How to Value a Slump Sale Under Section 77 and Rule 53

Businesses selling a division or an entire undertaking as a going concern on or after April 1, 2026 need to consider the valuation framework under the Income-tax Act, 2025 and Income-tax Rules, 2026.

The earlier provisions under Section 50B and Rule 11UAE have been replaced by Section 77 and Rule 53. Under the new framework, valuation is not based simply on the agreed sale price. The net worth of the undertaking and its fair market value (FMV) must be determined using the prescribed rules.

What Is a Slump Sale?

A slump sale involves the transfer of one or more undertakings as a going concern for a lump-sum consideration, without assigning individual values to the assets and liabilities being transferred.

For example, if a company sells its entire manufacturing division for ₹60 crore as a going concern without separately assigning values to its machinery, land, inventory and liabilities, the transaction may qualify as a slump sale.

This is different from an asset-by-asset sale where individual values are assigned to each asset.

How Is Net Worth Determined?

Under the new framework, the net worth of the undertaking is important because it is treated as the deemed cost of acquisition for calculating capital gains.

Broadly, net worth is determined by taking the value of the assets of the undertaking and reducing the relevant liabilities.

For depreciable assets, the prescribed written-down value (WDV) is generally considered. Certain assets, such as self-generated goodwill and specified assets, may be assigned a value of nil as prescribed under the rules.

Any increase in the book value of assets because of revaluation is generally ignored.

The resulting net worth becomes the deemed cost of acquisition. No indexation benefit is available.

How Is FMV Determined Under Rule 53?

Rule 53 provides a separate mechanism for determining the fair market value of the undertaking.

The FMV is broadly determined by comparing two values:

FMV 1: The value based on the prescribed valuation of the assets and liabilities of the undertaking.

FMV 2: The monetary consideration received plus the fair market value of any non-monetary consideration.

The higher of FMV 1 and FMV 2 is generally considered the FMV for the purpose of the slump sale provisions.

Certain assets, including immovable property, jewellery, artistic work, shares and securities, are subject to specific valuation rules and may require prescribed valuation or supporting documentation.

Simple Example of Slump Sale Valuation

Suppose ABC Ltd. sells a manufacturing undertaking on May 1, 2026, for ₹60 crore.

After applying the prescribed rules, assume the undertaking's net worth is ₹20 crore.

The asset-based calculation under Rule 53 results in FMV 1 of ₹52 crore. The buyer also provides non-monetary consideration valued at ₹5 crore.

Therefore:

FMV 2 = ₹60 crore + ₹5 crore = ₹65 crore

Since ₹65 crore is higher than ₹52 crore, the FMV under Rule 53 would be ₹65 crore.

The capital gain would then broadly be:

Capital Gain = FMV − Net Worth

= ₹65 crore − ₹20 crore

= ₹45 crore

This example shows why the agreed sale consideration alone may not determine the value used for tax purposes. The prescribed FMV and net worth calculations also need to be considered.

What Documents Are Required?

The valuation process generally requires financial and operational information relating to the undertaking, including details of:

• Assets and liabilities being transferred
• Book values and written-down values
• Immovable property
• Shares and securities
• Jewellery or other specified assets
• Monetary and non-monetary consideration
• Supporting valuation reports
• Relevant financial statements and records

An accountant's report in the prescribed Form No. 28 is also relevant for reporting the required information. In specified circumstances, the valuation may also be referred to a Valuation Officer where the prescribed conditions relating to differences in valuation are met.

Conclusion

Under the post-April 2026 framework, slump sale valuation involves two important calculations:

First, determine the net worth of the undertaking, which is treated as the deemed cost of acquisition.

Second, determine the FMV under Rule 53 by applying the prescribed asset-based and consideration-based calculations.

Therefore, businesses should not look only at the negotiated sale price when assessing the tax implications of a slump sale. The net worth, prescribed asset values, consideration and Rule 53 FMV all need to be properly evaluated.