SECTION 50B: SLUMP SALE

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

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

Revaluation of assets shall be ignored.

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

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.

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

Nature of Capital Gain

· If undertaking is held for more than 3 Years – LTCG.

· If undertaking is held for 3 Year or less – STCG.

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.

“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)).

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 31^st 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: i. Paid up share capital. 300 ii. General reserve. 150 iii. Share Premium. 20 iv. 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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