Slump Sale Agreement — explained: this guide covers what Slump Sale Agreement — 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.
What Is a Slump Sale?
Under Section 2(42C) of the 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. Key elements: (a) transfer of an ENTIRE undertaking (not individual assets), (b) for a LUMP SUM consideration (not itemized per asset), (c) all assets and liabilities are included. After the Finance Act, 2021 amendment: slump sale now includes transfer by ANY means — not just 'sale.' This covers exchange, relinquishment, and other modes of transfer.
Capital Gains on Slump Sale — Section 50B
Under Section 50B: (a) Full value of consideration: The lump sum amount received/receivable (or Fair Market Value, if consideration is not determinable). (b) Cost of acquisition: The NET WORTH of the undertaking on the date of transfer. Net worth = total assets (at written down value for depreciable assets, book value for others) MINUS total liabilities. (c) Capital Gain: Full value of consideration − Net worth. (d) LTCG/STCG: If the undertaking was held for more than 36 months: LTCG (taxed at 20% with indexation). Otherwise: STCG (taxed at slab rate). After the Finance Act, 2021: Fair Market Value is used as the full value of consideration when actual consideration is not determinable — preventing undervaluation.
Drafting the Slump Sale Agreement
Key clauses: (a) Transfer clause: "The Transferor hereby transfers and assigns to the Transferee the Undertaking as a going concern, for a LUMP SUM consideration of Rs. , without values being assigned to individual assets and liabilities." (b) Assets and liabilities: Schedule listing ALL assets and liabilities being transferred — but WITHOUT individual values. The schedule describes assets; it does NOT price them individually. (c) Employees: All employees transferred with continuity of service. (d) Effective date: The date from which the transfer is deemed effective (may differ from execution date). (e) Warranties: Transferor warrants completeness of asset/liability list, compliance with laws, employee details accuracy.
GST Treatment
Transfer of business as a going concern is EXEMPT from GST — under Entry 2 of Schedule II read with Notification 12/2017 (CGST). Conditions: (a) entire business (or independent part) transferred, (b) as a going concern with all assets and liabilities, (c) the business continues to operate after transfer. This exemption makes slump sale GST-efficient compared to itemized asset sale (where GST applies on each asset at the applicable rate).
Slump Sale vs Itemized Sale vs Amalgamation
| Feature | Slump Sale | Itemized Sale | Amalgamation |
|---|---|---|---|
| Consideration | Lump sum | Per-asset pricing | Share exchange (swap) |
| Capital Gains | On net worth of undertaking | On each asset separately | Exempt (Section 47) |
| GST | Exempt (going concern) | Applicable per asset | Exempt (going concern) |
| Court/NCLT | Not required | Not required | NCLT approval required |
| Stamp Duty | On immovable property only | On each immovable property | May be exempt (court scheme) |
| Time | Quick (1-2 months) | Quick (1-2 months) | Long (6-12 months) |
When to Choose Slump Sale
Slump sale is preferred when: (a) the transferor wants a QUICK transfer (no NCLT approval needed), (b) GST EXEMPTION is important (itemized sale attracts GST), (c) the transferor wants to transfer a SPECIFIC undertaking while retaining other businesses, (d) the consideration is in CASH (not shares — which would be amalgamation/demerger), (e) the transferor wants SIMPLICITY — one lump sum, one transaction, one deed.
Disclaimer: This article is for informational purposes only and does not constitute legal or professional advice. While every effort has been made to ensure accuracy based on the latest laws and amendments, readers should consult a qualified professional before acting on any information provided. For expert assistance, contact us.