Meaning of Slump Sale

• A slump sale involves the transfer of one or more undertakings as a going concern.
  
• It is transferred for a lump sum consideration without assigning individual values to assets and liabilities.
  
• Defined under section 2(42C) of the Income-tax Act, 1961.
  
• It covers both tangible and intangible assets forming part of the undertaking.
  
• The sale is treated as a single transaction for tax purposes.
  

Taxability Under Section 50B

• Section 50B deals with the computation of capital gains in a slump sale.
  
• The entire transfer is treated as a long-term capital gain if the undertaking is held for more than 36 months.
  
• The net worth of the undertaking is considered as the cost of acquisition and improvement.
  
• No indexation benefit is allowed for computing gains.
  
• Capital gains are taxable in the year of transfer.
  

Computation of Net Worth

• Net worth is calculated as per Explanation 1 to section 50B.
  
• It is the aggregate value of total assets minus liabilities of the undertaking.
  
• Depreciable assets are taken at their written down value.
  
• Other assets are taken at book value as per books of accounts.
  
• The computation must be certified by a chartered accountant.
  

Tax Rates and Implications

• Capital gains arising from slump sale are taxable at normal corporate tax rates.
  
• The applicable surcharge and cess are added to compute total liability.
  
• Gains from non-resident companies may be subject to special rates under DTAA.
  
• MAT provisions may apply to gains from slump sale transactions.
  
• TDS provisions are applicable on slump sale payments as per section 194Q or 195.
  

Compliance and Reporting Requirements

• The company must report slump sale details in the income tax return.
  
• Financial statements must reflect the transfer of undertaking.
  
• A report in Form 3CEA must be obtained from a chartered accountant.
  
• Documentation of sale agreement and valuation must be preserved.
  
• Proper classification is essential to avoid litigation and penalties.