As per section 2(42C) of Income -tax Act 1961, 'slump sale' means the transfer of one or more undertakings as a result of the sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sales
Computation of Capital Gain Incase of Slump Sale
Provided that any profit or gain under slump sale can be either long term capital gain or short term capital gain.
Long term capital gain or short term capital gain is determined based on the period for which undertaking is held. If the undertaking is held for more than 36 months the resulting capital gain will be long term capital gain and if it is less than 36 months then the resulting capital gain will be short term capital gain.
Computation of Networth
- Net worth shall be the aggregate value of total assets of undertaking or division reduced by the value of liabilities of such undertaking or division as appearing in books of accounts.
- Any change in value of assets through revaluation cannot be considered for the purpose of calculation of net worth.
- In case of depreciable assets the written down value of the block of assets is considered.
- All the liabilities shall be taken at book values.
- In case of assets on which 100% deduction has been allowed u/s 35AD, the value of assets cannot be considered.
- After considering all the points if the value of net worth is negative then the net worth should be taken as nil.
Following are the major points to be considered for slump sale:
- Surplus of sale consideration over the net assets (value/networth) is taxed as long term capital gains (taxed at 20% plus surcharge if applicable) or short term capital gain (taxed at normal rates of taxation) based on the period of holding.
- As per Sec 50B(3) of Income Tax Act 1961, Form 3CEA,Chartered Accountant certifying the net worth of the undertaking needs to be submitted.
- A slump sale would also be a supply and hence fall under purview of GST. The transfer would be in nature of transfer of going concern and such a transfer attracts nil rate of GST.
- As per sec 180 of Companies Act 2013, if the undertaking in which the investment of the company exceeds twenty per cent of its net worth as per the audited balance sheet of the preceding financial year or an undertaking which generates twenty per cent of the total income of the company during the previous financial year, then approval of shareholders needs to be taken by way of special resolution.
Now hope you have understood various provisions and tax implications related to slump sale, please contact us if you have any queries.