Form 28 — Slump Sale Audit Report and the Accountant Certification Requirement

Slump sale is a common transaction in business restructuring, involving the transfer of one or more undertakings for a lump sum consideration without individual values being assigned to assets and liabilities. The Income-tax Act, 2025 provides specific provisions for the taxation of capital gains arising from slump sale under section 77. Form 28 is the prescribed form for the audit report and accountant certification required under section 77(4). Understanding this form is essential for businesses undertaking slump sale transactions.

Overview of Section 77

Statutory Provision

Section 77 provides special provisions for computation of capital gains in case of slump sale.

Key Definitions

Slump Sale (Section 2(103))

• Transfer of one or more undertaking, by any means, for a lump sum consideration
• Without values being assigned to the individual assets and liabilities

Undertaking (Section 2(35)(i))

• Includes any part of an undertaking
• A unit or division of an undertaking
• A business activity taken as a whole
• Does not include individual assets or liabilities not constituting a business activity

Taxation of Slump Sale

Long-Term Capital Gains

• If the undertaking or division was held for more than 36 months
• Taxable at 12.5% (under section 197)

Short-Term Capital Gains

• If the undertaking or division was held for 36 months or less
• Taxable at 20% (under section 196) or as per applicable rates

Computation of Capital Gains

Full Value of Consideration

• Section 77(3)(b): Fair market value of capital assets on the date of transfer
• Calculated in the manner prescribed in Rule 53

Cost of Acquisition and Improvement

• Section 77(3)(a): Net worth of the undertaking or division
• Net worth: Aggregate value of total assets as reduced by liabilities

Audit Report Requirement

Section 77(4)

Every assessee, in the case of a slump sale, shall furnish a report of an accountant before the specified date referred to in section 63.

The report shall:

• Include the computation of the net worth of the undertaking or division
• Certify that the net worth has been correctly arrived at as per the provisions of this section

Specified Date

The specified date is the date one month prior to the due date for furnishing the return of income under section 263(1).

Due Dates

Form 28 — Slump Sale Audit Report

Purpose

Form 28 is the report from an accountant certifying the computation of net worth of the undertaking or division transferred by way of slump sale, and the correct determination of capital gains.

Filing Details

To Whom

• Assessing Officer having jurisdiction over the assessee

Timing

• Before the specified date referred to in section 63

Mode

• Electronic filing as specified by the Principal Director General of Income-tax (Systems)

Verification

• By the accountant (as defined in section 515(3)(b))
• Signed and verified by the accountant

Line-by-Line Explanation

Part I: Basic Information

1. Name of the Assessee

   • Full legal name of the assessee transferring the undertaking

2. Permanent Account Number (PAN)

   • PAN of the assessee

3. Address

   • Registered office or principal place of business

4. Tax Year

   • The tax year in which the slump sale took place

5. Date of Slump Sale

   • The date on which the undertaking was transferred

6. Description of Undertaking/Division

   • Full description of the undertaking or division transferred
   • Should identify the assets and liabilities included

Part II: Computation of Net Worth

7. Aggregate Value of Total Assets

   • All assets of the undertaking or division
   • As appearing in the books of account

8. Value of Liabilities

   • All liabilities of the undertaking or division
   • As appearing in the books of account

9. Net Worth

   • Aggregate value of total assets as reduced by liabilities
   • As per section 77(5)(a)

Part III: Computation of Capital Gains

10. Full Value of Consideration

    • Fair market value of capital assets on the date of transfer
    • As per section 77(3)(b) and Rule 53

11. Cost of Acquisition

    • Net worth of the undertaking or division
    • As per section 77(3)(a)

12. Capital Gains

    • Full value of consideration as reduced by net worth
    • As per section 72(1)

13. Period of Holding

    • Whether the undertaking was held for more than 36 months
    • Determines whether long-term or short-term capital gains

Part IV: Certification

14. Certification by Accountant

    • That the net worth has been correctly arrived at
    • That the computation of capital gains is correct
    • That the provisions of section 77 have been complied with

15. Signature of Accountant

    • Name and signature of the accountant
    • Membership number and date

16. Verification

    • That the report is true and correct

Net Worth Computation (Detailed)

Aggregate Value of Total Assets

For Depreciable Assets

• Written down value of the block of assets determined under section 41(1)(c)

For Goodwill Not Acquired by Purchase

• Nil

For Assets with Entire Expenditure Allowed as Deduction

• Nil (for assets on which deduction under section 46 was allowed)

For Other Assets

• Book value

Value of Liabilities

• As appearing in the books of account
• Includes all liabilities of the undertaking or division

Exclusion for Revaluation

Any change in the value of assets due to revaluation shall be ignored for computing net worth.

Book Value Determination

• For depreciable assets: Written down value
• For other assets: Book value as per books of account

Fair Market Value Computation (Rule 53)

FMV1 (Assets of the Undertaking)

FMV1 = A+B+C+D-L

Where:

• A = Book value of all assets (excluding jewellery, artistic work, shares, securities, and immovable property)
• B = Price jewellery and artistic work would fetch in the open market (based on registered valuer's report)
• C = Fair market value of shares and securities (as per Rule 57)
• D = Stamp duty value of immovable property
• L = Book value of liabilities (excluding paid-up capital, reserves, provisions, contingent liabilities, etc.)

FMV2 (Consideration Received)

FMV2 = E+F+G+H

Where:

• E = Value of monetary consideration
• F = Fair market value of non-monetary consideration (property as per Rule 57, Table: Sl. Nos. 1-5)
• G = Price non-monetary consideration (other property) would fetch in the open market (based on registered valuer's report)
• H = Stamp duty value of immovable property received as consideration

Fair Market Value

FMV = Higher of FMV1 and FMV2

Practical Considerations

Timely Filing

Form 28 must be filed before the specified date. The accountant must complete the certification and prepare the report well in advance.

Accuracy of Net Worth

The net worth computation must be accurate and based on the books of account. Any inaccuracies may lead to incorrect capital gains computation and penalties.

Documentation

The assessee must provide all necessary documents to the accountant for certification, including:

• Books of account of the undertaking
• Asset and liability details
• Valuation reports (if any)
• Stamp duty valuation of immovable property

Valuation

For depreciable assets, the written down value must be computed correctly. For other assets, the book value must be used. Revaluation effects must be ignored.

Certification

The accountant must certify that the net worth has been correctly arrived at as per the provisions of section 77.

Common Mistakes

1. Incorrect Net Worth Computation

   • Not following the prescribed method
   • Including or excluding incorrect items

2. Failure to Ignore Revaluation

   • Including the effect of revaluation in net worth

3. Incorrect Fair Market Value Determination

   • Not using the prescribed method (Rule 53)

4. Failure to File Form 28

   • Not filing the audit report within the specified date

5. Incorrect Period of Holding

   • Not correctly determining the period of holding

Penalties for Non-Compliance

Failure to Furnish Form 28

• Penalty may be levied under section 465 (failure to furnish information or statements)

Failure to Maintain Books of Account

• Penalty under section 441

Failure to Get Accounts Audited

• Penalty under section 446

Incorrect Information in Form 28

• Penalty under section 463 (furnishing incorrect information in reports)

Expert Advisory

Given the complexity of slump sale provisions and Form 28, professional advisory is essential. Anuj Desai & Associates provides comprehensive services for slump sale audit and certification, including:

• Net Worth Computation: Assistance with net worth computation
• Fair Market Value Determination: Assistance with FMV computation under Rule 53
• Form 28 Preparation: Preparation of Form 28
• Certification: Certification by an accountant
• Compliance Review: Review of compliance with section 77
• Representation: Representation before tax authorities

With deep expertise in capital gains and slump sale provisions, Anuj Desai & Associates ensures that your slump sale transaction is compliant and tax-efficient.

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Need expert assistance with slump sale audit and Form 28? Contact Anuj Desai & Associates today for comprehensive advisory, certification, and compliance services. [Contact Us] to schedule a consultation.