By CA Surekha
In India, slump sale transactions—the transfer of an entire business or undertaking for a lump-sum consideration without assigning individual values to assets—are increasingly used in corporate restructuring, mergers, and real estate deals.
Understanding the tax implications under Section 50B and the opportunities for capital gains exemption under Section 54EC is critical for business owners, investors, and tax professionals.
This guide provides authoritative legal interpretation, judicial insights, and a practical decision matrix for taxpayers, ensuring compliance while optimizing tax relief.
Legal Definition & Interpretation of Slump Sale
Section 2(42C): A slump sale is the transfer of one or more undertakings for a lump-sum consideration, without allocating individual asset or liability values.
Key Legal Insights:
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Scope of “Undertaking”: Includes business divisions, units, or operational activities; standalone assets not forming part of the business are excluded (Areva T & D India Ltd. v. CIT [2020]).
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Transfer Mechanism: Sale, merger, demerger, or other modes qualify.
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Legislative Intent: Prevents artificial segregation of assets to minimize capital gains.
Computing Capital Gains under Section 50B
Section 50B Overview:
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Capital gains arise in the year of transfer.
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Short-term: Holding ≤36 months; Long-term: Holding >36 months.
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Net Worth of Undertaking = Consideration – liabilities; deemed cost of acquisition.
Components of Net Worth:
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Depreciable assets → Written Down Value
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Self-generated goodwill → Nil
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Assets under Sec 35AD → Nil
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Other assets → Book value
Interpretative Insight: Ensures statutory computation of gains, mitigating manipulation of individual asset values.
Capital Gains Exemption under Section 54EC
Eligibility Criteria:
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Long-term capital gains from land or building.
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Investment in specified bonds (NHAI, REC) within 6 months.
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Lock-in period: 5 years.
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Maximum deduction: ₹50 lakh.
Legal Guidance: Using bonds as loan security before 3 years → deemed conversion → taxable. Careful compliance ensures exemption is defensible.
Judicial Clarification
Net Matrix Corp. Care P Ltd. v. Dy. CIT [2025]
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Slump sale of SEZ unit claimed Rs. 50 lakh exemption under Sec 54EC.
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ITAT confirmed proportional exemption is valid if part of gain arises from qualifying assets.
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Key Takeaway: Sections 50B and 54EC must be interpreted together for legitimate tax relief.
Practical Guidance for Taxpayers
| Step | Action | Legal Section | Interpretation | Taxpayer Benefit |
|---|---|---|---|---|
| 1 | Transfer business undertaking | Sec 2(42C), 50B | Lump-sum transfer, entire undertaking treated as asset | Prevents artificial tax avoidance |
| 2 | Compute capital gains | Sec 50B | Gain = Sale Consideration – Net Worth | Determines short/long-term capital gains |
| 3 | Identify qualifying assets | Sec 54EC | Exemption applies to long-term gains from land/building | Enables proportional deduction |
| 4 | Invest in specified bonds | Sec 54EC | Within 6 months, 5-year lock-in | Tax deferral/exemption up to ₹50 lakh |
| 5 | Claim deduction in ITR | ITR-6, Sec 54EC | ITAT confirms claim valid even in slump sale | Legally defensible tax planning |
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Legally reduce capital gains tax.
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Claim proportional exemption in composite asset sales.
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Apply judicial rulings for compliant, defensible planning.
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Align restructuring with statutory and legal frameworks.
Strategic Takeaway: Proper legal planning ensures slump sale taxation is predictable, compliant, and optimally efficient for business owners.
