Section: 50B Slump Sale

 Section 50B of the Income Tax Act defines a slump sale as the sale of an undertaking without considering the individual values of its assets or liabilities. This section outlines the computation, tax rates, and reporting requirements for capital gains arising from such transactions.

What do you mean by Slump Sale?

A slump sale for income tax purposes would be one where an undertaking is sold without considering the individual values of the assets or liabilities contained within the undertaking.

Any profits or gains arising from the slump sale effected in the previous year shall be chargeable to income-tax as capital gains arising from the transfer of long term capital assets and shall be deemed to be the income of the previous year in which the transfer took place :

If the undertaking is held for more than 36 months, the resulting capital gain or loss shall be long-term and if it is held for less than 36 months, the resulting capital gain or loss shall be short term.

Further, there will be no indexation benefit available in the computation of the capital gains.

In relation to capital assets being an undertaking or division transferred by way of such slump sale,—

1. the “net worth” of the undertaking or the division, as the case may be, shall be deemed to be the cost of acquisition and the cost of improvement for the purpose of section 48 & 49. “Net worth” shall be the aggregate value of total assets of the undertaking or division as reduced by the value of liabilities of such undertaking or division as appearing in its books of account.

Any change in the value of assets on account of revaluation of assets shall be ignored for the purposes of computing the net worth.

For computing the net worth, the aggregate value of total assets shall be,—

a) In the case of depreciable assets, the written down value of the block of asset.

b) In the case of  capital asset being goodwill of a business or profession, which has not been acquired by the assessee by purchase from a previous owner, the value of such assets will not be considered.

c) In case of assets on which 100% deduction has been allowed u/s 35AD (specified business), the value of such assets will not be considered.

d) In the case of other assets, book value of such assets.

2. Fair market value of  capital assets as on the date of transfer shall be deemed to be the full value of consideration received or accruing as a result of the transfer of such capital asset.

How to Compute Capital Gain/Loss resulting out of slump sale?

What are the tax rates applicable to the capital gain in case of slump sale?

Short term Capital Gain: Normal Rate of Taxation.

Long term Capital Gain: 20%.

What are the reporting formalities under slump sale?

The Company has to furnish a report by a Chartered Accountant as per Form 3CEA, indicating the computation of the net worth of the undertaking or division, as the case may be, and certifying that the net worth of the undertaking or division, as the case may be, has been correctly arrived at in accordance with the provisions of this section.

Conclusion: In conclusion, a slump sale refers to the sale of an undertaking without considering the individual values of its assets or liabilities. Profits or gains from such sales are taxable as capital gains, with long-term gains applicable if the undertaking is held for over 36 months. The net worth of the undertaking is considered the cost of acquisition, and fair market value determines the full value of consideration received. Tax rates vary for short-term and long-term gains. Reporting formalities include furnishing a report by a Chartered Accountant in Form 3CEA, ensuring compliance with Section 50B requirements.