Slump sale transactions present unique valuation challenges, as the consideration is a single lump sum without values assigned to individual assets and liabilities. The Income Tax Act, 2025 addresses this through Section 77, which deems the fair market value of the capital assets as the full value of consideration. Rule 53 of the Income Tax Rules, 2026 prescribes the methodology for determining this deemed consideration.
The Two FMV Approach
Rule 53 requires the computation of two FMVs—FMV1 and FMV2—both as on the date of slump sale. The deemed consideration is the higher of the two values.
FMV1: Value of Capital Assets Transferred
FMV1 represents the fair market value of the capital assets transferred by way of slump sale. It is calculated using the formula:
FMV1 = A + B + C + D − L
Component A: Book Value of Assets
Book value of all assets (other than jewellery, artistic works, shares, securities, and immovable property) as appearing in the books of account, reduced by:
- Any amount of income-tax paid, less the amount of income-tax refund claimed
- Any amount shown as asset including the unamortised amount of deferred expenditure which does not represent the value of any asset
Component B: Jewellery and Artistic Works
The price which jewellery and artistic works would fetch if sold in the open market, based on a valuation report from a registered valuer.
Component C: Shares and Securities
The fair market value of shares and securities as determined in the manner provided in Rule 57.
Component D: Immovable Property
The value adopted, assessed, or assessable by any government authority for stamp duty purposes.
Component L: Liabilities (Exclusions)
Book value of liabilities, excluding:
- Paid-up equity share capital
- Amount set apart for dividends not declared before transfer
- Reserves and surplus (even if negative), other than depreciation reserves
- Provision for taxation (with adjustments)
- Provisions for unascertained liabilities
- Contingent liabilities (other than arrears of cumulative preference dividends)
FMV2: Value of Consideration Received
FMV2 represents the fair market value of the consideration received for the slump sale. It is calculated using the formula:
FMV2 = E + F + G + H
Component E: Monetary Consideration
The value of monetary consideration received or accruing as a result of the transfer.
Component F: Non-Monetary Consideration (Shares/Securities)
Fair market value of non-monetary consideration represented by shares and securities, determined in the manner provided in Rule 57.
Component G: Non-Monetary Consideration (Other Property)
The price which non-monetary consideration, other than immovable property, would fetch in the open market, based on a valuation report from a registered valuer.
Component H: Immovable Property Consideration
The stamp duty value of immovable property received as consideration.
Worked Example
Scenario
XYZ Ltd transfers its manufacturing division to ABC Ltd in a slump sale. The consideration is ₹10 crore in cash. The relevant figures as on the date of slump sale are:
| Component | Amount (₹) |
|---|---|
| Book value of assets (excluding jewellery, artistic works, shares, securities, immovable property) | 7,00,00,000 |
| Jewellery and artistic works (registered valuer report) | 50,00,000 |
| FMV of shares and securities | 1,00,00,000 |
| Stamp duty value of immovable property | 2,00,00,000 |
| Book value of liabilities (as adjusted) | 3,00,00,000 |
| Cash consideration | 10,00,00,000 |
Step 1: Calculate FMV1
FMV1 = A + B + C + D − L FMV1 = 7,00,00,000 + 50,00,000 + 1,00,00,000 + 2,00,00,000 − 3,00,00,000 FMV1 = 7,50,00,000
Step 2: Calculate FMV2
FMV2 = E + F + G + H FMV2 = 10,00,00,000 + 0 + 0 + 0 FMV2 = 10,00,00,000
Step 3: Determine Deemed Consideration
Deemed Consideration = Higher of FMV1 and FMV2 Deemed Consideration = Higher of ₹7,50,00,000 and ₹10,00,00,000 Deemed Consideration = ₹10,00,00,000
Step 4: Compute Capital Gains
Net Worth = FMV1 = ₹7,50,00,000 (as FMV1 represents the net worth of the undertaking)
Capital Gains = Deemed Consideration − Net Worth Capital Gains = ₹10,00,00,000 − ₹7,50,00,000 Capital Gains = ₹2,50,00,000
Form 28: Accountant Certification
Every assessee effecting a slump sale must furnish a report from an accountant in Form 28. The report must include:
- Computation of the net worth of the undertaking or division
- Certification that the net worth has been correctly arrived at as per the provisions of Section 77
Expert Legal Guidance
Slump sale valuations require careful application of the FMV1 and FMV2 formulas. Anuj Desai & Associates provides expert advisory services on Direct Tax Code compliance, helping taxpayers navigate slump sale transactions and ensure compliance with all reporting requirements.