Section 50B of Income Tax Act: Slump Sale Capital Gains
Section 50B of the Income-tax Act, 1961 provides a special method for calculating capital gains when an undertaking or division is transferred by way of a slump sale. It substitutes the undertaking's statutory net worth for its acquisition and improvement cost and uses prescribed fair-market-value rules for the consideration.
What is a slump sale?
Section 2(42C) defines a slump sale as 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 in that transfer. Assignments solely for stamp duty, registration fees or similar taxes are disregarded for this purpose.
An undertaking can be a business unit, division or business activity taken as a whole. A transfer of individual assets without the undertaking as a going concern is not automatically a slump sale. The transaction's substance and statutory requirements determine the tax result.
Section 50B: main legal provisions
Subsection (1): capital gains and holding period
Profits or gains from a slump sale are chargeable under the head Capital gains. If the undertaking was owned and held for more than 36 months immediately before transfer, the gain is treated as long-term. If held for 36 months or less, it is treated as short-term. The holding period is that of the undertaking, not necessarily each individual asset.
Subsection (2): net worth as cost
The undertaking's net worth, determined under the statutory explanations, is deemed to be its cost of acquisition and cost of improvement for purposes of capital-gains computation. Indexation is not available on this net worth.
Subsection (2), fair market value
For transfers covered by the amended law, the fair market value of the capital assets transferred by slump sale, calculated in the prescribed manner, is deemed to be the full value of consideration. The relevant valuation method is set out in Rule 11UAE of the Income-tax Rules, 1962.
Subsection (3): accountant's report
The taxpayer must furnish the prescribed report of an accountant, showing the computation and certification of net worth, in the manner and by the due date prescribed under the applicable rules. The prescribed report is Form 3CEA.
How to calculate net worth
Explanation 1 defines net worth as the aggregate value of the undertaking's assets minus the value of its liabilities appearing in its books. Revaluation changes in asset values are ignored.
| Asset category | Value for Section 50B net worth |
|---|---|
| Depreciable assets | Relevant tax written down value (WDV) of the block, determined under Section 43(6) |
| Capital assets for which the entire expenditure was allowed or allowable under Section 35AD | Nil |
| Other assets | Book value, disregarding asset revaluation |
| Liabilities | Book value of qualifying liabilities of the undertaking |
Where the statutory calculation results in negative net worth, special care is required; the net worth is generally taken as nil for the cost computation under the applicable statutory rule. Do not substitute accounting net assets without making the Section 50B adjustments.
Rule 11UAE: deemed consideration for a slump sale
Rule 11UAE prescribes two valuation measures, generally called FMV1 and FMV2. The higher of the two is taken as the fair market value for the purposes of Section 50B(2).
FMV1 is principally an asset-based valuation of the undertaking, with prescribed adjustments for items such as immovable property, shares, securities and other assets, reduced by qualifying liabilities. FMV2 is generally based on the money and non-monetary consideration received or accruing from the transfer, with non-monetary items valued under the rule. Both calculations are fact-sensitive.
The valuation is determined as of the date of slump sale. A contractual lump-sum price is therefore not necessarily the final deemed full value of consideration.
Illustrative capital gains computation
Assume an undertaking held for five years is transferred and the prescribed Rule 11UAE valuation produces a deemed consideration of Rs. 3,20,00,000. Its statutory asset values total Rs. 2,40,00,000, qualifying liabilities are Rs. 80,00,000, and eligible transfer expenses are Rs. 10,00,000.
| Particulars | Amount |
|---|---|
| Deemed full value of consideration | Rs. 3,20,00,000 |
| Less: statutory net worth (2,40,00,000 - 80,00,000) | Rs. 1,60,00,000 |
| Less: eligible transfer expenditure | Rs. 10,00,000 |
| Illustrative long-term capital gain | Rs. 1,50,00,000 |
This is a simplified illustration; it assumes the stated fair market value is correctly calculated under Rule 11UAE, expenses qualify for deduction, and no special adjustments apply. Tax rates and exemptions must be checked separately for the relevant year.
Documents, reporting and practical considerations
Maintain a business transfer agreement, an undertaking-wise asset and liability schedule, historical WDV records, valuation workings under Rule 11UAE, evidence of the undertaking's holding period, transaction expenses and the accountant's report. Check any GST, stamp-duty, company-law and indirect-tax consequences separately; Section 50B addresses income-tax capital gains and does not resolve those obligations.
Because a slump sale is a transfer of an undertaking for a lump sum, assigning independent sale prices to individual assets can affect characterization. Likewise, an asset sale, share sale, itemized sale and slump sale can have materially different tax consequences.
How Section 50B interacts with related provisions
Section 50A addresses a separate cost-of-acquisition situation for certain depreciable assets; it is not a substitute for Section 50B's net-worth rule. Section 50C concerns specified transfers of land or buildings, whereas Rule 11UAE governs the special fair-market-value calculation for a slump sale. See also Section 50D for cases in which consideration cannot be determined.
Frequently asked questions
What is a slump sale under section 2(42C)?
A slump sale is the transfer of one or more undertakings by any means for a lump-sum consideration without values being assigned to individual assets and liabilities for the transfer. Values assigned solely for stamp duty, registration fees or similar taxes do not by themselves prevent slump-sale treatment.
How is capital gain calculated under Section 50B?
Broadly, subtract the net worth of the undertaking and eligible transfer expenditure from the deemed full value of consideration determined under the prescribed fair-market-value rules. No indexation of net worth is allowed.
When is a slump sale long-term?
Under the 1961 Act, the undertaking must generally have been owned and held for more than 36 months immediately before transfer. Otherwise the gain is treated as short-term.
Is a valuation report required?
The accountant report in prescribed Form 3CEA is generally required to be furnished electronically by the prescribed due date, under the applicable rules. Review the filing rules for the relevant assessment year.
Official legal and filing references
- Income Tax Department: Income-tax Act, 1961 (find Section 2(42C) and Section 50B)
- Income Tax Department: Income-tax Rules, 1962 (Rule 11UAE and Form 3CEA)
- Income Tax e-Filing portal (forms, filing instructions and notifications)
- India Code (official legislation repository, including the Income-tax Act, 2025)
Updated 25 October 2026. This article is general legal information, not transaction-specific tax advice. Statutory amendments, rules and effective dates should be verified before filing or structuring a transfer.