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SLUMP SALE - SECTION 50B UNDER INCOME TAX ACT

SLUMP SALE - SECTION 50B UNDER INCOME TAX ACT

 

SECTION 50B: SLUMP SALE

Slump sale means transfer of entire undertaking or division for lumpsum consideration without assigning value/ selling price of individual asset.

  1. Computation of Capital gain under slump sale?

Calculation of Capital Gain: -

 

Computation of Capital Gain

Rs.

Full value of consideration (FMV as per rule 11UAE)

xxx

Less: Transfer Expenses

xxx

Net Consideration

xxx

Less: Cost of Acquisition (Net worth of undertaking)

(Indexation not allowed on Cost of Acquisition)

 

xxx

STCG/ LTCG

xxx

 

NOTES:

NOTE NO.

EXPLANATION
  1.  

Computation of Net worth = Assets minus liabilities

 

Assets

Rs.

Depreciable Asset

WDV as per Income Tax

Other Assets

Book Value

Less: Liabilities

(Book value)

Net Worth

xxx

 

 
  1.  

Revaluation of assets shall be ignored.
  1.  

If net worth becomes negative, then cost of acquisition will be Nil.
  1.  

For computing net worth,

  • If asset (on which deduction u/s 35AD was claimed) – value shall be taken as Nil.
  • Value of self-generated goodwill – value shall be taken as Nil.
  1.  

No Profit under PGBP shall arise even if stock is transferred in slump sale.
  1.  

Nature of Capital Gain

  • If undertaking is held for more than 3 Years – LTCG.
  • If undertaking is held for 3 Year or less – STCG.
  1.  

Assessee to furnish a CA Report upto date of Audit u/s 44AB indicating the computation of the net worth and certifying that the net worth has been correctly arrived.
  1.  

“Tax Savy” restructuring plans to avoid tax if transferee is Indian Company.

  • Transfer undertaking after acquiring 100% shares of transferee to not attract capital gain (Section 47(iv)).
  • Transfer undertaking by way of demerger rather than slump sale (Section 47(vib)).
  1.  

Rule 11UAE: Fair Market Value (FMV) on the date of transfer (slump sale) shall be higher of FMV-1 or FMV-2.

  • FMV-1: Fair Market Value of undertaking transferred.
  • FMV-2: Fair Market Value of consideration received.

 

FMV-1: A+B+C+D-L, Where,

 

A

Book Value of all the assets (except jewellery, artistic work, shares, securities, and immoveable property) as reduced by the following amount:

  • Income-tax paid after reducing income-tax refund (if any).
  • Unamortized amount of deferred expenditure.

B

Fair Market Value of jewellery and artistic work (based on registered valuer report).

C

Fair Market Value of shares and securities.

D

Stamp Duty Value of Immoveable property.

L

Book value of liabilities, but excluding the following:

  • Paid up equity share capital.
  • Dividend amount set apart where such dividend has not been declared in AGM before the date of transfer.
  • Reserves and surplus, other than depreciation reserve.
  • Provision for tax, other than income-tax paid after reducing income-tax refund (if any), to the extent of the excess over the tax payable with reference to the book profits.
  • Provision for unascertained liabilities.
  • Contingent liabilities other than arrears of dividends of cumulative preference shares.

FMV-2: E+F+G+H, Where,

 

E

Monetary Consideration.

F

Fair Market Value (FMV) of non-monetary consideration (assets for which valuation rules prescribed).

G

Open market value price of non-monetary assets for which valuation rules not prescribed (valuer report).

H

Stamp Duty Value (SDV) of immoveable property.

 

 

 

EXAMPLE:

 

PQR ltd has two units- one engaged in manufacture of computer hardware and the other involved in developing software. As a restructuring drive, the company has decided to sell its software unit as a going concern by way of slump sale for Rs. 385 lakhs to a new company called S ltd. in which it holds 74% of equity shares.

 

The Balance Sheet of PQR ltd. as on 31st March 2025 being the date on which software unit has been transferred, is given here under: -

 

Balance Sheet as on 31.03.2025

LIABILITIES

Rs. In Lakhs

ASSETS

Rs. In Lakhs

Paid up share capital

300

Fixed Assets:

 

General Reserves

150

Hardware Unit

170

Share Premium

50

Software Unit

200

Revaluation Reserve

120

Debtors:

 

Current Liabilities:

 

Hardware Unit

140

Hardware Unit

40

Software Unit

110

Software Unit

90

Inventories:

 

 

 

Hardware Unit

95

 

 

Software Unit

35

Total

750

Total

750

 

Following additional information is furnished by the management:

  1. The software unit is in existence since May 2015.
  2. Fixed Assets of software unit include Land which was purchased ar Rs. 40 lakhs in the year 2009 and revalued at Rs. 60 lakhs as on March 31, 2025. The stamp duty value as on 31.03.2025 is Rs. 55 lakhs.
  3. Fixed assets of software division mirrored at Rs. 140 lakhs (200 lakhs minus Land value 60 lakhs) is written down value of depreciable assets as per books of accounts. However, the written down value of these assets under Section 43(6) of the Income Tax Act is Rs. 90 lakhs.

Calculate the Capital Gain from slump sale to PQR?

 

Computation of Capital Gains

 

Particulars

Amt (Rs. In lakhs)

Full vale of consideration (Note: 1)

385

Less: Transfer Expenses

Nil

Net Consideration

385

Less: Cost of Acquisition (Net Worth: Note 2)

(185)

Long Term Capital Gain

200

 

NOTE 1: Calculation of Full value of Consideration.

 

Particulars

 

Amt (Rs. In Lakhs)

Fair Market Value of the capital assets transferred by way of slump sale land, being an immoveable property i.e. SDV on date of sale (A)

 

55

Other Fixed Assets (Furniture and Plant & Machinery) (Book value as appearing in books of accounts) (B)

 

140

Debtors (Book value as appearing in books of accounts) (C)

 

110

Inventories (Book value as appearing in books of accounts) (D)

 

35

A+B+C+D

 

340

Less: Liabilities of software unit (750 – 40)

Excluding:

  1. Paid up share capital.      300
  2. General reserve.              150
  3. Share Premium.            20
  4. Revaluation reserve.     120

710

 

 

 

620

 

 

 

 

 

90

Fair Market Value of the capital assets transferred by way of slump sale (A+B+C+D-L) (FMV-1)

 

250

Fair Market Value of the consideration received (FMV-2)

 

385

Full Value of Consideration (Higher of FMV-1 or FMV-2)

 

385

                             

NOTE 2: Computation of Net-worth of Software Unit:

 

PARTICULARS

Amount (Rs. In lakhs)

Depreciable Assets (WDV as per Income Tax Act)

90

Land

40

Debtors

110

Inventory

35

Total Assets

275

Less: Current Liability

(90)

Net-worth

185
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