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, are working under a different rulebook than many finance teams still have memorized. The old Section 50B and Rule 11UAE have been replaced by Section 77 of the Income-tax Act, 2025, and Rule 53 of the Income-tax Rules, 2026. The underlying logic is largely unchanged, but the specific mechanics and references have shifted and citing the old provisions on a post-April-2026 deal is now a straightforward error.

What Qualifies as a Slump Sale

Section 77 applies only where a transaction genuinely qualifies as a slump sale — the transfer of one or more undertakings for a lump sum, without assigning individual values to specific assets and liabilities. An itemized sale, where assets are separately priced, falls under different provisions entirely. Getting this classification right at the outset matters as much as the valuation itself.

The Net Worth Method

A slump sale is taxed by comparing the sale consideration to the "net worth" of the undertaking, with the difference treated as capital gain. Net worth equals the aggregate book value of assets minus liabilities, with depreciable assets counted at written-down value, self-generated goodwill and certain specified assets treated as nil, and any revaluation ignored. Net worth becomes the deemed cost of acquisition, with no indexation benefit available. Gains are long-term if the undertaking was held over 36 months, and short-term otherwise a threshold specific to slump sales.

Why Fair Market Value Governs, Not Just the Agreed Price

This is where Rule 53 becomes essential. Section 77 does not simply tax the gap, between the agreed price and the net worth. The fair market value of the undertakings assets computed under Rule 53 is treated as the value of consideration when it differs from the actual price. In effect, the higher of actual consideration or Rule 53's computed FMV generally governs the tax computation, preventing parties from agreeing to an artificially low price to shrink the taxable gain.

How Rule 53 Computes Fair Market Value

Rule 53 requires FMV to be the higher of two figures.

FMV1, an asset-based valuation, starts with the aggregate book value of assets excluding jewellery, artistic work, shares, securities, and immovable property, which are valued separately via a registered valuer's report, Rule 57 methodology, and stamp duty value respectively. Liabilities are then subtracted, excluding equity capital, reserves, unascertained provisions, and contingent liabilities.

FMV2, a consideration-based valuation, aggregates the monetary consideration paid plus the fair market value of any non-monetary consideration, using similar valuation conventions.

Whichever figure is higher becomes the FMV used for the transaction, determined as on the date of the slump sale.

Documentation Requirements

Every assessee involved in a slump sale must submit an accountant's report in Form No. 28 along with the income tax return, certifying that net worth has been correctly computed. Separately, Rule 55 allows a tax officer to refer the valuation to a Valuation Officer when the computed value diverges from the assessee's figure by more than 15%, with an absolute difference exceeding ₹10 lakh.

Valuing a slump sale under the current framework requires two distinct steps: correctly calculating worth, by using the deemed cost of acquisition and also figuring out the fair market value according to Rule 53s higher-of-two-methods approach because that number. Not just the agreed price. Actually decides the taxable consideration. With Section 77 and Rule 53 now operative, businesses transferring an undertaking need both a properly documented valuation and up-to-date compliance practices to ensure the resulting capital gains computation holds up to scrutiny.