CAPITAL GAINS IN RESPECT OF SLUMP SALE (SECTION 50B)

MEANING OF SLUMP SALE

Under Indian Income Tax Act, 1961 slump sale means the transfer of one or more undertakings as a result of sale for a lump sum consideration without values being assigned to Individual Assets and Liabilities in such sales.

TAXABILITY OF CAPITAL GAINS

Capital Gains shall be taxable in the Previous Year in which the slump sale is effected. Whether there will be short term capital gain or long term capital gain it will depend on the Period of Holding of Undertaking transferred by way of slump sale. If the undertaking is held for not more than 36 months immediately preceding the date of transfer there will be short term capital gain.

COMPUTATION OF CAPITAL GAINS

CAPITAL GAIN= Slump Sale Consideration – Net Worth of undertaking or division

Where “Net Worth” is

Aggregate value of total assets of undertaking or division transferred

Less: Value of liabilities of the undertaking as appearing in the books

“Aggregate Value of Total Assets” in case of

• Depreciable Assets is WDV of Block of Assets.
• Capital assets of which the whole of expenditure has been allowed or is allowable as deduction u/s.35AD is NIL.
• Other Assets is Book value of assets.

IMPORTANT POINTS TO REMEMBER

1. No benefit of indexation is available.
2. No profits under the head Profits and gains of Business & profession (PGBP) even if the stock is transferred.
3. No Revaluation of assets to be considered while computing the Net Worth.
4. No values shall be assigned to Individual Assets & liabilities except for the purpose of payment of stamp duty, registration fees etc.
5. Contingent Liabilities do not appear in the books and therefore not to be deducted while computing the Net Worth.