Slump Sale Under Section 77, Income-tax Act 2025 Guide

Last verified: 29 June 2026

A profitable railway-equipment division, humming away inside a large diversified engineering group, was lifted out whole in 2025: plant, contracts, employees, order book, the lot. It was handed to an acquiring auto-components major as a single going concern for one lump-sum price (an enterprise value reported at roughly Rs 1,600 crore). Nobody sat across a table haggling over the price of each lathe or each supply contract. One business, one price. That single-price, whole-division transfer is the textbook shape of a slump sale under the Income-tax Act 2025, and it is now governed by Sec. 77, not the Sec. 50B that most advisors still quote out of habit.

Why do conglomerates carve out divisions this way? Because it unlocks value cleanly. The seller exits a business it no longer wants to run. The buyer gets a live, operating unit with its revenue intact, rather than an empty shell of assets it would have to stitch back together. And critically, the buyer takes the business without inheriting the seller’s entire corporate history, its old litigation, its unrelated liabilities. A going-concern transfer for a single price is, for a lot of carve-outs, the cleanest route there is.

But here’s the thing every advisor has to answer before the term sheet is signed: how is the gain taxed, at what rate, and which form certifies it now that the 1961 Act has been replaced? Get the section number, the 12.5% rate, the 36-month holding test, or the new compliance form wrong, and the deal’s tax cost or its compliance position is simply mis-stated. That’s not a small slip. On a transfer of this size, a misread of the holding period can swing the tax by hundreds of crores.

And almost every page you’ll find online still frames this as “Section 50B”. It still names Form 3CEA. It still quotes 20%. All stale, as of TY 2026-27.

So this guide gives you the live-law version. You’ll get Sec. 77, the clean 50B-to-77 map, a worked computation you can actually follow, the Rule 11UAE fair-market-value mechanics, the GST going-concern treatment, the new Form 28, and the case-law spine that a tax bench will expect you to know. Think of it as the page you’d want open on your second monitor while structuring a real carve-out. Let’s start with the definition the statute itself uses.

A slump sale is the transfer of one or more undertakings as a going concern for a lump-sum consideration, without assigning individual values to the assets and liabilities. Under Sec. 77 of the Income-tax Act 2025 (the re-enacted Sec. 50B of the 1961 Act, in force from 1 April 2026), the capital gain equals the consideration, or the fair market value under Rule 11UAE whichever is higher, minus the undertaking’s net worth.

That definition is the spine of everything below. The sections that follow break it into its working parts: what counts as an undertaking, how the old section maps to the new one, how you actually compute the gain, the rate and holding-period traps, the new compliance form, FMV, GST, route choice, and the judgments behind it all.

What is a slump sale under the Income-tax Act 2025?

Advisors get tripped up here more often than you’d expect. A client sells “the whole business”, assumes it’s automatically a slump sale, and then discovers at assessment that the deal was structured as an itemised asset sale instead, with a very different tax outcome. The label matters because Sec. 77 only applies to a transfer that actually meets the statutory test for a slump sale. Calling it one doesn’t make it one.

So what’s the concrete test? A slump sale is the transfer of one or more undertakings, by any means, for a lump-sum consideration, without values being assigned to the individual assets and liabilities. The phrase “by any means” matters, and we’ll come back to it, because it’s what pulled slump exchanges into the net after 2021. The defining feature is the absence of asset-by-asset pricing. You agree one number for the whole business.

The statutory definition: undertaking, going concern, lump sum

The legacy definition of “slump sale” sat in Sec. 2(42C) of the Income-tax Act, 1961, and the charging-cum-computation provision in Sec. 50B. The Income-tax Act 2025 carries the same architecture forward, with the special computation provision now at Sec. 77. The definitional building blocks are unchanged in substance: an “undertaking” (which includes any part of an undertaking, or a unit or division of a business, or a business activity taken as a whole), a transfer “as a going concern”, and a “lump-sum consideration”.

“As a going concern” is the part people underweight. It means the undertaking is sold as a living, operating business, capable of running on its own from day one in the buyer’s hands. Not a pile of assets. A business with its revenue-generating capacity intact.

In practice, what experienced practitioners look for first is whether individual values were assigned. The statutory test is unforgiving here: the moment you start assigning specific values to individual assets in the transfer documents, you risk defeating slump-sale characterisation altogether. That single drafting choice (itemising the consideration) can convert a slump sale into an itemised sale and blow up the tax position.

The five conditions that make a transfer a slump sale

To qualify as a slump sale under Sec. 77, a transfer must satisfy all of the following:

1. There is a transfer of one or more undertakings (a whole business, a division, a unit, or an identifiable business activity).
2. The transfer is by any means, including sale, exchange, or any other mode of transfer recognised under the Act.
3. The undertaking moves as a going concern, operational and capable of being carried on by the buyer.
4. The consideration is a single lump sum for the undertaking as a whole.
5. No values are assigned to individual assets and liabilities for the purpose of the transfer.

Miss the fifth condition and you’re usually looking at an itemised asset sale. Miss the third and you may have a sale of assets, not of a business. A common pitfall is assuming the whole legal entity has to move; it doesn’t. A single division can be hived off while the rest of the company carries on exactly as before. The decision in Triune Projects Pvt. Ltd. v. DCIT, (2016) 65 taxmann.com 288 (Delhi) confirmed that a transfer can still be a slump sale even where some defunct or superfluous assets are deliberately left behind, so long as the core business transfers as a functioning going concern.

Does the buyer have to take literally every asset? No. And that’s the misconception worth flagging early: completeness of the asset list is not the test. Going-concern capability is.

Who can do a slump sale, and what counts as an “undertaking”?

The question comes up constantly on tax forums: “Can I sell just one division as a slump sale, or does the entire company have to go?” It matters because most real-world carve-outs are partial. A group keeps its core and sells off a non-core vertical. So the scope of “undertaking” decides whether Sec. 77 even applies.

Any taxpayer that owns an undertaking can transfer it by way of slump sale: a company, a partnership firm, an LLP, even a proprietor in principle. There’s no eligibility gate on the seller’s form. The real question is whether the thing being sold qualifies as an “undertaking”.

A single division, branch, or business unit as the subject of transfer

The definition of “undertaking” is deliberately wide. It captures any part of an undertaking, or a unit or division of a business, or a business activity taken as a whole. It does not capture a random bundle of assets that don’t together form a business. So a single manufacturing division, a particular branch, a standalone product line with its own customers and operations: each can be the subject of a slump sale.

This is exactly the shape of the 2025 railway-equipment carve-out in our opening: one division, lifted out of a larger group, sold whole. The seller didn’t dissolve. It simply hived off a vertical it no longer wanted while continuing every other line of business. A common question practitioners raise is whether a loss-making or barely-active unit can still qualify; it can, provided it’s genuinely a business capable of being run, not a shell holding stray assets.

As a going concern: what must move and what may be left out

To pass the going-concern test, the things that make the business run must move with it: the operating assets, the workforce or a substantial part of it, the key contracts, the licences and approvals where transferable, and the order book. The buyer should be able to switch the lights on and keep trading. What can be left out are assets that aren’t essential to running the business, like a defunct asset, an unrelated investment, or surplus property.

In practice, this is where due diligence earns its fee. We’d recommend mapping every operational dependency before the term sheet locks: which licences are non-transferable and need fresh applications, which contracts have change-of-control clauses, which employees are critical. The Triune Projects reasoning is the anchor here: leaving out superfluous assets doesn’t break the slump sale, but leaving out something the business genuinely needs to operate can. And if individual values creep into the schedule of what’s moving, you risk losing slump-sale characterisation entirely, because itemisation cuts against the statutory “no individual asset values” condition.

So does every employee and every contract have to transfer? Not every single one. But enough must move that what the buyer receives is a living business, not a kit of parts.

Sec. 50B to Sec. 77: the complete mapping

Open any of the top-ranking pages on slump sale today and you’ll see the same thing: “Section 50B”. That’s the problem. For TY 2026-27 and onward, the live provision is Sec. 77 of the Income-tax Act 2025. A reader advising on a current deal needs the current section number and a clean crosswalk to the old one, because every precedent, every old advisory, and every textbook still speaks in 50B. This is the single biggest piece of whitespace on the topic, and it’s worth getting exactly right.

Why the section number changed

The Income-tax Act 2025 is a full re-enactment of the Income-tax Act, 1961. It isn’t a fresh policy on slump sales; it’s a renumbering and consolidation of the existing law into a cleaner structure. The 2025 Act came into force on 1 April 2026. So Sec. 50B didn’t get amended out of existence in substance. It got re-enacted, and the slump-sale special-computation provision now lives at Sec. 77. If you want the full picture of how the renumbering works across the statute, our guide to the wider transition from the 1961 Act to the Income-tax Act 2025 walks through the mapping across heads of income.

Historically, this is the latest step in a long line. There was no special slump-sale provision at all until Finance Act 1999 inserted Sec. 2(42C) and Sec. 50B, effective from assessment year 2000-01. Before that, slump-transaction gains frequently escaped tax because the computation machinery simply failed (more on that in the case-law section). The 1999 insertion created both the charge and the net-worth-as-cost mechanism. The 2025 Act is the re-enactment of that 1999 framework, carried forward almost intact.

Sub-clause-by-sub-clause map

Here’s the crosswalk that no competitor gives you cleanly. It maps each working part of the old Sec. 50B to its home in Sec. 77.

The headline takeaways are two. First, the substance is preserved: net worth is still the deemed cost, FMV under Rule 11UAE can still be deemed the full value of consideration, and the accountant’s report is still mandatory. Second, two things did change at the surface and they’re the ones competitors miss: the section number (50B to 77) and the form (Form 3CEA to Form 28). Get those two right and you’re already ahead of nearly every page on the topic.

How to compute capital gains on a slump sale (Sec. 77)

This is the section readers come back and scan for, so it’s worth slowing down. The computation under Sec. 77 has a deceptively simple shape and a few traps tucked inside it. Get the formula and net-worth mechanics right and the rest is arithmetic.

The formula

The capital gain on a slump sale is:

Full value of consideration (or FMV under Rule 11UAE, whichever is higher) minus net worth of the undertaking = capital gain.

Net worth is deemed to be the cost of acquisition and cost of improvement of the undertaking. That’s the special bit. You don’t compute the cost of each asset; you take the net worth of the whole undertaking as the cost. The Supreme Court in PNB Finance Ltd. v. CIT, (2008) 307 ITR 75 (SC) is the reason this special rule exists at all: before a deemed-cost mechanism was written into the statute, gains on a slump transfer often couldn’t be taxed because there was no workable way to compute the cost of acquisition of an undertaking as a single capital asset.

One point that confuses many: is the gain business income or capital gains? It’s capital gains. Sec. 77 charges it under the head capital gains, and it’s reported there in the return, not as business income. So the entire profit on hiving off a division gets the capital-gains rate, not slab rates, provided the holding-period test for long-term treatment is met.

How to compute net worth

Net worth is the aggregate value of total assets of the undertaking, minus the value of its liabilities, as appearing in the books of account. There are specific rules for valuing those assets:

1. Depreciable assets are taken at their written-down value (WDV) as per the income-tax records, not their book value.
2. Assets on which the whole expenditure has been allowed as a deduction (for example, capital assets under Sec. 35AD or 100%-deduction assets) are taken at nil.
3. For all other assets, the book value is taken.
4. Any change in the value of assets on account of revaluation is ignored entirely.

That last rule is the one people get wrong. If a company revalues its land upward just before a slump sale, hoping to inflate net worth and shrink the taxable gain, it doesn’t work: revaluation is stripped out for net-worth purposes. And the Sec. 35AD point is a quiet trap in the other direction: those assets are taken at nil, which lowers net worth and raises the gain. Frankly, this gets overlooked by advisors who treat net worth as a simple balance-sheet figure. It isn’t. It’s a tax-adjusted figure.

Worked numerical example and the negative-net-worth edge case

Take a worked example. Suppose a division is transferred for a full value of consideration of Rs 1,500 crore, and its net worth (computed on the tax-adjusted basis above) is Rs 400 crore.

Now the edge case that trips people up: what if net worth is negative? It happens when an undertaking carries liabilities exceeding its assets (a heavily leveraged or loss-laden division). When net worth is negative, it’s effectively taken as nil for cost purposes, so the negative amount is added back to the consideration. In plain terms, the capital gain rises by the negative net worth, because there’s no cost to set off and the assumed liabilities the buyer takes over are treated as part of what the seller realised. So a Rs 1,500 crore consideration with a negative net worth of Rs 100 crore produces a capital gain of Rs 1,600 crore, not Rs 1,500 crore. That counterintuitive result catches sellers of distressed units off guard.

Goodwill, losses, and unabsorbed depreciation

Where consideration exceeds the value of the tangible and net-current assets, the excess is, in substance, goodwill. The Delhi High Court in Triune Projects Pvt. Ltd. v. DCIT, (2016) 65 taxmann.com 288 (Delhi) treated this excess as goodwill operating as a balancing figure in the computation, rather than something to be ignored or separately taxed. For the buyer’s side, goodwill carries its own depreciation history that practitioners should check against the current position on goodwill depreciation.

Can the seller set off business losses and unabsorbed depreciation against the slump-sale gain? Broadly, business losses and unabsorbed depreciation can be set off against capital gains arising from a slump sale, subject to the usual set-off and carry-forward rules in the Act. What does not happen automatically is the transfer of the seller’s accumulated losses to the buyer. Those stay with the seller’s entity unless a separate provision (such as the demerger or amalgamation provisions, which a plain slump sale doesn’t attract) applies. A common error is assuming the buyer “inherits” the losses along with the business; it generally doesn’t.

Holding period and tax rate: the 36-month anomaly and 12.5% LTCG

If there’s one place where stale content does real damage, it’s here. The rate changed. The holding-period rules changed for most assets but not for slump sales. And the gap between those two facts is a genuine deal-timing trap. So this section is worth reading slowly, because most pages get at least one part of it wrong.

Long-term vs short-term for a slump-sale undertaking

For a slump-sale undertaking to qualify as a long-term capital asset, it must be held for more than 36 months before the transfer. If the undertaking consists mainly of immovable property, the threshold is 24 months. Hold below the relevant threshold and the gain is short-term, taxed at the taxpayer’s normal rates rather than the concessional long-term rate.

The post-Budget-2024 rate: 12.5% without indexation

Here’s where competitors are stale. Most pages still say long-term slump-sale gains are taxed at 20%. They’re not. The Finance (No. 2) Act, 2024, with effect from 23 July 2024, rationalised the long-term capital gains rate to 12.5% without indexation. That 12.5% rate flows through to slump-sale long-term gains, and it’s carried into the Income-tax Act 2025 regime. There’s no indexation benefit on a slump sale either; net worth is the deemed cost, full stop, and you don’t get to inflate it with cost-inflation indexing.

So the live position for TY 2026-27 is: long-term slump-sale gain taxed at 12.5% without indexation. Not 20%. Not 20% with indexation. If a page tells you otherwise, it predates Budget 2024.

The 36-vs-24-month anomaly and its deal-timing trap

Now, here’s where it gets interesting. Budget 2024 didn’t just change the rate. It also cut the holding period for “other assets” (capital assets other than listed securities) from 36 months to 24 months. But the slump-sale undertaking was left on 36 months. Sec. 77 carries that 36-month test forward unchanged. So you have an anomaly: most non-listed capital assets now go long-term at 24 months, while a slump-sale undertaking still needs 36.

The second-order effect is a costly timing trap. A carve-out timed at, say, 30 months from acquisition of the undertaking looks long-term if an advisor wrongly applies the new 24-month rule. It isn’t. At 30 months, a slump-sale undertaking is still short-term, and the gain silently converts from a 12.5% long-term charge to short-term gain taxed at the seller’s normal rates, which for a company can be materially higher. On a large carve-out, that’s the kind of error that ends up in a professional-negligence conversation.

Looking ahead, industry and professional bodies have flagged this misalignment and pushed to bring the slump-sale undertaking holding period down to 24 months to match the rationalised regime. No amendment has followed yet. Until one does, the 36-month test stands, and you sequence the transfer date around it, so this is genuinely a “watch this space” point.

Slump sale vs itemised asset sale vs slump exchange

Three transactions look similar at a glance and are taxed very differently. Telling them apart at the term-sheet stage, before the documents lock, is where an advisor adds the most value. Get the characterisation wrong and the tax outcome changes completely.

Itemised asset sale

An itemised asset sale is exactly what it sounds like: the parties assign specific values to individual assets and liabilities. Each asset is sold at its own price. The moment you do that, you’re outside slump-sale treatment, because the defining condition (no individual asset values) is broken. The tax consequences flip: gains are computed asset by asset, depreciable assets attract Sec. 50-type short-term treatment on the block, and the clean net-worth mechanism doesn’t apply.

Slump exchange and how FA 2021 closed the gap

A slump exchange is where an undertaking is transferred not for money but for non-monetary consideration, such as shares or bonds. For years this was a genuine escape route. The Bombay High Court in CIT v. Bharat Bijlee Ltd., (2014) 365 ITR 258 (Bom) held that transferring an undertaking for consideration in preference shares and bonds was an “exchange”, not a “sale”, and so fell outside the old Sec. 2(42C) and Sec. 50B as they then stood. The doctrinal root went back further, to the Supreme Court in CIT v. Motors and General Stores (P.) Ltd., AIR 1968 SC 200, which held that a “sale” requires money consideration; a transfer for shares is an exchange, not a sale.

Then Finance Act 2021 closed the gap. It widened the definition of slump sale to cover transfer “by any means”, not just “sale”, so slump exchanges are now caught squarely. The 2025 Act carries that wider “by any means” definition forward, which is why we flagged it back in the definition section. So the Bharat Bijlee escape no longer works for transfers after the 2021 amendment, though the case still matters for understanding why the definition reads the way it does. This is the kind of evolution competitors rarely explain, and it’s exactly what a tax bench expects you to know cold.

Compliance under Sec. 77: Form 28 and the accountant’s report

This is the highest-value, lowest-competition part of the whole topic. Every ranking page still names Form 3CEA. None of them mention Form 28. So if you take one thing away from this guide for a current filing, take this section. It’s the live compliance position under Sec. 77.

The Sec. 77(4) accountant report: Form 28 replaces Form 3CEA

Under Sec. 77(4) of the Income-tax Act 2025, the taxpayer must furnish a report from an accountant certifying the slump-sale computation, in the prescribed form. That prescribed form is the new Form No. 28, which replaces the old Form 3CEA used under the 1961 regime. Form 28 is set out in the draft Income-tax Rules, 2026 (Rule 54) and, as of now, remains a draft form awaiting final CBDT notification rather than a finally notified one, so treat the form mechanics as the proposed position. The “accountant” who signs it is defined in Sec. 515(3)(b), and the report is filed along with the return of income under Sec. 263.

So the question readers keep asking, “Is Form 3CEA still valid?”, has a clean answer for TY 2026-27: no, the slump-sale accountant report is now in Form 28. Form 3CEA belonged to the 1961 Act, which has been replaced.

What Form 28 certifies and contains

Form 28 is the accountant’s certification of the slump-sale capital-gains computation. It captures the working that supports the number you put in the return:

• The computation of the capital gain under Sec. 77, showing full value of consideration and net worth.
• FMV1 (the fair market value of the undertaking) and FMV2 (the fair market value of the consideration) computed under Rule 11UAE.
• Transferor and transferee particulars, including PAN.
• The undertaking’s profit and loss account and balance sheet.

In effect, Form 28 forces the entire net-worth and FMV story onto one certified document, which is exactly why a defensible valuation report underneath it matters so much.

Who files, by when, and supporting documents

The accountant’s report under Sec. 77(4) is the transferor’s (seller’s) obligation, since it’s the seller who realises the capital gain. It’s furnished along with the return of income for the year of transfer, by the applicable return-filing due date. The supporting documents include the business-transfer agreement, the undertaking’s audited financials, the net-worth computation, and the registered-valuer report backing the Rule 11UAE FMV. A registered valuer is effectively required, because Rule 11UAE FMV (particularly for immovable property and unquoted assets) needs a valuation that can survive scrutiny.

Worth flagging clearly: as of mid-2026, Form 28 sits in the draft Income-tax Rules and Forms, 2026 and has not yet been finally notified, so there is no settled CBDT notification number or effective date to cite. Confirm the final notification before you rely on the form for an actual filing. The substance (an accountant’s report under Sec. 77(4), replacing Form 3CEA) is clear from the statute; the form’s notification specifics are still in motion.

TDS and stamp duty

Two adjacent compliance points routinely get missed. First, TDS: where the undertaking includes immovable property, the buyer’s TDS obligation under Sec. 194-IA can be triggered, and Sec. 194Q may apply to certain purchases, so the consideration mechanics need a TDS lens even though the headline charge is capital gains on the seller. Second, stamp duty: the business-transfer agreement and any conveyance of immovable property attract stamp duty under the relevant state stamp law, computed on the consideration or property value. And one more that clients ask about: a non-compete fee paid to the seller is generally taxed on its own footing rather than folded into the slump-sale capital gain, so it shouldn’t be quietly lumped into the lump sum without thought.

Rule 11UAE: how FMV (FMV1 and FMV2) is determined

The price the parties agree isn’t always the number the tax computation uses. That’s the whole point of Rule 11UAE, and it surprises sellers who assume the consideration in the agreement is the consideration for tax. Sometimes it is. Sometimes a deemed fair market value steps in and takes over.

FMV1, FMV2, and the higher-of test

Rule 11UAE (the rule currently in force, inserted in 2021) prescribes two fair-market-value figures. FMV1 is the fair market value of the undertaking itself, computed on an asset-based approach (broadly, the FMV of the undertaking’s assets less its liabilities, with prescribed adjustments). FMV2 is the fair market value of the consideration received, both the monetary and the non-monetary parts. The full value of consideration for the slump-sale computation is then the higher of FMV1 and FMV2. Under the draft Income-tax Rules, 2026 this FMV1/FMV2 mechanism is proposed to be carried forward into a renumbered rule, so expect the rule reference to change once the 2026 Rules are finally notified, even though the FMV1-versus-FMV2 logic stays the same.

So which is the full value of consideration: the actual price, or the FMV? It’s the higher of FMV1 and FMV2, even if that exceeds the price written in the agreement. That’s the practical sting. A seller who under-prices a division relative to its asset-based FMV1 can still be taxed on the higher FMV1 figure. The agreed price doesn’t cap the tax.

How assets are valued and why the report matters

Within FMV1, different asset classes are valued on prescribed bases. Immovable property is typically valued by reference to the stamp-duty / circle-rate value or a registered-valuer assessment, whichever the rule directs. Quoted shares and securities use market price; unquoted shares use the prescribed net-asset or formula method. The point is that none of this is freehand; each asset class has a route, and the valuer has to follow it.

The second-order consequence is a real shift in the advisory market. Because a defensible Rule 11UAE report is now central to every slump sale, demand for registered valuers who understand the tax interface has risen sharply, and valuation plus tax structuring is increasingly sold as one combined skill rather than two silos. The mistake we see most often is treating valuation as a back-office formality bolted on after the deal is agreed. On a slump sale, it’s front-office: FMV1 can change the tax base, so it belongs in the pricing conversation, not after it.

GST on a slump sale: the going-concern exemption

Clients almost always ask it the wrong way round: “How much GST do we pay on the slump sale?” The better question is whether the going-concern exemption applies, because in most clean slump sales it does, and the GST is nil. But “most” isn’t “all”, and the cases where it bites are exactly the ones that get missed.

Transfer of a business as a going concern

The transfer of a business as a going concern is treated as a supply of services and is exempt (nil-rated) under Notification No. 12/2017-Central Tax (Rate). The logic is sensible: a going-concern transfer isn’t a sale of goods asset by asset, it’s the handover of a living business, and taxing it would just create an input-credit wash for the buyer. So a properly structured slump sale that genuinely transfers a going concern carries no GST on the transfer itself.

The Rajashri Foods AAR, ITC-02, and when GST still arises

The leading authority practitioners cite is the Rajashri Foods AAR ruling, which confirmed that the transfer of a business as a going concern qualifies for the exemption under Notification 12/2017, treating it as a supply of services that is nil-rated. On the credit side, the seller’s accumulated input tax credit can be transferred to the buyer by filing Form ITC-02, so the buyer doesn’t lose the credit pool that came with the business. These are exactly the GST and ITC checks that belong in M&A due diligence, and they belong there early, not as an afterthought.

When can GST still arise? When the “going concern” label doesn’t actually hold. If what’s really being transferred is a bundle of assets rather than a functioning business, or if only part of the consideration relates to a going concern while the rest is a plain asset sale, the exemption can fail and GST applies on the taxable portion. And because going-concern characterisation is a question of fact, disputes over a going-concern GST position can end up before the GSTAT. The second-order trend here is that GST registration and ITC-continuity diligence is migrating upstream into the term-sheet stage, precisely so these characterisation questions are settled before signing.

Slump sale vs demerger vs share sale: choosing the right route

A carve-out can be structured several ways, and the tax outcome swings wildly depending on the route. So before anyone drafts anything, the real question is: which route fits the commercial goal and the tax appetite? This is where good advisers earn their keep.

The decision framework

The choice usually comes down to four routes. The right one depends on whether the parties want an immediate cash exit, a tax-neutral reorganisation, or a transfer of the whole entity.

The better approach, in our view, is to start from what the buyer actually wants. A buyer who wants the business but not the seller’s corporate baggage prefers a slump sale. A buyer who wants the entity, its licences, and its track record (and is willing to take the liabilities) prefers a share sale. For a deeper map of how slump sales sit among India’s M&A deal structures, the route choice always traces back to tax cost, liability transfer, and regulatory friction.

Scheme of arrangement and why carve-outs favour slump sale

A demerger or carve-out can also run through a court-approved scheme of arrangement under Sections 230-232 of the Companies Act, 2013. A scheme is slower and needs tribunal sanction, but it can achieve tax-neutral reorganisations and bind dissenting stakeholders. The boundary between a slump sale and a scheme-route transfer matters: where a transfer happens through a scheme and isn’t a “sale”, the slump-sale charge may not reach it at all. The ITAT in Avaya Global Connect Ltd. v. ACIT, (2008) 26 SOT 397 (Mum) drew exactly that line, holding that where a transfer is via a scheme of arrangement rather than a sale, and the relevant computation machinery fails, the slump-sale-style capital-gains charge could not be levied.

So why do companies so often prefer a plain slump sale for carve-outs? Speed and cleanliness. It needs no tribunal sanction, it transfers a defined undertaking for a defined price, and it leaves the seller’s other businesses untouched. For a straightforward “sell one division for cash” deal, it’s usually the path of least resistance, which is why it dominated the 2025-26 carve-out wave.

Landmark slump-sale judgments every practitioner should know

Slump-sale law is judge-made at its roots. The statute supplies the machinery, but the doctrine (what’s a sale, what’s an undertaking, how goodwill behaves) came from the courts. So a practitioner who can cite the spine of cases is a practitioner a bench takes seriously. Here’s the spine, mapped to the issue each case decides.

The charge and the computation-machinery origin

Start with why the special provision exists at all. The Supreme Court in PNB Finance Ltd. v. CIT, (2008) 307 ITR 75 (SC) held that, before a dedicated slump-sale computation provision, gains on a slump transfer couldn’t be brought to tax because the computation machinery failed: there was no workable cost of acquisition for an undertaking transferred as a single capital asset. That failure is precisely what Finance Act 1999 fixed by inserting the net-worth-as-cost mechanism, now carried into Sec. 77. So when someone asks what PNB Finance decided, the short answer is: it’s the case that forced the legislature to write a special slump-sale provision into the Act.

Goodwill, leaving out assets, and the “no itemised values” test

Next, the undertaking and goodwill. The Delhi High Court in Triune Projects Pvt. Ltd. v. DCIT, (2016) 65 taxmann.com 288 (Delhi) held that a transfer can still be a slump sale even where defunct or superfluous assets are left out, so long as the core business moves as a going concern, and that the excess of consideration over net tangible assets is allowable as goodwill, functioning as a balancing figure in the computation. So when someone asks what Triune decided, the short answer is: you can leave out the dead weight and still have a slump sale, and the premium over net assets is goodwill. Alongside this sits the statutory “no itemised values” test built into the definition itself: assigning individual values to assets cuts against slump-sale characterisation and can tip the transaction into an itemised asset sale.

Sale vs exchange, and the demerger boundary

Finally, the boundaries. On sale versus exchange, the Supreme Court in CIT v. Motors and General Stores held that a “sale” requires money consideration, and the Bombay High Court in Bharat Bijlee applied that to hold a transfer for shares and bonds an “exchange” outside the pre-2021 slump-sale net, the gap Finance Act 2021 later closed. On the demerger boundary, Avaya Global Connect marks where a scheme-route transfer sits outside the slump-sale charge. Together these (PNB Finance, Triune, the Bharat Bijlee / Motors and General Stores line, and Avaya) are the cases a tax bench expects you to know when you argue a slump-sale characterisation.

Frequently asked questions

1. Is Sec. 77 of the 2025 Act the same as Sec. 50B of the 1961 Act? In substance, yes. Sec. 77 of the Income-tax Act 2025 re-enacts the slump-sale special-computation provision that was Sec. 50B of the 1961 Act. The framework (net worth as cost, FMV deeming, the accountant’s report, the holding-period test) carries forward. What changed at the surface is the section number and the prescribed form (Form 28 in place of Form 3CEA).

2. What is Sec. 77 of the Income-tax Act 2025? Sec. 77 is the provision that charges and computes capital gains on a slump sale under the Income-tax Act 2025, in force from 1 April 2026. It deems the undertaking’s net worth to be the cost of acquisition, treats the higher of FMV1 and FMV2 (or the consideration) as the full value of consideration, and requires an accountant’s report in Form 28.

3. Does a slump sale require a lump-sum consideration? Yes. A single lump-sum consideration for the undertaking as a whole, without values assigned to individual assets and liabilities, is a defining condition. The moment individual asset values are assigned, the transaction risks being treated as an itemised asset sale instead, with a different tax computation.

4. How is net worth calculated for a slump sale? Net worth is the aggregate value of the undertaking’s total assets minus its liabilities, as per the books. Depreciable assets are taken at written-down value, assets that have had 100% deduction (such as Sec. 35AD assets) are taken at nil, other assets at book value, and any revaluation is ignored entirely.

5. Is indexation benefit available on a slump sale? No. There’s no indexation benefit on a slump sale. Net worth is the deemed cost of acquisition, and long-term gains are taxed at 12.5% without indexation under the post-Budget-2024 regime.

6. What happens if the net worth of the undertaking is negative? A negative net worth is effectively taken as nil cost, so the negative amount is added back, increasing the capital gain. For example, a consideration of Rs 1,500 crore with a negative net worth of Rs 100 crore produces a capital gain of Rs 1,600 crore, because there’s no cost to set off.

7. Under which ITR head is slump-sale income reported? Slump-sale gain is reported under the head capital gains, not business income. Sec. 77 charges it as a capital gain, and it’s disclosed in the capital-gains schedule of the return, supported by the Form 28 accountant’s report.

8. What is the LTCG rate on a slump sale after Budget 2024? Long-term slump-sale gains are taxed at 12.5% without indexation, following the rationalisation by the Finance (No. 2) Act, 2024 with effect from 23 July 2024. The older 20% figure quoted on many pages is stale.

9. Is slump-sale gain taxed at 12.5% or 20%? At 12.5% without indexation for long-term gains, under the current regime carried into the Income-tax Act 2025. The 20% rate predates Budget 2024 and no longer applies to slump-sale long-term capital gains.

10. Does the 36-month holding period still apply, or is it now 24 months? The 36-month test still applies to a slump-sale undertaking (24 months if it mainly comprises immovable property). Budget 2024 cut the holding period for other capital assets to 24 months but left the slump-sale undertaking on 36 months, which creates a genuine deal-timing anomaly.

11. When is a slump sale long-term versus short-term? It’s long-term if the undertaking was held for more than 36 months before transfer (more than 24 months if mainly immovable property). Below that threshold, the gain is short-term and taxed at the seller’s normal rates rather than the 12.5% concessional rate.

12. What is Form No. 28 and what does it certify? Form 28 is the accountant’s report required under Sec. 77(4), certifying the slump-sale capital-gains computation. It records the net-worth and FMV working (FMV1 and FMV2 under Rule 11UAE), transferor and transferee details, and the undertaking’s profit and loss account and balance sheet.

13. Is Form 3CEA still valid, or has Form 28 replaced it? For slump sales under the Income-tax Act 2025, Form 28 replaces Form 3CEA. Form 3CEA belonged to the 1961 Act, which has been replaced. Form 28 currently sits in the draft Income-tax Rules and Forms, 2026 and is not yet finally notified, so confirm the final CBDT notification before relying on it for a filing.

14. What form is required for slump-sale certification under the 2025 Act? Form No. 28, the accountant’s report under Sec. 77(4), filed with the return of income under Sec. 263. It replaces the old Form 3CEA used under Sec. 50B(3) of the 1961 Act.

15. By when must the accountant’s report be filed? The Form 28 accountant’s report is furnished along with the return of income for the year of transfer, by the applicable return-filing due date. It’s the transferor’s (seller’s) obligation, since the seller realises the capital gain.

16. What is the role of Rule 11UAE in a slump sale? Rule 11UAE prescribes how the fair market value is computed: FMV1 (the undertaking, asset-based) and FMV2 (the consideration). The higher of FMV1 and FMV2 is deemed the full value of consideration, so the agreed price doesn’t necessarily cap the tax base.

17. Slump sale vs demerger, which is more tax-efficient? A demerger can be tax-neutral if the statutory conditions are met, whereas a slump sale is a taxable transfer giving rise to a capital gain. A demerger is generally more tax-efficient for value unlocking, but it’s slower and more conditional; a slump sale is faster and cleaner for a straight cash carve-out.

18. Is GST applicable on a slump sale / is going-concern transfer exempt? The transfer of a business as a going concern is exempt (nil-rated) under Notification 12/2017, as confirmed by the Rajashri Foods AAR. The seller’s input tax credit can be transferred to the buyer via Form ITC-02. GST can still arise where the transaction is, in substance, an asset sale rather than a genuine going-concern transfer.

References

Case Law

1. Avaya Global Connect Ltd. v. ACIT, (2008) 26 SOT 397 (Mum), ITAT Mumbai, 29 July 2008.
2. CIT v. Bharat Bijlee Ltd., (2014) 365 ITR 258 (Bom); parallel citation (2014) 224 Taxman 282 (Bom), Bombay High Court.
3. CIT v. Motors and General Stores (P.) Ltd., AIR 1968 SC 200; parallel citation (1967) 66 ITR 692 (SC), Supreme Court of India, 2 May 1967.
4. PNB Finance Ltd. v. CIT, (2008) 307 ITR 75 (SC); parallel citation (2008) 175 Taxman 242 (SC), Supreme Court of India, 6 November 2008.
5. Triune Projects Pvt. Ltd. v. DCIT, (2016) 65 taxmann.com 288 (Delhi); ITA 448/2016, Delhi High Court, 22 November 2016. (Citation verified; free primary-source URL pending, to be added on next refresh.)

Statutes and Rules

1. Income-tax Act, 1961 (legacy), sections cited: 50B, 2(42C).
2. Notification No. 12/2017-Central Tax (Rate), Serial No. 2 (transfer of a going concern, nil-rated), 28 June 2017.
3. Income-tax Act, 2025, sections cited: 77, 263, 515(3)(b). In force from 1 April 2026.
4. Income-tax Rules, Rule 11UAE (FMV1 and FMV2 for slump sale; Notification 68/2021 dated 24 May 2021). The draft Income-tax Rules, 2026 (draft Rule 53 FMV and draft Rule 54 / Form No. 28) propose to carry this forward but are not yet finally notified.

This article is for informational purposes only and does not constitute legal advice. For specific legal guidance, consult a qualified legal professional.