Section 77 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 77 is the special rule for taxing a slump sale, where an undertaking or division is sold as a whole. The gain is long-term unless the undertaking was held for thirty-six months or less; the undertaking's "net worth" stands in for cost; and an accountant's report on that net worth must be filed. This article reads section 77 as per the Income-tax Act, 2025 as amended by the Finance Act, 2026; later amendments, rules and notifications should be checked. For help with the computation, see our capital gains calculation service.
Profits or gains from a slump sale are chargeable as long-term capital gains of the tax year of the transfer, but short-term if the undertaking or division was owned and held for thirty-six months or less before the transfer. The net worth of the undertaking is deemed to be the cost of acquisition and cost of improvement, and the fair market value of the capital assets, calculated as prescribed, is the full value of consideration. An accountant's report on net worth is due before the specified date in section 63.
The meaning of "slump sale"
The definition is in section 2(103) and is covered in our article on section 2 definitions, including slump sale. Section 77 itself only lays down how the gain on such a sale is charged and computed.
Sub-section by sub-section
Section 77(1): the charge
Profits or gains from a slump sale effected in the tax year are chargeable to income-tax as long-term capital gains, and are deemed to be the income of the tax year in which the transfer took place, subject to sub-section (2). For the general charge to capital gains, see section 67.
Section 77(2): the thirty-six month test
Profits and gains from a slump sale involving the transfer of a capital asset, being one or more undertakings or divisions owned and held by the assessee for thirty-six months or less immediately before the date of transfer, are treated as short-term capital gains.
Section 77(3): cost and consideration
For capital assets, being an undertaking or division transferred by way of slump sale:
- (a) the "net worth" of the undertaking or division is deemed to be the cost of acquisition and the cost of improvement for sections 72 and 73; and
- (b) the fair market value of the capital assets on the date of transfer, calculated in such manner as may be prescribed, is deemed to be the full value of consideration received or accruing from the transfer.
How the fair market value is calculated is left to the rules ("as may be prescribed"); the detail is in the Income-tax Rules, 2026. For sections 72 and 73, see section 72 and section 73.
Section 77(4): accountant's report
Every assessee in the case of a slump sale must furnish, in the prescribed form, a report of an accountant, before the specified date referred to in section 63. The report must (a) include the computation of the net worth of the undertaking or division, and (b) certify that the net worth has been correctly arrived at as per section 77. The "specified date" under section 63(5)(a) is one month before the due date for furnishing the return of income under section 263(1); see section 63.
Section 77(5): how net worth is computed
"Net worth" is the "aggregate value of total assets" of the undertaking or division, reduced by the value of its liabilities as appearing in the books of account. Any change in the value of assets due to revaluation is ignored.
The "aggregate value of total assets" is determined asset by asset:
| Type of asset | Value taken |
|---|---|
| Depreciable assets | Written down value of the block of assets determined under section 41(1)(c) |
| Goodwill of a business or profession not acquired by the assessee by purchase from a previous owner | Nil |
| Capital assets for which the entire expenditure has been allowed or is allowable as a deduction under section 46 | Nil |
| Other assets | Book value |
For written down value see section 41; section 46 is the capital expenditure of a specified business.
Worked example
Brightwell Foods Pvt. Ltd. sells its packaging division as a whole to a buyer. The division has been owned and held for more than thirty-six months. All figures below are invented for illustration.
| Item | Rs. |
|---|---|
| Written down value of the block of depreciable assets (section 41(1)(c)) | 30,00,000 |
| Goodwill generated in the business (not purchased) | Nil |
| Other assets at book value | 20,00,000 |
| Aggregate value of total assets | 50,00,000 |
| Less: liabilities as appearing in the books | 12,00,000 |
| Net worth (section 77(5)(a)) | 38,00,000 |
Assume the fair market value of the capital assets on the date of transfer, calculated as prescribed, is Rs. 60,00,000. Then, for sections 72 and 73, the full value of consideration is Rs. 60,00,000 and the cost of acquisition and improvement is Rs. 38,00,000. Capital gain = 60,00,000 – 38,00,000 = Rs. 22,00,000. As the undertaking was held for more than thirty-six months, it is long-term under sub-section (1). If it had been held for thirty-six months or less, section 77(2) would make the same amount short-term.
Brightwell must also furnish an accountant's report including the net worth computation and certifying it as correct, before the specified date in section 63.
Need help with a slump sale?
A slump sale needs the net worth worked out asset by asset, an accountant's report in time, and the right classification of the gain. Our capital gains calculation team can review the numbers before you transfer the undertaking.
Key takeaways
- A slump sale gain is long-term, unless the undertaking was held for thirty-six months or less.
- Net worth is the deemed cost of acquisition and improvement; the prescribed fair market value is the deemed consideration.
- Revaluation of assets is ignored in the net worth calculation.
- Depreciable assets are taken at block written down value; goodwill not purchased and section 46 assets are taken at nil.
- An accountant's report on net worth is required before the specified date referred to in section 63.
Read next
- Sections 74–76: depreciable assets and market linked debentures
- Sections 79, 80, 81 and 91: unquoted shares, fair market value and advance money
- Section 78: stamp duty value
- Capital gains sections mapping
Disclaimer: Based on the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026, as consulted on 2 October 2026. It explains the words of the Act only; the Income-tax Rules, 2026, notifications, circulars, later amendments and the way the tax authorities and courts apply these provisions should be checked. This article is general information, not legal advice; check the official text before acting.