed now is a transfer effected in tax year 2026-27 and is governed by the new Act. A transfer effected in financial year 2025-26 or earlier is governed by the 1961 Act, and stays there, because section 536(2)(c) of the 2025 Act preserves the repealed Act for any proceeding pending on commencement and for proceedings initiated on or after 1 April 2026 in respect of any tax year beginning before that date, and directs that they be carried out under the procedure of the repealed Act. The point is developed at length in Which Act governs an appeal filed today?.

The practical consequence for this subject is that both codes will be in daily use for several years. Every reported decision is under the old numbering. Every notice issued next year in respect of a 2024 transfer will be under the old numbering. Every transaction document signed this quarter has to be under the new one. The substantive rules are materially the same, so the case law carries across without difficulty; what does not carry across is the section number, and a submission citing the wrong one now invites a needless argument.

The mapping that matters for a slump sale:

Income-tax Act, 1961	Income-tax Act, 2025
2(42C), slump sale	2(103)
Explanation 1 to 2(19AA), undertaking	2(35)(i)
2(47), transfer	2(109)
2(14), capital asset	2(22)
45, charge on capital gains	67
48, mode of computation	72
49, cost with reference to certain modes	73
50, depreciable assets	74
50B, slump sale computation	77
50C, stamp duty value	78
32, depreciation	33
sixth proviso to 32(1), succession	33(5)
43(1), actual cost	39
43(6)(c), written down value	41(1)(c)
35AD, specified business	46
44AB and its specified date	63
56(2)(x), receipt without consideration	92
72A, reorganisation losses	116
79, change in shareholding	119
112, long-term capital gains rate	197
115JB and 115JC, MAT and AMT	206
170, succession to business	313
281, transfers void against the Revenue	499
Rule 11UAE, fair market value	Rule 53, Income-tax Rules, 2026
Form 3CEA, accountant’s report	Form No. 28, rule 54

The Income-tax Rules, 2026 were notified by G.S.R. 198(E) dated 20 March 2026 under section 533 of the 2025 Act, and came into force on 1 April 2026. There is a short reference page for the provision itself at section 50B and section 77, slump sale.

When is a slump sale “effected”?

Everything above turns on a date, and the statute does not supply one. A business transfer signed in March and completed in May straddles the changeover, and the same date fixes the rule 53 valuation.

The answer comes from the general definition of transfer, section 2(109) of the 2025 Act and section 2(47) of the 1961 Act, applied to what the documents actually do. Where the agreement is executory and title passes on completion, the transfer is effected on completion, when the consideration is paid, possession delivered and the business handed over. Where the agreement itself operates to transfer, it is effected on execution. Where an undertaking includes immovable property, the conveyance for that property is separate and may be registered later, but the transfer of the undertaking, which is the capital asset charged under section 77, is not deferred to that registration; the definition of transfer includes allowing possession to be taken in part performance and any transaction which has the effect of transferring or enabling the enjoyment of immovable property. Where a scheme is involved, the appointed date fixed by the scheme is ordinarily taken as the date of transfer.

The practical rule is to state the completion date in the agreement, to make the economic and possessory handover happen on that date, and to compute the rule 53 fair market value as at that date. There is no decided authority on a slump sale that straddles 1 April 2026, and a deal signed before that date and completed after it should be expected to attract an argument.

What exactly is a slump sale?

Section 2(103) of the Income-tax Act, 2025 provides:

“(103)(a) ‘slump sale’ means the transfer of one or more undertaking, by any means, for a lump sum consideration without values being assigned to the individual assets and liabilities in such transfer; (b) for the purpose of sub-clause (a), (i) ‘undertaking’ shall have the meaning assigned to it in clause (35)(i); and (ii) the determination of the value of an asset or liability for the sole purpose of payment of stamp duty, registration fees or other similar taxes or fees shall not be regarded as assignment of values to individual assets or liabilities.”

Section 2(42C) of the 1961 Act, with its three Explanations, is to the same effect. Three elements have to be satisfied, and the Department attacks each of them in a different way.

An undertaking. Section 2(35)(i), sitting inside the definition of demerger, provides that “undertaking” shall include any part of an undertaking, or a unit or division of an undertaking or a business activity taken as a whole, but does not include individual assets or liabilities or any combination thereof not constituting a business activity. The words to note are “business activity taken as a whole”. A bundle of assets is not an undertaking however large the bundle.

Transferred by any means. Until the Finance Act 2021 the definition read “as a result of the sale”, which carried the whole law of sale with it, including the requirement of a money price. That restriction is gone.

For a lump sum consideration, without values being assigned. This is the element that most disputes turn on, and it is the one most often destroyed by the transaction documents themselves.

Slump sale, itemised sale, share sale or demerger?

Four structures move a business, and they are taxed in four different ways. The choice is usually made on commercial grounds and then lived with for years, so it is worth seeing them side by side before the letter of intent.

	Slump sale	Itemised asset sale	Share sale	Demerger under a scheme
What is transferred	The undertaking, as one capital asset	Individual assets, each on its own	Shares in the company that owns the business	The undertaking, by order of the Tribunal
Charge on the seller	Section 77, consideration less net worth	Asset by asset: capital gain, balancing charge, or business income on stock	Capital gain on the shares	Exempt, if every condition of the statutory definition is met
Long or short term	The undertaking’s own holding period, thirty six months	Each asset’s own holding period; depreciable assets always short term	Twelve months listed, twenty four unlisted	Not applicable
Rate	12.5 per cent long term, full rate short term	Mixed, and often the full rate	12.5 per cent long term	Nil
Deemed consideration	Fair market value under rule 53, with no rebuttal	Stamp duty value for land and building	Prescribed valuation for unquoted shares	Book values, by definition
Accumulated losses	Stay with the seller	Stay with the seller	Stay in the company, subject to the change in shareholding rule	Travel with the undertaking
Buyer’s cost	Allocated by the buyer, subject to challenge; goodwill not depreciable	The price of each asset	Cost of the shares; the company’s own asset cost is unchanged	Carried over from the demerged company
Liabilities	Only those the agreement transfers	Only those the agreement transfers	All of them, including unknown ones	All those relatable to the undertaking
Contracts and licences	Novated or re-applied for, one by one	Novated one by one	Untouched; the company keeps them	Vest by operation of law
GST	Exempt as a going concern transfer	Taxable on the goods	Outside GST	Exempt
Stamp duty	On the immovable property and on the instruments transferring intangibles	The same	On the share transfer, which is far cheaper	On the sanction order
Approvals	Special resolution under section 180(1)(a); merger control if thresholds are crossed	The same	Merger control; usually no special resolution	Tribunal sanction, plus notice to every regulator
Timetable	Weeks	Weeks	Weeks	Six to twelve months or longer

Two observations that the table makes obvious and that the prose tends to bury. The share sale is by far the cheapest on stamp duty and the only one that carries the contracts and licences without touching them, which is why buyers ask for it and sellers with a clean company usually get their price. And the demerger is the only route that moves the losses, which is why a group carrying large accumulated losses should decide between a slump sale and a scheme before it decides anything else.

What counts as an undertaking in a slump sale, and what can be left out?

The commercial question is always the same: the buyer does not want everything. It does not want the bad debts, the disputed receivable, the plot of land the seller would rather keep, the trademark the seller uses in another business. Does carving those out destroy the slump sale?

The leading authority says no. In Triune Projects Private Limited v. DCIT (Delhi High Court, ITA 448/2016, 22 November 2016, reported at (2017) 77 taxmann.com 40 (Del)) two assets were excluded, a bad debt and an asset already written off. The Department argued that the arrangement was a sham and that a prerequisite of slump sale had failed because the entire undertaking was not sold. The Court held it was a genuine slump sale, observing that to expect a purchaser to buy and pay value for defunct or superfluous assets flies in the face of commercial sense, and that where certain assets are left out because they would cause inconvenience to the purchaser, the parties are within their rights to exclude them.

The same conclusion, on different facts, in CIT v. Max India Ltd (2009) 319 ITR 68 (P&H), where retention of certain assets by the transferor did not prevent slump sale treatment, and in CIT v. Akzo Nobel India Ltd (2020) 423 ITR 208 (Cal), where the exclusion of a bank balance and an insurance claim did not disturb the transfer of the business as a going concern.

The limit is the going concern itself. Where what passes cannot be run by the buyer as a business without more, the exclusions have gone too far. The Department’s standard arguments, drawn from the cases, are worth listing because they are predictable:

• individual assets were transferred, not an undertaking, because the agreement or its schedules prices each asset;
• no going concern passed, because the buyer had to procure its own licences, premises or working capital;
• the employees did not transfer, so the business could not be carried on without more;
• the liabilities were retained, so the undertaking did not move as a whole;
• only the brand, or only the intangibles, passed;
• the whole arrangement is a sham.

The last of these failed in Triune Projects. The others are fact questions, and Tribunals decide them both ways on similar documents. Where the seller keeps the financial assets and all the pre-transaction liabilities and transfers a bare operating bundle, the going concern label in the recitals will not save it.

There is one asymmetry worth naming. The Department has an interest in both answers. Where the undertaking has been held for more than thirty six months and contains appreciated depreciable assets, the Department wants an itemised sale so that the gain is short term. Where the seller has documented an itemised sale to access a favourable computation, the Department wants a slump sale. That is exactly what happened in Mahindra Engineering & Chemical Products Ltd v. ITO (ITA No. 2544/Mum/2010, 18 April 2012), where the Sealants and Adhesives division was sold to an unrelated buyer for about Rs 32 crore under nine separate agreements and deeds, each separately priced, with no land and no liabilities transferred. The assessee argued itemised sale. The Department argued slump sale. The Tribunal held that when all the agreements were read together what was sold was the running business as a going concern and not a few assets, and applied section 50B.

Is it a slump sale or an itemised sale?

This question is older than the statutory definition, and the pre-1999 cases remain the interpretive source for the statutory words.

The origin is Doughty v. Commissioner of Taxes [1927] AC 327 (PC), where Lord Phillimore held that the sale of a whole concern at a profit over its book cost does not by itself give rise to taxable income, but added the qualification that if there were an item which could be traced as representing the stock sold, the profit on that sale might be taxable. Tracing is the whole idea, and it is what “without values being assigned to the individual assets and liabilities” codifies.

The Supreme Court applied it in CIT v. Mugneeram Bangur & Co. (1965) 57 ITR 299. A land dealing firm transferred its business to a company formed by the vendors themselves for Rs 34,99,300, and the conveyance carried a schedule itemising land at Rs 12,68,628, goodwill at Rs 2,50,000, motor cars and lorries at Rs 25,866 and furniture and fixtures at Rs 5,244. The Department said the schedule assigned a value to the land, which was the firm’s stock in trade, and taxed the excess over book cost as a trading profit. The Court held for the taxpayer:

“the mere fact that in the schedule the price of land is stated does not lead to the conclusion that part of the slump price is necessarily attributable to the land sold.”

and, decisively:

“There is no evidence that any attempt was made to evaluate the land on the date of sale.”

An itemisation on the face of the document is not, by itself, an assignment of values. What matters is whether the numbers drove the price.

The other side of the line is CIT v. Artex Manufacturing Co. (1997) 227 ITR 260 (SC), decided on 8 July 1997. There the agreement recited a lump sum of Rs 11,50,400 and on its face allocated nothing. But in the assessment the assessee itself disclosed that the figure had been arrived at by taking a valuer’s assessment of plant, machinery and dead stock at Rs 15,87,296. The Court held that values had been assigned, and the balancing charge followed. The principle is evidential: values can be assigned outside the four corners of the agreement, including by the assessee’s own submissions in the assessment proceedings.

Its companion, CIT v. Electric Control Gear Mfg. Co. (1997) 227 ITR 278 (SC), is the answer to it. A business was sold as a going concern for Rs 8 lakh, and depreciation of Rs 3,32,863 had been allowed over the years. The Department argued that the allowed depreciation itself supplied the balancing charge. The Court held for the taxpayer: there was nothing to indicate the price attributable to machinery, plant or building out of the Rs 8 lakh, and the fact that depreciation had been allowed could not be said to be the excess between price and written down value. The Court expressly distinguished Artex on the footing that there the attributable price had been disclosed by the assessee with valuers’ assessments provided, while here no such disclosure or valuation evidence existed.

Artex and Electric Control Gear are a matched pair, decided on the same point by the same judge in the same year, and the only difference between them is evidential. That is the line to argue. The Department will always cite Artex. The answer is Electric Control Gear plus the absence of a traceable build-up.

Two modern applications show how fact-sensitive this remains. In Hindustan Engineering & Industries Ltd v. Addl. CIT (ITA No. 330/Kol/2013, 16 March 2016) the assessee argued against slump sale and won, because individual asset values were predetermined and agreed within the agreement, liabilities were not transferred and certain assets were retained. In Mahindra Engineering, above, nine separately priced agreements were still held to be a slump sale. The principle is common ground. The outcome turns on findings of fact about how the price was arrived at, and this is not a conflict a High Court can resolve.

The most recent High Court treatment is CIT v. M/s Spectra Shares and Scrips Limited (Telangana High Court, I.T.T.A. No. 412 of 2010, 31 October 2025), where the Department had allocated portions of the consideration to land, building, plant and machinery, goodwill and a non-compete fee, and invoked the balancing charge. The Court affirmed concurrent findings that the entire business had been sold as a going concern without individual valuations, and said in terms that “artificially or forcefully allotting values to certain assets with the sole objective of coaxing at least some of the consideration into the mould of a taxable transfer would amount to doing violence to the intent of the Act and is therefore impermissible.” It should be cited for that proposition and for the inapplicability of the balancing charge, and not as an authority on section 2(42C): the assessment year was 1998-99 and the Court held that sections 2(42C) and 50B, inserted with effect from 1 April 2000, did not apply.

Can the transaction documents destroy the slump sale?

This is where the real risk sits, and it is a drafting risk rather than a legal one. Artex holds that values can be assigned by evidence outside the agreement. Every one of the following is that kind of evidence.

A schedule of assets with values annexed to the agreement. The defence is Mugneeram Bangur, reinforced by the statutory carve-out in section 2(103)(b)(ii), but only if the schedule is expressed to be solely for stamp duty and registration and carries book figures rather than negotiated ones. Note the words “for the sole purpose of”. If the same schedule of values also allocates risk, fixes indemnity caps or supports a price adjustment, the carve-out is arguably unavailable on its own terms. And note that “other similar taxes or fees” has not been held to extend to GST valuation; do not assume it does.

A price adjustment keyed to net current assets. Premier Automobiles Ltd v. ITO (2003) 264 ITR 193 (Bom) held that a reference to net current asset value in a slump sale agreement does not convert the transaction into an itemised sale. But a completion accounts mechanism that trues up the price line by line comes a good deal closer to assignment than a single net working capital adjustment does.

A separately priced non-compete covenant. This is routinely carved out and separately taxed, and the Department used exactly this in Spectra Shares to argue allocation. It is an allocation of part of the total to something that is not part of the undertaking, and after Sharp Business System (below) it has become more attractive to buyers, which means it will be seen more often and argued about more often.

The accountant’s report. The report in Form No. 28 under rule 54 is a statutory requirement and it necessarily lists asset and liability values. It is a net worth computation, not a consideration allocation, and the drafting should keep that distinction visible. The Assessing Officer will nonetheless put it to the assessee, and the Assessing Officer will have it in the file from the outset.

The valuation report supporting the price. A discounted cash flow or net asset value valuation of the business is safe. An asset-by-asset summation that reconciles to the price is Artex on all fours.

The buyer’s purchase price allocation. Under Ind AS 103 the buyer is required to allocate the consideration to identifiable assets and liabilities at fair value, with the residue to goodwill. The seller’s answer is that this is a post-acquisition accounting exercise performed unilaterally by the buyer, it post-dates the transfer, and it is not “values being assigned in such transfer” by the parties. That answer is good, but it has never been tested: no reported decision has been traced in which an Assessing Officer succeeded or failed on the strength of a buyer’s purchase price allocation used against the seller. The document exists, it is in the buyer’s hands, it is discoverable, and it produces a complete item by item reconciliation to the price. Expect it to be produced.

What follows for drafting is practical rather than legal:

• state a single lump sum in the operative clause, and do not repeat it as a sum of parts anywhere;
• where a schedule of values is unavoidable, recite in terms that it is solely for the purpose of payment of stamp duty and registration fees and for no other purpose, tracking the statutory words;
• keep the schedule consistent with its stated purpose, since a schedule whose figures add up to the negotiated price is exactly the material the Artex line of argument feeds on;
• value the business, not the assets, in the supporting valuation, and keep the working papers consistent with that;
• negotiate and justify any non-compete consideration separately and on its own merits;
• provide expressly that any purchase price allocation prepared by the buyer is for its financial reporting only and does not constitute an allocation agreed between the parties.

Does a slump sale for shares, or under a scheme, count?

For any transfer from assessment year 2021-22 onwards, yes. For earlier years, the law was genuinely split and the split still matters, because appeals from those years are still being heard.

Until the Finance Act 2021 the definition required a transfer “as a result of the sale”. A sale in law requires a money price: CIT v. Motors and General Stores (P) Ltd (1967) 66 ITR 692 (SC) and CIT v. R.R. Ramakrishna Pillai (1967) 66 ITR 725 (SC). A transfer of an undertaking against issue of shares or debentures was therefore an exchange, and fell outside the definition.

• CIT v. Bharat Bijlee Ltd (2014) 365 ITR 258 (Bom): the Lift Division was transferred under a scheme against preference shares and bonds. Held, not a slump sale, because a sale means a transfer for monetary consideration and an exchange is not a sale.
• Areva T&D India Ltd v. CIT (2020) 428 ITR 1 (Mad), 8 September 2020: a non-transmission and distribution business transferred to a subsidiary under a scheme against allotment of shares. Held, not a slump sale, on four grounds, including the independent ground that a transfer taking effect under a statutorily approved scheme is not a contractual sale at all.
• The same conclusion at Tribunal level in Avaya Global Connect (26 SOT 397), ITO v. Zinger Investments (P) Ltd (ITA No. 275/Hyd/2013, 21 August 2013), Oricon Enterprises Ltd v. ACIT (ITA No. 2913/Mum/2015, 16 May 2018) and Bennett Coleman & Co. Ltd.

Against that line stands SREI Infrastructure Finance Ltd v. Income Tax Settlement Commission (Delhi High Court, W.P.(C) 1592/2012, 30 March 2012), which held that the use of the word “transfer” in the definition is significant, that any type of transfer in the nature of a slump sale is covered, and that the use of the word “sale” in the term “slump sale” does not narrow down the concept of transfer. The Court added that the fact that the transfer took effect under a statutory scheme is not a ground to escape tax on the transfer of a capital asset.

The Finance Act 2021 substituted “by any means” for “as a result of the sale” with effect from assessment year 2021-22, and inserted an Explanation applying the general meaning of transfer. The Finance Act 2022 made a curative change to the closing words. The Income-tax Act, 2025 carries “by any means” into section 2(103)(a) unchanged. So for current transactions the argument is closed.

Whether the 2021 substitution reaches earlier years is open, and no reported decision of any High Court or the Supreme Court on the point has been traced. The taxpayer’s case is that both amendments carry express commencement language tied to assessment year 2021-22; that an amendment enlarging a charge is presumed prospective on the Constitution Bench decision in CIT v. Vatika Township (P) Ltd (2014) 367 ITR 466 (SC); and that the Memorandum’s own acknowledgement that courts had interpreted the earlier words as excluding exchange is a legislative admission that those decisions were right on the then text. The Department’s case is that the stated object was to make the intention clear, that disguised exchanges were said to be already covered, and that SREI shows the earlier law was not settled. Anyone still litigating an exchange for assessment year 2020-21 or earlier should expect that argument and should not be told it is settled either way.

One residual point survives the amendment. Areva’s second ground, that a vesting under a court or Tribunal sanctioned scheme is a statutory transmission and not a bargain at all, is not obviously answered by words that address the mode of transfer. That is an argument, not a holding, and it should be presented as one.

Is an intra-group slump sale taxable at all?

The most common slump sale in practice is not a sale to a third party. It is a group reorganisation: a division hived down to a wholly owned subsidiary, or a business pushed up to the parent. That changes the analysis at the threshold.

Section 70(1) of the 2025 Act, the successor to section 47 of the 1961 Act, lists transactions that are not regarded as transfer at all. Two of them matter here: a transfer of a capital asset by a holding company to its wholly owned Indian subsidiary, and a transfer by a subsidiary to its Indian holding company which holds the whole of the share capital. Where the exclusion applies there is no transfer, so no charge under section 77 arises, and the question of net worth and of rule 53 does not arise either. This is the reason a hive-down to a wholly owned subsidiary, followed later by a sale of that subsidiary’s shares, is such a common structure.

Four conditions on it are easy to miss:

• The subsidiary or the holding company must be an Indian company. The exclusion does not run to a foreign parent or a foreign subsidiary.
• The holding must be of the whole of the share capital, directly or through nominees. A ninety nine per cent holding does not qualify.
• The asset must not be transferred as stock in trade. A business whose principal asset is inventory, typically a real estate undertaking, may fall outside on this ground alone.
• The relief is withdrawn if, at any time before the expiry of eight years from the transfer, the transferee ceases to hold the capital asset as a capital asset, or the parent ceases to hold the whole of the share capital of the subsidiary. The gain not charged at the time is then brought to tax in the year of the breach, in the hands of the transferor. A sale of the subsidiary within eight years is the usual trigger, and it is a trap in exactly the structure the exclusion was used to create.

Where the exclusion does not apply, an intra-group slump sale is taxed like any other, with two additional exposures. Rule 53 bites hardest here, because a related party transfer is often priced at book value or at net asset value and FMV1 will exceed it. And the general anti-avoidance rules, discussed below, are directed at exactly this kind of arrangement.

How is the gain on a slump sale computed?

Section 77(1) charges the profits or gains arising from a slump sale effected in the tax year as long-term capital gains, deemed to be the income of the tax year in which the transfer took place, subject to sub-section (2). Section 77(2) makes them short term where the undertaking or division was owned and held for thirty six months or less immediately before the date of transfer.

Section 77(3) does the work:

“(a) the ‘net worth’ of the undertaking or division shall be deemed to be the cost of acquisition and the cost of improvement for sections 72 and 73; (b) the fair market value of the capital assets on the date of transfer, calculated in such manner, as may be prescribed, shall be deemed to be the full value of the consideration received or accruing as a result of such transfer.”

Two deemings, pointing in opposite directions. The rest of this article is largely about each of them. The bare provision, with its threshold questions and the recurring disputes in summary, is set out at section 50B and section 77.

Section 77(4) requires the accountant’s report. Section 77(5) defines net worth and prescribes how the assets are measured.

What goes into net worth, and what does not?

Section 77(5)(a):

“the ‘net worth’ shall be the ‘aggregate value of total assets’ of the undertaking or division, as reduced by the value of its liabilities as appearing in the books of account, and for computing net worth, any change in the value of assets due to revaluation shall be ignored”

Section 77(5)(b) then fixes the aggregate value of total assets, and this is where most of the damage is done:

Asset	Value taken
Depreciable assets	written down value of the block, under section 41(1)(c)
Goodwill of a business or profession not acquired by purchase from a previous owner	nil
Capital assets whose entire expenditure has been allowed or is allowable under section 46 (specified business)	nil
All other assets	book value

Depreciable assets, and the depreciation you never claimed. The measure is the written down value of the block under the income-tax written down value machinery, which means tax written down value and not book value. The provision requires the actual cost to be reduced by the depreciation “that would have been allowable” for any assessment year commencing on or after 1 April 1988. The Delhi High Court decided what that means in CIT v. Dharampal Satyapal (ITA 1003/2011, judgment of 6 January 2016, S. Muralidhar and Vibhu Bakhru JJ). The assessee had never claimed depreciation and argued that depreciation is a privilege which cannot be converted into a disadvantage. The Court answered the question in favour of the Revenue: the quantum of depreciation actually allowed has no relevance, and the notional depreciation must be deducted anyway.

This is the authority that most often decides the net worth computation in practice, and it is the only High Court ruling on the point. An assessee who never claimed depreciation, for whatever reason, still has its deemed cost stripped down as if it had, and the gain rises correspondingly.

Revaluation is ignored. The exclusion is narrower in effect than it looks. Depreciable assets come in at tax written down value, which no book revaluation can touch. The exclusion therefore bites only on assets taken at book value, of which the important one is land. That is where a pre-transfer write-up buys nothing, and where the Department will look. There is no decided case on a revaluation carried out shortly before a transfer, so the Department’s real weapon here is not the exclusion at all but the fair market value rule discussed below.

Self-generated goodwill is nil. The Finance Act 2021 inserted the rule and the 2025 Act carries it forward. Purchased goodwill is not covered by it and enters at book value as an “other asset”.

Fully deducted specified-business assets are nil. Where the whole of the expenditure on a capital asset has been allowed or is allowable as capital expenditure of a specified business, the asset counts for nothing in net worth, even though the buyer will pay full value for it. Note the word “whole”. Where only part of the expenditure was so allowed, the clause on its face does not apply and the asset falls into “other assets” at book value. That point is untested.

Everything else at book value, read subject to the revaluation exclusion, so book value means the pre-revaluation carrying amount.

The open questions on net worth

There are more of these than the commentary usually admits, and a practitioner should know which of them have no answer:

• Provisions, contingent liabilities and deferred tax liabilities. The words are unqualified: “the value of its liabilities as appearing in the books of account”. Nothing carves out a provision for gratuity, warranty or taxation, or a deferred tax liability. There is no appellate authority either way. There is, however, a good argument from the structure of the statute: rule 53, in computing FMV1, expressly excludes reserves and surplus, unascertained provisions and contingent liabilities from the liabilities to be deducted. The legislature therefore knew how to exclude them when it wanted to, and did not do so in section 77(5)(a).
• Liabilities the buyer does not assume. The taxpayer’s position is that net worth is a balance sheet concept of the undertaking, not a deal concept, so what the buyer assumes is irrelevant. The Department argues the opposite. The one decided case runs the Department’s way but is weak: in Universal Dairy Products P. Ltd, a rectification order of the Delhi Tribunal, bank liabilities were excluded from the deduction on the twin grounds that they neither existed in the books nor were transferred. The decisive finding was that the liability was not in the books at all, which is squarely within the statutory words, so the case is thin authority for the wider proposition.
• Assets not reflected in the books at all. An unrecorded asset has a book value of nil and so contributes nothing. That reading is effectively confirmed by the 2021 insertion of the self-generated goodwill rule, which only made sense on the premise that the asset side otherwise takes book value.
• A block containing assets that were not transferred. The statute says the written down value “of the block of assets”, not of the assets transferred. Read literally, machinery that stays with the seller still contributes its written down value to net worth. The Department will say the clause prescribes the measure and not the population. Both readings are respectable and there is no decided case.

What happens when net worth is negative?

This is the point on which sellers are most often, and most expensively, wrong.

The intuition is that an undertaking whose liabilities exceed its assets has a net worth of nil, and that a business sold for a small price can produce only a small gain. Both propositions are false.

In DCIT v. Summit Securities Ltd (ITAT Mumbai, Special Bench, ITA No. 4977/Mum/2009, AY 2006-07, order of 7 March 2012, D. Manmohan VP, N.V. Vasudevan JM and R.S. Syal AM, reported at (2012) 135 ITD 99 (Mum)(SB)) the Power Transmission Business was transferred under a scheme for Rs 143 crore. The undertaking had assets of Rs 1,360.62 crore and liabilities of Rs 1,517.81 crore, so net worth was negative Rs 157.19 crore. The assessee treated net worth as nil and offered Rs 143 crore. The Assessing Officer computed a gain of Rs 300 crore.

The Special Bench split the difference in a way that helped nobody:

1. On the consideration, the Department lost. The liabilities assumed by the purchaser cannot be added to the sale consideration, because, as the Bench put it, if one adds the liabilities to this value one is arriving at the consideration for the assets and not for the undertaking. The full value of consideration remained Rs 143 crore.
2. On net worth, the assessee lost. The amount of net worth will be a negative figure of Rs 157 crore and not zero. Because the computation subtracts net worth, subtracting a negative figure is arithmetically the same as adding it.

Gain: Rs 143 crore less negative Rs 157 crore, equals Rs 300 crore, on a price of Rs 143 crore.

The Special Bench declined to follow Zuari Industries Ltd (2007) 105 ITD 569 (Mum) and Paper Base Co. Ltd (2008) 19 SOT 163 (Del), which had held that negative net worth is taken as nil and that capital gain can never exceed the sale consideration. Those decisions are no longer good law at Tribunal level, and commentary still repeating them, of which there is a surprising amount, is wrong.

Summit Securities has been applied since in Cyfast Enterprises P. Ltd v. DCIT (ITA No. 1878/Mum/2015, 22 November 2016), Gati Kintetsu Express Pvt Ltd v. DCIT (ITA Nos. 2829 to 2833/Mum/2023, 13 May 2024) and Pricol Engineering Industries Ltd v. ACIT (ITA No. 1049/Chny/2019, 11 January 2023), the last of which accepted the principle but distinguished it where the consideration itself was nil.

No High Court or the Supreme Court has decided the question on the merits. The Bombay High Court admitted it as a substantial question of law in Wockhardt Hospitals Ltd v. Addl. CIT (Income Tax Appeal No. 1311 of 2017) on 20 January 2020, framing whether the negative net worth of the undertaking is to be added to the consideration and whether an undertaking can have a negative cost for the purposes of the computation. The argument that section 45 charges “profits or gains arising from the transfer” and cannot reach a figure the seller never received has therefore never been ruled on. It remains the one genuinely open line of attack, and section 77(5)(a) of the 2025 Act reproduces the same arithmetic with no floor at zero, so the point carries forward intact.

The practical consequence deserves to be stated bluntly, because it is counter-intuitive and it is the reason distressed divestments go wrong: transferring a loss making undertaking with negative net worth for a small price produces a larger taxable gain, not a smaller one.

A worked example: computing the tax on a slump sale

The figures below are illustrative, but the shape is the one that turns up. ABC Ltd sells its packaging division, owned and run for nine years, to an unrelated buyer for a lump sum. All figures in Rs lakh.

The division’s books at the date of transfer

	Book value	Tax written down value of the block
Land	300	not applicable
Building	260	220
Plant and machinery	540	480
Furniture and fittings	25	20
Inventory	260
Trade receivables	340
Cash and bank	40
Preliminary expenses not written off	10
Brand built over nine years, not in the books	nil
Liabilities
Term loan	350
Trade payables	280
Provision for gratuity and leave, on actuarial valuation	60
Provision for warranty	25

Step one: net worth, under section 77(5)

Depreciable assets come in at the written down value of the block, not at book value. The brand is self-generated goodwill and is nil. Everything else is at book value, including the preliminary expenses, because section 77(5)(b)(iv) says “other assets” and does not qualify it.

	Rs lakh
Land, at book value	300
Building, at block written down value	220
Plant and machinery, at block written down value	480
Furniture and fittings, at block written down value	20
Inventory, receivables and cash, at book value	640
Preliminary expenses, at book value	10
Self-generated brand	nil
Aggregate value of total assets	1,670
Less liabilities as appearing in the books (350 + 280 + 60 + 25)	(715)
Net worth	955

Note what has already happened. The building and the plant have lost Rs 40 lakh and Rs 60 lakh of book value respectively, because the block written down value is lower. The brand the division was built on contributes nothing. And if ABC Ltd had never claimed depreciation, the written down values would still be struck after deducting the depreciation that would have been allowable, on Dharampal Satyapal.

Step two: the deemed consideration, under rule 53

Rule 53 does not use the same measures. The written down values disappear and book values come back; the preliminary expenses are stripped out because they do not represent the value of any asset; the immovable property is taken at stamp duty value, which is Rs 1,100 lakh against a book figure of Rs 560 lakh; and on the liabilities side the warranty provision drops out as a provision for an unascertained liability, while the actuarially determined gratuity and leave provision stays.

FMV1	Rs lakh
A: book value of assets other than immovable property (540 + 25 + 260 + 340 + 40), less the preliminary expenses of 10	1,205
B: jewellery and artistic work	nil
C: shares and securities	nil
D: immovable property at stamp duty value	1,100
L: book value of liabilities, excluding the warranty provision (350 + 280 + 60)	(690)
FMV1	1,615

FMV2 is the consideration. On the facts as first stated, the price is Rs 1,850 lakh in cash, so FMV2 is 1,850. The higher of the two is taken.

Step three: the tax

	Rs lakh
Full value of consideration, being the higher of FMV1 (1,615) and FMV2 (1,850)	1,850
Less net worth, deemed to be cost of acquisition and cost of improvement	(955)
Long-term capital gain	895
Tax at 12.5 per cent under section 197, before surcharge and cess	111.88

Long term, because the division was owned and held for more than thirty six months. No indexation, and none lost, because there was never any to have.

The same division, sold for less

Now change one fact. The division is under pressure and the buyer pays Rs 1,400 lakh. FMV2 falls to 1,400. FMV1 does not move, because it is built from the balance sheet and the circle rate and takes no notice of what the business is worth.

	Rs lakh
FMV1	1,615
FMV2, being the price actually received	1,400
Full value of consideration, the higher of the two	1,615
Less net worth	(955)
Long-term capital gain	660
Tax at 12.5 per cent	82.50

ABC Ltd is taxed on Rs 1,615 lakh having received Rs 1,400 lakh. It pays tax on Rs 215 lakh it never got, and there is no route to a Valuation Officer to say so.

And the same division, carrying debt

Now change one more fact. The term loan is Rs 1,900 lakh rather than Rs 350 lakh, the buyer takes the debt over, and the price is a token Rs 100 lakh.

	Rs lakh
Aggregate value of total assets, as before	1,670
Less liabilities (1,900 + 280 + 60 + 25)	(2,265)
Net worth	(595)
FMV1: 1,205 + 1,100 less liabilities of 2,240	65
FMV2, the price received	100
Full value of consideration, the higher of the two	100
Less net worth, a negative figure, so it is added	+595
Long-term capital gain	695
Tax at 12.5 per cent	86.88

ABC Ltd receives Rs 100 lakh and pays Rs 86.88 lakh of tax on a gain of Rs 695 lakh, nearly seven times the price. Nothing here is a mistake in the arithmetic. It is what Summit Securities decided, and it is why a distressed divestment has to be modelled before it is agreed rather than after.

Why does thirty six months still matter, when it matters nowhere else?

Section 77(2) treats the gain as short term where the undertaking was “owned and held by an assessee for thirty six months or less, immediately before the date of its transfer”. The proviso to section 50B(1) of the 1961 Act is in the same terms.

Two things follow, and the second is an anomaly worth knowing about.

The undertaking is the asset that is measured, not its components. A twenty year old undertaking that bought a machine last month produces an entirely long term gain. A twelve month old undertaking holding land the transferor has owned for thirty years produces an entirely short term gain. There is no apportionment mechanism, and the definition of slump sale forbids assigning values to individual assets in any event. The Supreme Court said as much at the level of principle in CIT v. Equinox Solution Pvt Ltd (Civil Appeal No. 4399 of 2007, 18 April 2017): where the entire running business with assets and liabilities is sold in one go, the sale cannot be treated as one of short-term capital assets, and the undertaking, held for nearly six years, was a long-term capital asset. Equinox was an assessment year 1991-92 case decided before section 50B existed, so it is authority on the unit of measurement rather than on the proviso, but on that point it is unanswerable.

Thirty six months survives here alone. The Finance (No. 2) Act 2024 rationalised holding periods across the Act to twelve months for listed securities and twenty four months for everything else, abolishing the thirty six month category. It did not touch the slump sale proviso, and the Income-tax Act, 2025 has carried the thirty six month test forward into section 77(2). The result is a cliff that has no counterpart anywhere else in the statute:

An undertaking sold at month thirty produces a short-term gain taxed at the assessee’s normal rate, whether the corporate rate or slab. The non-depreciable capital assets inside it, of which land and buildings are the important ones, would on a separate sale the same day be long term and taxed at 12.5 per cent.

The comparison should not be overstated. Depreciable assets sold separately are deemed short term under section 74 whatever the holding period, and stock in trade produces business income rather than capital gain. But for the asset that usually carries the accrued gain in an Indian business, which is the land and the building on it, the thirty six month test in section 77(2) is the only thing standing between 12.5 per cent and the full rate.

Whether that is deliberate or an oversight preserved from the 2024 rationalisation, nobody has said. Either way it is a timing point that belongs in the deal calendar, not in the tax computation at the end.

One more trap for a buyer who becomes a seller. There is no provision allowing the period of holding of a previous owner to be tacked on to an undertaking acquired by purchase. A buyer who acquires a business by slump sale and on-sells it within thirty six months has a short-term gain, however old the business itself is.

Is indexation available, and did the 2025 Act change anything?

Section 50B(2)(i) of the 1961 Act deemed net worth to be the cost of acquisition and cost of improvement for sections 48 and 49 “and no regard shall be given to the provisions contained in the second proviso to section 48”. The second proviso to section 48 was the indexation provision. The denial was express.

Section 77(3)(a) of the 2025 Act carries no equivalent direction. It deems net worth to be the cost of acquisition and the cost of improvement for sections 72 and 73, and stops there. Section 72 continues to define indexed cost of acquisition and the Cost Inflation Index. On the bare text there is a thin argument that indexation is no longer excluded.

The answer is that the exclusion had become spent before the new Act was drafted. The Finance (No. 2) Act 2024 withdrew indexation for long-term capital assets transferred on or after 23 July 2024 and reduced the rate under the general long-term provision to 12.5 per cent. What survives is a narrow grandfathering: where land or building acquired before 23 July 2024 is transferred by a resident individual or Hindu undivided family, the excess of tax at 12.5 per cent without indexation over tax at 20 per cent with indexation is ignored. An undertaking is not land or building, and most slump sale sellers are companies or firms, so the relief cannot reach a slump sale by either limb. The omission from section 77(3)(a) is best explained as the removal of a clause that had nothing left to do.

It is worth raising in an argument. It is not a planning opportunity, and it should not be sold as one.

There is a cleaner point to make about the rate. Before 23 July 2024 a long-term slump sale gain was taxed at 20 per cent without indexation. It is now taxed at 12.5 per cent without indexation, under section 197 of the 2025 Act. The limb of the 2024 change that hurt other taxpayers, the loss of indexation, had been denied to slump sale sellers since 2000. The Finance (No. 2) Act 2024 was an unmixed benefit for them. Short-term gains get no concessional rate at all, which is what makes the thirty six month cliff bite so hard.

Can transfer expenses be deducted?

Net worth is deemed to be the cost of acquisition and the cost of improvement. Those are the second and third limbs of the computation. The first limb, expenditure incurred wholly and exclusively in connection with the transfer, is not mentioned.

• The taxpayer’s case. The deeming displaces only what it names, and it says so expressly, just as it expressly displaced the indexation proviso under the old Act. Had Parliament intended to oust the expenditure limb it would have said so. The charge is on the gain computed “as capital gains”, which imports the whole machinery. So brokerage, legal fees, financial advisory fees, transaction costs and stamp duty borne by the seller remain deductible.
• The Department’s case. Section 77 is a special and complete computation code whose object is to avoid asset-level and cost-level enquiry. The gain is consideration less net worth, and nothing else. In practice the Department also runs a factual line, that advisory and restructuring fees are incurred in connection with the reorganisation rather than with the transfer.
• Where the authority stands. In DCIT v. Larsen and Toubro Ltd (ITA No. 3369/Mum/2023, AY 2009-10, order of 20 December 2024) the Assessing Officer had disallowed Rs 27.08 crore claimed as transfer expenditure, comprising financial advisory fees of Rs 8.31 crore and other expenses of Rs 18.77 crore. The Tribunal held that transfer expenses are allowable in computing capital gains on a slump sale, and that the first limb cannot be excluded from being claimed as a deduction for the purposes of the computation. The contrary decision, Paper Base Co. Ltd (2008) 19 SOT 163 (Del), disallowed the expenditure but appears to have done so on a finding about genuineness and character rather than on a holding that the limb is unavailable; it is also the decision that was not followed on negative net worth by the Special Bench in Summit Securities.

There is no High Court ruling either way, so the point is not settled. The practical advice is to document the nexus of each fee to the transfer itself, separate deal execution costs from group restructuring and post-closing integration, and expect stamp duty borne by the seller to be on the strongest footing and a success fee on the weakest.

How does rule 53 now fix the consideration?

This is the single most aggressive change to the taxation of slump sale in twenty five years, and it entered the statute almost silently.

Section 50B(2) of the 1961 Act was substituted by the Finance Act 2021 with effect from assessment year 2021-22 to provide that the fair market value of the capital assets as on the date of transfer, calculated in the prescribed manner, shall be deemed to be the full value of the consideration. Section 77(3)(b) of the 2025 Act carries it forward in materially identical terms.

Two facts about how it arrived are relevant to how it should be read. It was not in the Finance Bill 2021 as introduced. It was inserted by amendments moved at the enactment stage in late March 2021, and the Budget Memorandum contains no paragraph explaining it; what the Memorandum explains is the separate widening of the definition to catch exchanges. And the implementing rule was notified two months later, on 24 May 2021, without prior public consultation. Any Departmental argument from legislative intent has very little to work with.

The mechanics

Rule 53 of the Income-tax Rules, 2026, the successor to rule 11UAE of the 1962 Rules, takes the higher of two figures, both determined on the date of the slump sale.

FMV1 = A + B + C + D less L, being a valuation of the assets transferred:

• A: the book value of all assets other than jewellery, artistic work, shares, securities and immovable property, reduced by income-tax paid less refund claimed, and by any amount shown as an asset that does not represent the value of any asset, including unamortised deferred expenditure.
• B: the open market price of jewellery and artistic work, on a registered valuer’s report.
• C: the fair market value of shares and securities, determined under the prescribed valuation rule.
• D: the value adopted, assessed or assessable by a government authority for stamp duty purposes in respect of the immovable property.
• L: the book value of liabilities, but not including paid-up capital in respect of equity shares; amounts set apart for dividends not declared before the date of transfer; reserves and surplus, by whatever name called, even if the resulting figure is negative, other than those set apart towards depreciation; provision for taxation to the extent of the excess over the tax payable with reference to book profits; provisions for meeting liabilities other than ascertained liabilities; and contingent liabilities other than arrears of dividend on cumulative preference shares.

FMV2 = E + F + G + H, being a valuation of the consideration: the monetary consideration, plus the fair market value of non-monetary consideration represented by property covered by the prescribed valuation rule, plus the open market price of other non-monetary consideration on a registered valuer’s report, plus the stamp duty value of any immovable property received as consideration.

Why FMV1 is almost always the higher figure

Read the exclusions from L again. Reserves and surplus are added back. Provisions for unascertained liabilities are added back. Contingent liabilities are added back. What remains deductible is, broadly, hard third party debt.

FMV1 is therefore not a net asset value at all. It approximates gross assets, partly at revalued or circle-rate figures, less only borrowed money. For any company that has accumulated reserves, which is to say any company that has ever been profitable, FMV1 structurally exceeds book net worth, and it will usually exceed a price negotiated for a business whose value lies in its future earnings.

Four consequences, each of which is a live grievance and none of which has been litigated:

1. A seller can be taxed on a figure higher than it received. Nothing in the rule caps FMV1 at the consideration, and nothing requires the two to bear any relationship.
2. Immovable property is forced to stamp duty value with no escape. The stamp duty value provision for capital assets, and the immovable property limb of the receipt provision, both allow the matter to be referred to a Valuation Officer where the assessee contends that the stamp duty value exceeds fair market value. Rule 53 contains no equivalent, so the circle rate enters the computation as a fixed input.
3. There is no carve-out for a distressed or loss making undertaking. A business sold for a rupee, or for the assumption of its debt, can still generate a large FMV1, because the loss-driven erosion of value is invisible to a formula built on book asset values and circle rates. Combine that with the negative net worth rule above and a distressed divestment can produce a tax bill that exceeds the entire consideration.
4. The increment is taxed once and relieved never. The seller is taxed on FMV1. The buyer’s depreciable cost is the actual price it paid, and since 2021 the goodwill element is not depreciable at all. There is no correlative adjustment anywhere in the Act.

What has happened since, which is nothing

As at September 2026 there is, so far as can be traced, no reported judicial decision applying or testing the rule, and no writ petition challenging it. There is no CBDT circular, instruction or clarification addressing any of the anomalies. The Bombay Chartered Accountants’ Society made a detailed representation in November 2021 asking for grandfathering of deals announced before the rule was notified, an option to be governed by the pre-rule law, a Valuation Officer reference on the model of the stamp duty provision, the ability to displace the normative figure with an independent valuation, and carve-outs for listed and Tribunal-approved transactions. None of those suggestions has been adopted.

The available challenge is therefore interpretive and untested. It rests on four propositions: that a rule cannot enlarge a charge; that the rule contradicts the definition of slump sale itself, which is predicated on values not being assigned to individual assets while the rule compels exactly that assignment; that the absence of a rebuttal mechanism where every cognate provision has one is arbitrary; and that the provision entered the statute without a memorandum or consultation. None of these has been ruled on. A seller facing an FMV1 materially above its price should understand that it is arguing an open point, not applying a settled one.

Can sections 74, 78 or the stock in trade provision override section 77?

Three attempts have been made to fracture the lump sum and tax pieces of it separately. Two have failed; the third has never been decided.

Depreciable assets. The Department’s argument is that the undertaking contains depreciable assets and that, to their extent, the consideration must be taxed as short term. CIT v. Equinox Solution Pvt Ltd (18 April 2017) held that the depreciable assets provision applies where a block of assets is transferred, but that where the entire running business with assets and liabilities is sold in one go the sale cannot be treated as one of short-term capital assets. As noted above, that was a pre-section 50B year decided on the old depreciable assets provision, so it is authority on the unit of measurement rather than a ruling on the interaction of sections 74 and 77; on that point, however, it is unanswerable. The Kerala High Court and the Cochin Tribunal reached the same conclusion in the Accelerated Freeze Drying litigation: the depreciable assets provision is a complete code for depreciable assets, section 50B is a complete code for the sale of an undertaking as a whole, and the former does not apply to the latter.

Land and building at stamp duty value. The Department’s argument is that a stamp valuation exists for the immovable property inside the undertaking and should displace the price. The consistent Tribunal answer is that the capital asset transferred is the undertaking and not land or building, and that the definition of slump sale itself says a value determined solely for stamp duty purposes is not an assignment of value to individual assets. Cyfast Enterprises P. Ltd v. DCIT (ITA No. 1878/Mum/2015, 22 November 2016) and Hyderabad Industries Ltd v. DCIT (ITA Nos. 917 to 919/Hyd/2009) so held. No High Court has decided the seller-side point.

But this line of authority is now worth much less than it looks. Since the Finance Act 2021 the Department does not need it. Rule 53 brings the stamp duty value of immovable property into FMV1 directly, and the higher of FMV1 and FMV2 is the deemed full value. The stamp duty value enters the computation through the front door. Presenting the section 50C victories as current protection is a mistake.

Land or building held as stock in trade. Here there is no authority at all. The Department’s argument is that section 77 charges gains on the transfer of capital assets, that inventory is not a capital asset, and that the provision taxing stock in trade land and building at stamp duty value can therefore operate on that component notwithstanding section 77. The taxpayer’s answer is that the transfer is of a single indivisible asset for a lump sum, that the definition forbids assigning values to the individual assets, and that two heads of income cannot apply to one transfer of one asset. No decided case either way has been traced. A developer transferring a project undertaking with land in inventory should treat this as genuinely open.

What does the buyer of a business get in a slump sale, and what does it not?

The buyer’s tax position in a slump sale is worse than most buyers expect, and it got significantly worse in 2021.

Purchase price allocation, and the limit of it

The buyer receives a bundle for one price, and has to allocate it for depreciation. There is no statutory allocation mechanism; there is a statutory anti-allocation mechanism. Under section 43(1) Explanation 3 of the 1961 Act, carried forward in the actual cost provision of the 2025 Act at section 39, where assets were previously used by another person and the Assessing Officer is satisfied that the main purpose of the transfer was the reduction of a liability to income-tax by claiming depreciation on an enhanced cost, the Officer may determine the actual cost himself, with the previous approval of the Joint Commissioner. That approval is a jurisdictional precondition and is often defective.

The leading case where the Department succeeded is Sanyo BPL (P.) Ltd v. DCIT [2016] 75 taxmann.com 253 (Bang. Trib.). A joint venture acquired a colour television business by slump sale for Rs 3.6 billion and, on an independent valuation, allocated Rs 442.9 million to a “distribution network” claimed as a depreciable intangible, Rs 738.4 million to tangible depreciable assets and only Rs 62.2 million to land, against a transferor’s written down value on the tangibles of Rs 157.5 million. The Tribunal upheld the Assessing Officer: both conditions were met and the allocation was an ingenious attempt and a colourable device to claim higher depreciation. What made it fatal was the pattern: the non-depreciable asset was suppressed while the depreciable ones and a novel intangible were inflated.

The contrary case is Triune Energy Services Private Limited v. DCIT (Delhi High Court, ITA 40/2015 and ITA 189/2015, 19 November 2015), where the Court held that the agreement was a legitimate business transaction and not a colourable device, and that the difference between the consideration and the net tangible assets legitimately constituted goodwill.

The dividing line for a practitioner is therefore: an allocation supported by a contemporaneous independent valuation, internally consistent, with land and other non-depreciable assets taken at credible values, and explicable by the commercial logic of the deal, survives. An allocation whose pattern is explicable only by the depreciation rate table does not.

Goodwill, and why the price a buyer can pay has fallen

The Finance Act 2021 removed goodwill of a business or profession from the block of assets and from the list of depreciable intangibles with effect from assessment year 2021-22, with consequential rules reducing the written down value of the intangibles block and deeming that reduction to be a transfer.

The consequence is commercial rather than technical, and it is first order. Goodwill is usually the largest single component of the excess of the price over the value of the identifiable assets. Since 2021 it is a permanently non-deductible cost. A buyer that could previously write down the intangibles block by a quarter of its written down value each year now writes off none of the goodwill, which directly reduces what it can afford to pay.

For earlier years the position was the opposite and remains live in pending appeals, on the authority of CIT v. Smifs Securities Ltd (2012) 348 ITR 302 (SC), which held that goodwill falls within “any other business or commercial rights of a similar nature” and is depreciable. The most recent application is Hi-Tech Radiators (P) Ltd v. DCIT (ITAT Mumbai, ITA No. 1563/Mum/2026, order of 30 July 2026), where depreciation was claimed for the first time in assessment year 2018-19 on goodwill arising from a 2009-10 business transfer, and allowed: the succession restrictions did not apply because the goodwill had never existed in the predecessor’s books, and the 2021 amendments were prospective. That case is analysed separately in Section 32: does slump-sale goodwill depreciation survive 2021?.

Non-compete fees, after December 2025

The law here changed recently and much of the available commentary predates the change.

In Sharp Business System v. Commissioner of Income Tax-III (2025 INSC 1481, Civil Appeal No. 4072 of 2014, judgment of 19 December 2025) the assessee had paid Rs 3 crore for a seven year non-compete covenant. The Supreme Court held that the payment is revenue expenditure allowable under section 37(1), reversing the Delhi High Court. The reasoning is that the decisive test is whether the payment alters the fixed capital structure or merely improves business efficiency, and that a non-compete payment only seeks to protect or enhance profitability, neither creating a new asset nor adding to the profit earning apparatus.

Two qualifications matter and are widely misreported. First, the Court expressly recorded that it was not concerned with the claim of depreciation on intangible assets, and remanded the remaining appeals in the batch to the respective Tribunals to be reheard in the light of the judgment. The depreciation question was not decided. Second, the logic nonetheless leaves little room for it: if no capital asset is created, there is nothing on which depreciation can run. The Delhi High Court applied the ruling in Hindustan Coca-Cola Beverages Pvt Ltd v. DCIT on 28 April 2026 and, where the covenant ran for more than a year and the expenditure had been claimed year on year, allowed it to be spread proportionately over the life of the covenant.

For the seller, the receipt of a non-compete payment remains taxable as business income. The asymmetry is worth noticing: a revenue deduction for the buyer against business income for the seller. That makes allocating consideration to a non-compete covenant more attractive to a buyer than allocating it to goodwill, and hands the Department a fresh characterisation argument on both sides of the transaction.

Depreciation in the year of transfer, and a conflict that is now open

The succession provision on depreciation, the sixth proviso to section 32(1) of the 1961 Act and section 33(5) of the 2025 Act, caps the aggregate depreciation allowable to predecessor and successor at what would have been allowable had the succession not taken place, and apportions it between them in the ratio of the number of days for which the assets were used. It names the conversion provisions, amalgamation, demerger and section 170. It does not name slump sale. Everything turns on whether a slump sale is a succession within section 170.

The decision usually cited for the proposition that it is is DCIT v. Archroma India Pvt. Ltd. (ITAT Mumbai, ITA No. 306/Mum/2019 and ITA No. 6919/Mum/2018 with C.O. No. 07/Mum/2020, AY 2014-15, order of 15 June 2020). The Tribunal held that the provisions of section 170 were clearly applicable, that an asset transferred under slump sale falls within the sweep of the proviso despite the words “slump sale” not being used in it, and that the transferee’s depreciation on the transferred assets is computed accordingly. The order is frequently cited under the name Areva T&D India Ltd, which is wrong: Areva is a case discussed inside the Archroma order, not its name. The same Tribunal followed Archroma in the assessee’s own later year (ITA No. 590/Mum/2020, 29 June 2022).

The holding is also frequently overstated. Archroma did not simply cap the buyer at the seller’s written down value and stop. It held that the balancing excess of the consideration over those values is goodwill, on which, in the years before the 2021 amendments, depreciation was allowable.

And it is no longer a safe proposition. Two recent Tribunal decisions have declined to follow it:

• DCIT, Circle-1(1), Chandigarh v. Glaxosmithkline Consumer Pvt. Ltd. (ITAT Chandigarh, 16 October 2025) upheld a finding that a purchase through slump sale cannot be considered a succession under section 170.
• Edgeverve Systems Limited v. ACIT (ITAT Bangalore, 30 January 2026) distinguished Archroma and held that where the transferor continues to exist and continues to carry on its own business after the transfer, there is no succession to a business as a whole, so the essential condition for invoking section 170 is not satisfied.

That reasoning has real force where a company sells one division and carries on several others, which is the ordinary case. As at September 2026 the question whether a slump sale is a succession is open at Tribunal level and undecided by any High Court, and it governs not only the buyer’s first year depreciation but, as the next section shows, the buyer’s exposure to the seller’s tax.

Is the buyer charged on acquiring a business below value?

The receipt provision, section 56(2)(x) of the 1961 Act and section 92 of the 2025 Act, charges the recipient where “property” is received for a consideration below its fair market value. Does it reach a buyer who acquires an undertaking cheaply?

The better and majority view is that it does not, for two reasons. The definition of “property” for that charge is an exhaustive enumerated list, covering immovable property being land or building, shares and securities, jewellery, archaeological collections, drawings, paintings, sculptures, works of art, bullion and, under the new Act, virtual digital assets. An undertaking is not in the list, and what is transferred in a slump sale is a single indivisible capital asset, the undertaking, not the land or the shares or the plant inside it. And even if the charge were held to attach, there is no machinery: the valuation rules prescribe methods for jewellery, artistic work, shares and securities, and for unquoted equity shares. No rule values an undertaking for this purpose. On the principle that a charge without machinery fails, the charge would fail.

The Departmental theory, which has not been tested, is that once the buyer has performed its own purchase price allocation and recorded land, buildings and shares at ascribed values in its books, what it received was enumerated property acquired below fair market value, and its own allocation supplies the attribution that the slump sale withheld. The answer is that an accounting allocation required by Ind AS 103 cannot retrospectively convert a single-asset transfer into multiple asset transfers for a deeming provision.

No decision on the point has been traced. It remains an untested Departmental theory against a near-unanimous professional view, which is a different thing from a settled position, and it should be flagged in any transaction where the price is materially below an obvious asset value.

Do the seller’s losses travel with the business?

No, and this is often the reason a slump sale is the wrong structure.

The relief for carry forward of accumulated loss and unabsorbed depreciation on a business reorganisation, section 72A of the 1961 Act and section 116 of the 2025 Act, is confined to amalgamation, and then only of specified categories of undertaking and on conditions of continued holding and continued business, to demerger, and to the conversion of a firm or sole proprietary concern into a company, or of a company into a limited liability partnership, on the conditions prescribed in the corresponding clauses of the transactions-not-regarded-as-transfer provision. A slump sale is none of those. The losses stay with the seller, and the buyer acquires no tax attribute at all, including any MAT credit.

What the seller keeps is worth less than it looks:

• Brought forward business loss can be set off only against business income. It cannot be set off against the capital gain on the slump sale itself. It lapses at the end of the eighth assessment year. A seller that has sold its only business usually has no set-off base at all, so the loss is not lost by law, it is lost by absence of anything to set it against. Note that the continuity requirement, which once required the same business to be carried on, was removed with effect from 1 April 2000, so the loss survives the sale of the business; it simply has nothing to do.
• Unabsorbed depreciation is better placed. It merges into the current year’s allowance, carries forward without a time limit, and can be set off against income under any head other than salary. Continuity of business is not required: CIT v. Virmani Industries (P) Ltd (1995) 216 ITR 607 (SC).
• The order matters: effect is given to business loss before unabsorbed depreciation, which is the right way round, because business loss expires and depreciation does not.

Where the parties want the losses to move, the transaction has to be framed as a demerger under a scheme, satisfying every condition of the statutory definition including transfer at book values, transfer of all the property and liabilities of the undertaking, and issue of shares to the shareholders of the demerged company on a proportionate basis. That is incompatible with a cash sale to a third party, which is the whole point.

The share purchase alternative has its own obstacle. The change in shareholding provision, section 79 of the 1961 Act and section 119 of the 2025 Act, denies carry forward to a closely held company where shares carrying at least 51 per cent of the voting power are not beneficially held by the same persons as in the loss year. That is the standard reason a buyer who wants the losses cannot simply buy the shares of a closely held loss making target. It also means a pre-closing restructuring of the seller’s own shareholding can destroy the seller’s residual losses.

The MAT trap

There is a classic failure mode on a large slump sale by a company that is still on the old regime. Tax under the normal provisions is nil, because brought forward losses absorb the gain. Book profit under the minimum alternate tax provision, section 115JB of the 1961 Act and section 206 of the 2025 Act, is very large, because the gain has gone through the profit and loss account. The only deduction available is the lower of brought forward business loss or unabsorbed depreciation as per the books, and if either of those is nil the deduction is nil. Fifteen per cent of the book profit is then payable on a transaction the assessee had modelled as tax free.

The historical answer was to credit the gain directly to a capital reserve rather than route it through the profit and loss account, relying on Apollo Tyres Ltd v. CIT (2002) 255 ITR 273 (SC) for the proposition that the Assessing Officer cannot go behind the certified accounts. That route is no longer safe. The Madras High Court in PVP Corporate Parks (P) Ltd v. DCIT (T.C.A. No. 636 of 2016, judgment of 30 March 2026) held that capital profit on the sale of fixed assets cannot be taken directly to reserves and surplus in the balance sheet and must be routed through the profit and loss account to arrive at the correct book profit. The facts were a direct sale of assets rather than a slump sale, but the ratio transposes. The decision is not final: the Supreme Court issued notice on the special leave petition against it on 4 August 2026 and granted interim protection, so the point is live in both directions. And under Ind AS the question is largely academic in any event, because a gain on disposal of a business is recognised in profit or loss and there is no accounting freedom to park it in a reserve.

The trap does not arise at all for a company that has opted into the concessional corporate regimes, which are outside the minimum alternate tax. That is now most Indian corporate sellers. It remains live for companies still on the old regime, typically those sitting on large MAT credit or unexpired incentives, and it is exactly those companies that are most likely to have the brought forward losses that create the trap.

What does the buyer inherit by operation of law?

Two provisions matter, and they are mutually exclusive. A certificate under one gives no protection under the other, which is the most commonly made diligence error in this area.

Successor liability

Under section 170 of the 1961 Act, and section 313 of the 2025 Act, where a person carrying on a business has been succeeded by another who continues to carry it on, the predecessor is assessed on the income up to the date of succession and the successor on the income after it. That is the ordinary position and is not an exposure.

The exposure sits in two sub-sections:

1. Where the predecessor cannot be found, the successor is assessed on the predecessor’s income from that business for the part of the succession year up to closing, and for the whole of the immediately preceding previous year.
2. Where the tax for those same periods cannot be recovered from the predecessor, the Assessing Officer records a finding to that effect and the amount becomes payable by and recoverable from the successor, who has a statutory right of recovery against the predecessor that is worthless if the predecessor is insolvent.

The exposure is therefore capped by period, being the stub period plus one preceding year, and capped by business, being only the transferred business. It is not a general assumption of the seller’s tax history, and deal documents routinely describe it as though it were.

But note section 313(6) of the 2025 Act, and the Explanation to section 170 of the 1961 Act, which define income for this purpose to include the profits or gains arising from the transfer of the business consequent to the succession. That brings the seller’s own capital gain on selling to the buyer within the successor’s exposure, and that is normally the single largest tax number in the transaction. A seller that is a shell, wound up or struck off after closing, leaves the buyer facing an assessment on the gain the seller made.

Whether a slump sale is a succession at all is, as noted above, now contested: Archroma says yes; Glaxosmithkline Consumer and Edgeverve Systems say no where the transferor continues to exist and carry on business. A buyer cannot plan on the favourable answer.

The modified return machinery, section 170A of the 1961 Act, does not help. It is built around an order of a High Court, Tribunal or the Adjudicating Authority under the insolvency code, and its own definition of business reorganisation covers amalgamation, demerger and merger. A slump sale effected by agreement has no order and no route to modify past returns. That is a real asymmetry against the slump sale structure where a retrospective effective date matters.

Transfers void against the Revenue

Section 281 of the 1961 Act, carried forward as section 499 of the 2025 Act, provides that where, during the pendency of any proceeding or after its completion but before service of the recovery notice, an assessee parts with the possession of any of his assets, the transfer is void as against any claim in respect of tax payable as a result of that proceeding, unless it is made (i) for adequate consideration and without notice of the pendency or of the tax payable, or (ii) with the previous permission of the Assessing Officer. It applies where the tax exceeds Rs 5,000 and the assets exceed Rs 10,000 in value.

Three things follow for a buyer.

The Department cannot unwind the transaction by its own order. In Tax Recovery Officer II, Sadar, Nagpur v. Gangadhar Vishwanath Ranade (1998) 234 ITR 188 (SC), decided 10 September 1998, the Supreme Court held that the Tax Recovery Officer cannot declare a transfer void under section 281. His jurisdiction is confined to examining whether the third party is in possession in his own right or in trust for the assessee, and if he is satisfied it is the former he must release the property from attachment. To have the transfer declared void, the Department must file a suit.

But the buyer will still be dragged in. Attachment comes first and litigation afterwards. The commercial risk is not ultimate avoidance; it is a two to five year encumbrance on a plant, a building or a shareholding, which in a financed deal is fatal.

Diligence cuts both ways. The first exception requires the transfer to have been for adequate consideration and without notice. Once the buyer has seen outstanding demands on the portal, it has notice, and the first exception is gone. The permission route is therefore the real safe harbour. CBDT Circular No. 4/2011 dated 19 July 2011 sets out the procedure: application at least thirty days before the proposed transaction; permission granted where there is no outstanding demand and none likely within six months; payment of an undisputed demand, or a stay plus bank guarantee for a disputed one, as a precondition; Range Head approval where the value exceeds Rs 10 crore; and validity for 180 days, or until a provisional attachment order is served, whichever is earlier. That timetable has to be synchronised with closing, and it frequently is not.

One point in the buyer’s favour that has never been tested: the definition of “assets” for this purpose is an exhaustive list, being land, building, machinery, plant, shares, securities, fixed deposits in banks and, newly under the 2025 Act, virtual digital assets, to the extent they do not form part of stock in trade. It does not include an undertaking, goodwill, receivables, contracts or intellectual property. There is an arguable position that the provision can at most avoid the transfer of the listed assets rather than the undertaking as a whole.

The insolvency exception

Where the slump sale forms part of a resolution plan approved under section 31 of the Insolvency and Bankruptcy Code, 2016, the position is transformed. In Ghanashyam Mishra and Sons Private Limited v. Edelweiss Asset Reconstruction Company Limited (Civil Appeal No. 8129 of 2019, judgment of 13 April 2021) the Supreme Court held that on approval of a resolution plan, the plan binds the Central and State Governments and local authorities to whom statutory dues are owed, that all claims not part of the plan stand extinguished, and that the successful resolution applicant takes the corporate debtor on a clean slate. That is the strongest protection a buyer of a business can have, far stronger than any indemnity.

It does not travel. A slump sale by a solvent company outside insolvency proceedings gets none of it, and a buyer cannot bootstrap the protection onto an ordinary business transfer agreement.

GST on a slump sale: exempt, but not costless

A going concern transfer is exempt from GST, and the exemption is stable. Serial number 2 of Notification No. 12/2017-Central Tax (Rate) dated 28 June 2017 exempts, at a nil rate and without conditions, “services by way of transfer of a going concern, as a whole or an independent part thereof”. That entry survived the rate rationalisation of September 2025, which amended Notification 12/2017 rather than superseding it.

The characterisation works in two steps. Paragraph 4(c) of Schedule II to the CGST Act, 2017 deems a supply of goods where a person ceases to be a taxable person and goods form part of the assets of the business, but expressly carves out the case where the business is transferred as a going concern to another person. The transaction is then treated as a supply of service and exempted by the entry above.

The advance rulings have built conditions on top of that text. In re Rajashri Foods Pvt Ltd (Karnataka AAR, KAR ADRG 06/2018, 23 April 2018) held the transfer to be a supply of service covered by serial number 2, but expressly subject to the condition that the unit is a going concern, noting that the applicant had furnished no documentary evidence of it. In re Innovative Textiles Ltd (Uttarakhand AAR, 26 March 2019) allowed the exemption on four conditions: the assets must be sold as part of a business run as a going concern; the purchaser must intend to use them to carry on the same kind of business; where only part of the business is sold it must be capable of separate operation; and there must be no series of immediately consecutive transfers.

The most significant recent development is judicial rather than advisory. In M/s Shilpa Medicare Limited v. State of Andhra Pradesh (Andhra Pradesh High Court, W.P. No. 15955 of 2021, judgment of 31 January 2026, R. Raghunandan Rao and T.C.D. Sekhar JJ) the Court held that the transfer of goods in the course of the sale or transfer of the entire business undertaking as a going concern is not taxable at all, and set aside the appellate advance ruling of 10 November 2020 which had held that a transfer between two registrations of the same PAN was a supply of goods. That is now the high water mark for a buyer, since it removes the characterisation debate rather than winning it.

Three practical points survive all of this:

• Document the going concern. The rulings expect proof, not assertion. An accountant’s certificate that the unit is a going concern, and recitals recording the purchaser’s intention to continue the same business, should be in place before closing.
• Move the input tax credit properly. Section 18(3) of the CGST Act allows unutilised credit to transfer on a sale or transfer of business, but only where there is a specific provision for transfer of liabilities. Rule 41 requires Form GST ITC-02, a certificate from a practising chartered accountant or cost accountant that the transfer was made with that specific provision, and acceptance by the transferee on the portal. A business transfer agreement that transfers assets and a narrowly defined list of assumed liabilities risks the credit being stranded and lapsing. The transferee must already hold a registration in the same State before the form can be filed, so a newco buyer has to be registered before closing, not after. Circular No. 133/03/2020-GST dated 23 March 2020 confirms that the exercise is done State by State.
• Model the credit reversal. Because the supply is exempt, it enters the transferor’s exempt turnover, and section 17(2) read with rules 42 and 43 then requires a proportionate reversal of common input tax credit for the period. Where the transfer value is large relative to normal turnover, the ratio is distorted and a substantial reversal can be triggered in the month of closing, on a transaction that itself bears nil GST. This is routinely missed.

Stamp duty on a business transfer: the cost most often missed

Rates and articles are State specific and change, so what follows is the framework and not a rate card. Confirm the current schedule for the relevant State before signing.

The test is substance, not the label on the document. A business transfer agreement is chargeable as a conveyance only if the instrument itself effects an immediate transfer of title or interest. If it merely records an agreement to transfer, with the transfer to be effected later by delivery and by separate deeds, it is chargeable as an agreement. That is the effect of Chief Controlling Revenue Authority v. Anti-Biotic Project, AIR 1979 All 355, where the Allahabad High Court held that an instrument must itself create or vest complete title to be a conveyance, and that a document granting rights without a present transfer is an executory agreement. Most Indian business transfer agreements are drafted to stay on the right side of that line by providing expressly for separate deeds and for delivery.

Then the property divides three ways:

• Tangible movables pass by delivery. No instrument is needed, so no duty arises if none is executed. Use a delivery note or handover memorandum, not a deed.
• Intangible movables, meaning goodwill, actionable claims, debts and intellectual property, cannot pass by delivery. A written instrument is required, and such instruments are chargeable as conveyances. This is where the unplanned duty usually lands, and on a business sale the intangibles are often the largest part of the value.
• Immovable property requires a separate conveyance, stamped and registered. Whether embedded plant is movable or immovable turns on the degree of annexation and the intention of permanency: Duncans Industries Ltd v. State of UP, AIR 2000 SC 355.

Note how this interacts with the income tax. Allocating values to individual assets for the purpose of stamp duty and registration is expressly protected by section 2(103)(b)(ii), so the necessary stamp duty apportionment does not by itself destroy the slump sale. But the protection is for that purpose alone, and the schedule has to say so.

Two further points. Adjudication under the relevant State Act before or shortly after execution mitigates the risk of penalty, which can run to ten times the deficient duty. And an under-stamped agreement is inadmissible in evidence, which destroys the buyer’s ability to enforce the warranties and indemnities that are the entire commercial point of the document.

The scheme route offers no relief. In Hindustan Lever v. State of Maharashtra (2004) 9 SCC 438 the Supreme Court held that an order sanctioning a scheme is itself an instrument and a conveyance liable to duty, because it effects a voluntary transfer between consenting parties.

Companies Act: the resolution that makes the sale lawful

Section 180(1)(a) of the Companies Act, 2013 requires a special resolution before the board may sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking of the company, or of any of its undertakings where it owns more than one.

The thresholds are in the Explanation and they are lower than people expect. An “undertaking” is one in which the investment of the company exceeds twenty per cent of its net worth per the audited balance sheet of the preceding financial year, or which generates twenty per cent of the total income of the company during the previous financial year. The limbs are disjunctive, so a low-asset, high-revenue division qualifies. And “substantially the whole of the undertaking” is itself defined as twenty per cent or more of the value of that undertaking, which produces the counter-intuitive result that disposing of a fifth of a division that is itself a fifth of the company can require a special resolution. The drafting is much criticised. Advise conservatively and pass the resolution wherever the threshold is arguably crossed.

Section 180 does not apply to private companies, by the exemption notification of 5 June 2015, subject, since the amending notification of 13 June 2017, to the company being up to date on its financial statement and annual return filings.

If the resolution is not passed, the board has acted beyond its powers and the transaction is voidable at the instance of the company, with the directors liable for loss. But section 180(3)(a) protects the title of a buyer who takes in good faith, which is why buyers insist on the certified resolution and the filed Form MGT-14 before closing: seeing the defect destroys the good faith.

Where the parties are related, section 188 applies in addition. Board consent by resolution at a meeting is required, and prior shareholder approval where the prescribed threshold, ten per cent of net worth for a disposal of property, is crossed, with the related party not voting. The ordinary course of business exception will almost never be available for the sale of an undertaking. A contract entered into without the required approval and not ratified within three months is voidable at the option of the board. Listed companies have the SEBI listing obligations on top.

Slump sale or scheme?

The choice is between speed and completeness, and it should be made early because it cannot be revisited late.

A slump sale by agreement can be executed in weeks. The parties control the timing, there is no regulator in the path, and the terms are private. The price is that everything moves by its own mechanics: each asset transferred in its own way, each material contract novated, each licence re-applied for, each employee individually dealt with, and no accumulated loss moving at all.

A scheme under sections 230 to 232 vests the undertaking by operation of law. Contracts, licences, leases and pending litigation move without individual consents; employees transfer without individual agreement; an appointed date can give retrospective economic effect; dissenting creditors and members can be bound by class majorities; and if the scheme is framed as a demerger satisfying the statutory conditions, the accumulated losses travel. The modified return machinery becomes available only where the scheme is itself an amalgamation, merger or demerger within the statutory definition of business reorganisation, so an order sanctioning the transfer of an undertaking for consideration does not by itself attract it. The price is six to twelve months or longer, mandatory notice to the Income-tax Department and the other regulators, each with thirty days to object, and no flexibility once sanctioned. The Department routinely objects where there are outstanding demands.

Stamp duty is not avoided by the scheme route, on Hindustan Lever, but which route costs more is a State by State comparison and is often the real differentiator. Licences and consents usually are: where an undertaking runs on a factory licence, a consent to operate, a drug licence or a telecom licence that does not transfer by contract, the scheme route often wins on that ground alone.

Where does the general anti-avoidance rule fit?

The specific provisions the Department uses in a slump sale, the recharacterisation arguments under Artex, the actual cost power over an inflated allocation, the fair market value rule, are all targeted. Behind them sits a general power.

The general anti-avoidance rules, Chapter X-A of the 1961 Act and the corresponding Chapter of the 2025 Act, allow an arrangement to be declared an impermissible avoidance arrangement where its main purpose is to obtain a tax benefit and it has one of the listed tainted elements: rights or obligations not ordinarily created between persons dealing at arm’s length, misuse or abuse of the provisions of the Act, lack of commercial substance, or a manner or means not ordinarily employed for bona fide purposes. The consequences are wide: the arrangement can be disregarded or recharacterised, an entity can be looked through, the place of residence or the situs of an asset can be reassigned, and the tax benefit denied. There is a threshold, so that the rules apply only where the tax benefit in the relevant year exceeds three crore rupees in aggregate, and a procedural safeguard, in that invocation requires reference to an Approving Panel.

Four slump sale patterns are exposed to it:

• A hive-down followed by a share sale, where the business transfer to a wholly owned subsidiary is taken outside the charge and the subsidiary’s shares are then sold, so that the gain on the business is never taxed as a business gain. This is the classic case, and the eight year withdrawal provision is the specific answer; the general rules are the fallback where the specific one does not reach.
• Stripping liabilities into, or out of, the undertaking before the transfer, so as to move net worth in the direction that suits.
• A revaluation shortly before the transfer, which the express exclusion answers for the assets it reaches and which the general rules can reach for the rest.
• Routing consideration to a non-compete covenant, which is now a revenue deduction for the buyer and business income for the seller, where the covenant has no commercial content.

Two things should be said plainly. The rules have been little used against business transfers so far, and no reported decision applying them to a slump sale has been traced. And a commercially motivated reorganisation supported by contemporaneous board material, a genuine valuation and a real change in how the business is run is not an impermissible avoidance arrangement merely because a less efficient alternative would have produced more tax. But the file has to carry that material, and it has to be made at the time.

The other things that break a business transfer

None of these is the main event. Each has stopped a transaction.

Tax deducted at source on the immovable property. Whether the one per cent deduction on transfer of immovable property applies where land and buildings form part of an undertaking transferred for a lump sum is genuinely unresolved, and no decision has been traced. The taxpayer’s argument is that no sum is paid “by way of consideration for transfer of immovable property”, because the capital asset transferred is the undertaking and the definition forbids assigning values to the individual assets. The Department’s answer is now much stronger than it was, because rule 53 itself compels attribution of a stamp duty value to the immovable property, which supplies the quantification the taxpayer says is missing, and because the separate conveyance for the immovable property carries a stamp-duty-assessed value in any event. Market practice is to deduct protectively on the immovable component. The provision for deduction on purchase of goods raises a parallel and equally undecided question about inventory inside an undertaking, with the additional point that it is displaced where tax is deductible under another provision.

Cash. The prohibition on receiving two lakh rupees or more otherwise than through banking channels applies to a single transaction, and the whole consideration is one transaction. A single cash element taints the entire receipt, and the penalty is equal to the amount received. The traps are a cash component of the price, physical handover of the undertaking’s cash balances, and stub period collections.

Deemed dividend. Where the buyer is a closely held company and the seller or its promoter is a common shareholder above the threshold, leaving the consideration outstanding in a current account for a prolonged period invites recharacterisation as a loan or advance and a charge on the shareholder to the extent of accumulated profits. Pay consideration as consideration, and document any deferred tranche as deferred purchase price carrying interest.

Transfer pricing. Where the parties are associated enterprises and at least one is a non-resident, the slump sale is an international transaction and the arm’s length price of the undertaking has to be determined and documented. A purely domestic transfer between related parties is now generally outside the specified domestic transaction regime, since the clause covering payments to related persons was omitted with effect from 1 April 2017 and the Karnataka High Court has held that omission without a saving clause means the provision must be treated as never having been passed. It remains within the regime where a tax-holiday unit or a concessional-regime manufacturing company is involved.

Exchange control. A non-resident cannot directly acquire an Indian business undertaking; it has to establish an Indian entity first and acquire through it. The pricing guidelines under the non-debt instrument rules bite on the funding of that vehicle and on any later exit, not on the business transfer agreement itself, but sectoral caps, the downstream investment rules and, where an investor from a land-border country is involved, the prior approval requirement all apply to the vehicle.

Merger control. A business transfer crossing the asset or turnover thresholds in the Competition Act, 2002 needs clearance from the Competition Commission before it can be given effect, unless the de minimis exemption applies or the Green Channel route is available. Where it applies it adds months to the timetable and it is not waivable by agreement between the parties.

Deferred and contingent consideration. Earn-outs, holdbacks and escrow are standard, and the statute is not. The gain is chargeable in the tax year in which the transfer takes effect, and the rule 53 fair market value is fixed on the date of transfer, so an amount that may never be received can be taxed in the year of sale, and there is no express mechanism for adjusting the computation downwards if the contingency fails. Structure the contingent element as a separate right where possible, and expect the point to be argued.

Advance tax and interest. A deemed consideration above the price produces a gain the seller has not budgeted for and has not paid advance tax on, and interest runs from the instalment dates. Where FMV1 is expected to exceed the price, the advance tax instalment falling due in the quarter of closing has to be computed on the deemed figure, not on the cash.

Cross-border. Where the seller is a non-resident transferring an Indian undertaking, the source rules, treaty relief, permanent establishment attribution and the indirect transfer provisions all come into play, and repatriation of the proceeds requires the usual certification. That is a separate subject and is not covered here.

Employees. The Industrial Relations Code, 2020 has replaced the Industrial Disputes Act, 1947 and carries forward the rule that a workman in continuous service for a year is entitled to notice and retrenchment compensation on a transfer of the undertaking unless three conditions are satisfied: service is not interrupted, the terms after transfer are not in any way less favourable, and the transferee is legally liable to pay compensation on the basis of continuous service. Failing any one of them converts a transfer into a deemed retrenchment, which is a cash liability at closing rather than a contingency. Employees above the workman threshold are governed by contract and cannot be transferred without individual consent, which is why market practice is a tripartite transfer letter signed by buyer, seller and employee.

Gratuity and provident fund. Where the seller operates an exempted provident fund trust, transferring the corpus needs regulatory and tax approvals and the transferee must have its own exemption in place first, which takes months and has to be started at signing. On gratuity, a deduction is available only for a contribution to an approved fund, so the transferee has to establish and obtain approval for its own fund before any corpus can move; a lump sum paid by the seller to the buyer in respect of assumed gratuity liability sits uneasily with both the deduction provision and the disallowance of provisions, and its deductibility is contentious. The cleaner treatment is for the buyer to assume the liability and net it against the consideration, in which case the netted amount simply forms part of the consideration.

What is actually unsettled in slump sale taxation

A guide that presents this subject as settled is not much use, so here is the list of points on which there is, as at September 2026, no decided authority that can be relied on:

1. Whether the Finance Act 2021 substitution of “by any means” reaches transfers before assessment year 2021-22.
2. Whether a buyer’s Ind AS 103 purchase price allocation can be used against the seller to show that values were assigned.
3. Whether provisions, contingent liabilities and deferred tax liabilities are deductible in computing net worth.
4. Whether liabilities the buyer does not assume are deductible.
5. What happens where the block of assets contains assets that were not transferred.
6. Whether a revaluation carried out shortly before the transfer can be attacked on any ground other than the express exclusion.
7. Whether an asset only partly deducted as specified-business capital expenditure is taken at nil or at book value.
8. Whether negative net worth can produce a gain exceeding the consideration, consistently with the charging section. Admitted in the Bombay High Court, never decided.
9. Whether expenditure incurred in connection with the transfer is deductible. One Tribunal decision each way, no High Court.
10. Whether rule 53 is a valid exercise of the rule making power where it produces a deemed consideration above the price with no means of rebuttal. Never challenged.
11. Whether the stock in trade stamp duty provision can operate on land or building held as inventory inside an undertaking.
12. Whether a slump sale is a succession, now split at Tribunal level, which governs both the buyer’s first year depreciation and its exposure to the seller’s tax.
13. Whether the receipt provision can charge a buyer who acquires an undertaking below value.
14. Whether tax must be deducted at source on the immovable property component of a lump sum.
15. Whether the thirty six month holding period preserved in section 77(2) is deliberate.
16. What fixes the date on which a slump sale is “effected”, and how a transaction signed before 1 April 2026 and completed after it is to be treated.
17. When deferred or contingent consideration is chargeable, and whether the computation can be revisited if the contingency fails.

What to do about it

Most of the risk in a business transfer is created in the four weeks before signing and cannot be repaired afterwards. In rough order of how often things go wrong:

Model the tax before the price is agreed, not after. Compute FMV1 under rule 53 on the target’s own balance sheet before the letter of intent. If FMV1 materially exceeds the price, the seller is being asked to pay tax on money it will not receive, and that has to be in the price or the deal has to change shape. Run the net worth computation at the same time, with depreciation recomputed as if it had always been claimed, and check whether net worth is negative.

Decide slump sale or scheme early. The losses, the licences, the contracts and the timetable all point the same way in a given deal, and the decision cannot be made after diligence.

Watch the thirty six months. If the undertaking is approaching the threshold, the difference between signing in March and signing in June can be the difference between 12.5 per cent and the full rate.

Draft the consideration clause as a single lump sum and keep every schedule, valuation, completion mechanism and disclosure consistent with that. Assume the Assessing Officer will read the buyer’s purchase price allocation.

Get the section 281 permission on the calendar at signing. Thirty days lead, 180 days validity, and a disputed demand means a stay and a bank guarantee first.

Separate the tax indemnity from the business indemnity. Its survival period should track the reassessment limitation, not the usual twelve to twenty four months, and it needs an escrow or holdback behind it, because an indemnity against a dissolved seller is worth nothing and the successor liability provision is triggered precisely by the seller’s disappearance.

Fix the GST mechanics before closing, not after: the going concern certificate, the express provision for transfer of liabilities, the transferee’s registration in each State, and a model of the input tax credit reversal in the closing month.

Pass the special resolution wherever section 180(1)(a) is arguably engaged, and file Form MGT-14.

None of this makes the computation any friendlier. It does mean that when the notice comes, the file already contains the answer.

This note sets out the general position and is not advice on any transaction. It states the law as at 22 September 2026.

Related reading: Section 50B and section 77, slump sale, the provision page for this subject; Section 32: does slump-sale goodwill depreciation survive 2021?, which takes the goodwill point further; Conversion of a firm, company or LLP: the conditions that get breached, which is the alternative to a slump sale where the business is to stay with the same people in a different legal form; Firm and LLP reconstitution: section 9B, section 45(4) and the disputes, on what happens inside a firm or LLP when partners come and go; and Which Act governs an appeal filed today?, on the 1961 and 2025 Act transition that runs through this whole subject.

Statute: section 2(42C), section 50B, rule 11UAE, section 43, section 32, section 72A, section 170, section 92BA, and the Income-tax Act, 2025. Judgments: Doughty v. Commissioner of Taxes [1927] AC 327 (PC); CIT v. Mugneeram Bangur & Co. (1965) 57 ITR 299 (SC); CIT v. Motors and General Stores (P) Ltd (1967) 66 ITR 692 (SC); CIT v. R.R. Ramakrishna Pillai (1967) 66 ITR 725 (SC); CIT v. Artex Manufacturing Co. (1997) 227 ITR 260 (SC), 8 July 1997; CIT v. Electric Control Gear Mfg. Co. (1997) 227 ITR 278 (SC); CIT v. Virmani Industries (P) Ltd (1995) 216 ITR 607 (SC); Tax Recovery Officer II, Sadar, Nagpur v. Gangadhar Vishwanath Ranade (1998) 234 ITR 188 (SC), 10 September 1998; Apollo Tyres Ltd v. CIT (2002) 255 ITR 273 (SC); Hindustan Lever v. State of Maharashtra (2004) 9 SCC 438; Duncans Industries Ltd v. State of UP, AIR 2000 SC 355; CIT v. Smifs Securities Ltd (2012) 348 ITR 302 (SC); CIT v. Vatika Township (P) Ltd (2014) 367 ITR 466 (SC); CIT v. Equinox Solution Pvt Ltd, Civil Appeal No. 4399 of 2007 (SC), 18 April 2017; Ghanashyam Mishra and Sons Pvt Ltd v. Edelweiss ARC Ltd, Civil Appeal No. 8129 of 2019 (SC), 13 April 2021; Sharp Business System v. CIT-III, 2025 INSC 1481, Civil Appeal No. 4072 of 2014 (SC), 19 December 2025; Premier Automobiles Ltd v. ITO (2003) 264 ITR 193 (Bombay), 9 April 2003; CIT v. Max India Ltd (2009) 319 ITR 68 (Punjab and Haryana); SREI Infrastructure Finance Ltd v. Income Tax Settlement Commission, W.P.(C) 1592/2012 (Delhi), 30 March 2012; CIT v. Bharat Bijlee Ltd (2014) 365 ITR 258 (Bombay); Triune Energy Services Pvt Ltd v. DCIT, ITA 40/2015 and 189/2015 (Delhi), 19 November 2015; CIT v. Dharampal Satyapal, ITA 1003/2011 (Delhi), 6 January 2016; Triune Projects Pvt Ltd v. DCIT, ITA 448/2016 (Delhi), 22 November 2016, (2017) 77 taxmann.com 40; CIT v. Akzo Nobel India Ltd (2020) 423 ITR 208 (Calcutta); Areva T&D India Ltd v. CIT (2020) 428 ITR 1 (Madras), 8 September 2020; Wockhardt Hospitals Ltd v. Addl. CIT, Income Tax Appeal No. 1311 of 2017 (Bombay), admitted 20 January 2020; CIT v. Spectra Shares and Scrips Ltd, I.T.T.A. No. 412 of 2010 (Telangana), 31 October 2025; M/s Shilpa Medicare Ltd v. State of Andhra Pradesh, W.P. No. 15955 of 2021 (Andhra Pradesh), 31 January 2026; PVP Corporate Parks (P) Ltd v. DCIT, T.C.A. No. 636 of 2016 (Madras), 30 March 2026; Hindustan Coca-Cola Beverages Pvt Ltd v. DCIT (Delhi), 28 April 2026; Zuari Industries Ltd v. ACIT (2007) 105 ITD 569 (Mumbai); Paper Base Co. Ltd v. ACIT (2008) 19 SOT 163 (Delhi); DCIT v. Summit Securities Ltd, ITA No. 4977/Mum/2009 (Special Bench), 7 March 2012, (2012) 135 ITD 99; Mahindra Engineering and Chemical Products Ltd v. ITO, ITA No. 2544/Mum/2010, 18 April 2012; ITO v. Zinger Investments (P) Ltd, ITA No. 275/Hyd/2013, 21 August 2013; Sanyo BPL (P) Ltd v. DCIT [2016] 75 taxmann.com 253 (Bangalore); Hindustan Engineering and Industries Ltd v. Addl. CIT, ITA No. 330/Kol/2013, 16 March 2016; Cyfast Enterprises P. Ltd v. DCIT, ITA No. 1878/Mum/2015, 22 November 2016; Oricon Enterprises Ltd v. ACIT, ITA No. 2913/Mum/2015, 16 May 2018; DCIT v. Archroma India Pvt Ltd, ITA Nos. 306/Mum/2019 and 6919/Mum/2018, 15 June 2020; Pricol Engineering Industries Ltd v. ACIT, ITA No. 1049/Chny/2019, 11 January 2023; Gati Kintetsu Express Pvt Ltd v. DCIT, ITA Nos. 2829 to 2833/Mum/2023, 13 May 2024; DCIT v. Larsen and Toubro Ltd, ITA No. 3369/Mum/2023, 20 December 2024; DCIT v. Glaxosmithkline Consumer Pvt Ltd (ITAT Chandigarh), 16 October 2025; Edgeverve Systems Ltd v. ACIT (ITAT Bangalore), 30 January 2026; Hi-Tech Radiators (P) Ltd v. DCIT, ITA No. 1563/Mum/2026, 30 July 2026; In re Rajashri Foods Pvt Ltd, KAR ADRG 06/2018, 23 April 2018; In re Innovative Textiles Ltd (Uttarakhand AAR), 26 March 2019.

This note is general commentary on the law as at 22 September 2026 and is not advice on any matter. The position in a particular case depends on its own facts.