Chapter IV - Computation of Total Income
Section 77
Section 77: special provision for computation of capital gains in case of slump sale
Section 77 sets a special capital gains regime for a "slump sale" - the transfer of one or more entire business undertakings or divisions for a lump-sum consideration, without separately valuing individual assets and liabilities. It is the successor to Section 50B of the old Act.
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This article is for general information. Refer to the Income-tax Act, 2025 as amended by the Finance Act, 2026 and the Taxation and Other Laws (Amendment) Act, 2026 for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
(1) Any profits or gains arising from the slump sale effected in the tax year shall be chargeable to income-tax as long-term capital gains and shall be deemed to be the income of the tax year in which the transfer took place, subject to the provisions of sub-section (2).
(2) The profits and gains arising from a slump sale involving the transfer of a capital asset, being one or more undertakings or divisions owned and held by an assessee for thirty-six months or less, immediately before the date of its transfer, shall be treated as short-term capital gains.
(3) In relation to capital assets, being an undertaking or division transferred by way of slump sale,— (a) the ‘net worth’ of the undertaking or division shall be 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, shall be deemed to be the full value of the consideration received or accruing as a result of such transfer.
(4) Every assessee, in the case of a slump sale, shall furnish in the prescribed form a report of an accountant, before the specified date referred to in section 63, and the report shall— (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 the provisions of this section.
(5) For the purposes of this section,— (a) the ‘net worth’ shall be the ‘aggregate value of total assets’ of the undertaking or division, as reduced by the value of its liabilities as appearing in the books of account, and for computing net worth, any change in the value of assets due to revaluation shall be ignored; (b) the ‘aggregate value of total assets’ shall,— (i) for depreciable assets, be the written down value of the block of assets determined under section 41(1)(c); (ii) for capital asset being goodwill of a business or profession, which was not acquired by the assessee by purchase from a previous owner, be nil; (iii) for capital assets for which the entire expenditure has been allowed or is allowable as a deduction under section 46, be nil; and (iv) for other assets, be the book value.
Introduction
A slump sale transfers an undertaking for lump consideration. The statute uses its net worth as cost and a prescribed fair market value as deemed consideration, with gain character affected by the undertaking's holding period.
Key takeaways
Slump-sale gain
A slump sale of an undertaking or division is generally charged as long-term capital gain in the transfer year; ownership for 36 months or less makes it short-term.
Net worth and deemed price
Net worth is the deemed acquisition and improvement cost, while prescribed fair market value is deemed consideration; an accountant’s report is required.
Long-term or short-term, based on holding period
Section 77(1) charges profits or gains from a slump sale as long-term capital gains, as income of the year of transfer, subject to Section 77(2).
Section 77(2) treats the gains as short-term capital gains instead if the undertaking or division transferred was owned and held by the assessee for thirty-six months or less immediately before the date of transfer.
Computing the gain - net worth as cost
Section 77(3) deems the "net worth" of the undertaking or division to be the cost of acquisition and cost of improvement for purposes of Sections 72 and 73, and deems the fair market value of the capital assets on the transfer date (calculated in the prescribed manner) to be the full value of consideration.
Section 77(5) defines "net worth" as the aggregate value of total assets, reduced by the value of liabilities as per the books of account, ignoring any revaluation of assets. The "aggregate value of total assets" is: for depreciable assets, the written down value of the block under Section 41(1)(c); for goodwill not acquired by purchase from a previous owner, nil; for assets whose entire cost was already deducted under Section 46, nil; and for other assets, the book value.
Mandatory accountant's report
Section 77(4) requires every assessee in a slump sale to furnish, in the prescribed form, a report from an accountant before the specified date referred to in Section 63, including the computation of net worth and certifying that it has been correctly arrived at as per this section.
Step-by-step flow for applying Section 77
- 1
Is the transfer a slump sale of one or more undertakings or divisions?
- No: Use the ordinary capital-gains provisions.
- Yes: Go to the next step.
- 2
Was the undertaking or division owned and held for thirty-six months or less immediately before transfer?
- Yes: The gain is short-term capital gains (Section 77(2)).
- No: The gain is long-term capital gains of the tax year of transfer (Section 77(1)).
- 3
Compute net worth (deemed cost of acquisition and improvement)
Aggregate value of total assets less book liabilities, ignoring revaluation. Depreciable assets at written down value under Section 41(1)(c); self-generated goodwill nil; assets fully deducted under Section 46 nil; other assets at book value.
- 4
Take the prescribed fair market value as full value of consideration and compute the gain
The fair market value on the date of transfer is calculated in the prescribed manner.
- 5
Furnish the accountant's report
In the prescribed form, before the specified date referred to in Section 63, including the net worth computation and certifying it.
Practical checklist
Do
- Document the transfer of the undertaking as a whole and the holding period.
- Compute net worth under the special asset and liability rules, ignoring asset revaluation.
- Obtain the accountant's report certifying the net-worth computation by the specified date.
Avoid
- Do not allocate the lump price across individual assets and apply ordinary separate-asset gains rules.
- Do not treat a recently held undertaking's gain as long-term solely because the sale is called a slump sale.
Illustrative example
Worked example: slump sale of a division held for five years
Hypothetical facts (illustration only, not a real taxpayer): A company sells its packaging division by way of slump sale. It has owned the division for five years. The division's books show: depreciable assets with a block written down value of ₹3 crore; self-generated goodwill nil in the books; land at a book value of ₹2 crore after excluding an earlier ₹1 crore revaluation; liabilities of ₹1.5 crore. Assume the fair market value calculated in the prescribed manner is ₹8 crore and there are no transfer expenses.
Character
Held for more than thirty-six months, so the gain is long-term capital gains of the tax year of transfer.
Aggregate value of total assets
₹3 crore (written down value) + nil (goodwill not purchased) + ₹2 crore (book value, revaluation ignored) = ₹5 crore.
Net worth
₹5 crore − ₹1.5 crore liabilities = ₹3.5 crore, deemed cost of acquisition and improvement.
Capital gain
₹8 crore deemed consideration − ₹3.5 crore = ₹4.5 crore long-term capital gains.
Outcome
- Long-term capital gains of ₹4.5 crore (on the assumed fair market value).
- The accountant's report computing and certifying the ₹3.5 crore net worth must be furnished in the prescribed form before the specified date under Section 63.
Glossary
- Slump sale
- Transfer of an undertaking or division for a lump sum without assigning values to individual assets and liabilities.
- Net worth
- The statutorily computed asset value less liabilities used as deemed cost for a slump sale.
Frequently asked questions
Is a slump sale always taxed as long-term capital gains?
Not always - Section 77(1) treats it as long-term by default, but Section 77(2) reclassifies it as short-term capital gains if the undertaking or division was held for 36 months or less before the transfer.
What is used as the "cost" in a slump sale computation?
The net worth of the undertaking or division - total assets (with specific rules for depreciable assets, self-generated goodwill and fully-deducted assets) minus book liabilities - is deemed to be the cost of acquisition and improvement, per Section 77(3) and (5).
Is an audit report required for a slump sale?
Yes - Section 77(4) requires an accountant's report, including the net-worth computation, to be furnished before the specified date under Section 63.
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Get expert help structuring a slump saleLast updated 10 October 2026