Slump Sale
This query is : Resolved
20 January 2011
Can anyone pls tell me about detailed procedure for a company entering into slump sale with an another company in keeping view income tax, sales tax, ROC, Excise and service tax
Regrds
Regrds
25 July 2025
Sure! Here's a detailed overview of the procedure and important considerations for a **Slump Sale** from the perspective of **Income Tax, Sales Tax, ROC, Excise, and Service Tax**:
---
### What is a Slump Sale?
* **Slump Sale** is the transfer of one or more undertakings as a **going concern** for a lump sum consideration without values being assigned to individual assets and liabilities.
---
## 1. **Income Tax**
* **Definition:** Section 2(42C) of the Income Tax Act defines slump sale.
* **Capital Gains:** The entire net worth of the undertaking transferred is considered for capital gains.
* **Calculation:**
Capital Gain = Sale Consideration - Net Worth (Book value of assets - liabilities)
* **Tax Treatment:**
* The gains are treated as capital gains.
* Indexation benefits apply for long-term capital gains.
* **Advance Tax:** Tax should be paid on capital gains accordingly.
* **TDS:** Section 194Q (introduced recently) may apply, but earlier no specific TDS provisions for slump sale.
---
## 2. **Sales Tax / VAT / GST**
* **Sales Tax / VAT:**
* Slump sale is generally considered a **transfer of business assets** and may or may not attract VAT depending on state laws.
* Some states treat slump sale as sale of goods, others exempt it.
* **GST:**
* Slump sale is treated as **Supply of Business Assets** as a going concern.
* As per GST law, supply of a going concern is exempt from GST (Notification 12/2017-Central Tax (Rate)).
* The transfer should be of a **going concern** and not just individual assets.
---
## 3. **Registrar of Companies (ROC)**
* **Approval:**
* If the slump sale involves transfer of undertaking from one company to another, **Board Resolution** is required.
* Shareholders approval may be required depending on the nature and size of the transaction.
* Compliances under **Section 180(1)(a)** (sale of undertaking) or **Section 230-232** (scheme of arrangement) may be needed.
* **Filing:**
* File necessary forms with ROC (e.g., MGT-7 for resolutions, PAS-3 for shares if consideration is in shares).
* Disclosure in financial statements and notes.
---
## 4. **Excise Duty**
* **Excise:**
* Slump sale involving transfer of manufacturing unit assets may attract excise implications.
* Transfer of excisable goods as part of slump sale may require **excise clearance** or **transfer of excise registration**.
* Proper documentation and communication with Excise authorities necessary.
---
## 5. **Service Tax** (applicable before GST regime)
* **Service Tax:**
* If the transaction involves transfer of business as going concern, it is exempt from service tax.
* However, if any service is provided separately (like valuation, advisory), then service tax may apply.
---
## **Summary of Procedure**
| Step | Action Required |
| ------------------- | ------------------------------------------------------- |
| Board Meeting | Approval for slump sale |
| Due Diligence | Legal, financial, tax, excise, and regulatory checks |
| Valuation | To determine consideration and net worth of undertaking |
| Agreement Drafting | Slump sale agreement detailing terms and consideration |
| Tax Compliances | Income tax calculations, advance tax, TDS if applicable |
| ROC Filings | Necessary filings and disclosures |
| Excise Registration | Intimate excise department and transfer registrations |
| GST Compliance | Confirm exemption and proper documentation |
| Execution | Transfer of assets and liabilities |
---
If you want, I can help prepare a checklist or draft agreement templates too. Would you like that?
---
### What is a Slump Sale?
* **Slump Sale** is the transfer of one or more undertakings as a **going concern** for a lump sum consideration without values being assigned to individual assets and liabilities.
---
## 1. **Income Tax**
* **Definition:** Section 2(42C) of the Income Tax Act defines slump sale.
* **Capital Gains:** The entire net worth of the undertaking transferred is considered for capital gains.
* **Calculation:**
Capital Gain = Sale Consideration - Net Worth (Book value of assets - liabilities)
* **Tax Treatment:**
* The gains are treated as capital gains.
* Indexation benefits apply for long-term capital gains.
* **Advance Tax:** Tax should be paid on capital gains accordingly.
* **TDS:** Section 194Q (introduced recently) may apply, but earlier no specific TDS provisions for slump sale.
---
## 2. **Sales Tax / VAT / GST**
* **Sales Tax / VAT:**
* Slump sale is generally considered a **transfer of business assets** and may or may not attract VAT depending on state laws.
* Some states treat slump sale as sale of goods, others exempt it.
* **GST:**
* Slump sale is treated as **Supply of Business Assets** as a going concern.
* As per GST law, supply of a going concern is exempt from GST (Notification 12/2017-Central Tax (Rate)).
* The transfer should be of a **going concern** and not just individual assets.
---
## 3. **Registrar of Companies (ROC)**
* **Approval:**
* If the slump sale involves transfer of undertaking from one company to another, **Board Resolution** is required.
* Shareholders approval may be required depending on the nature and size of the transaction.
* Compliances under **Section 180(1)(a)** (sale of undertaking) or **Section 230-232** (scheme of arrangement) may be needed.
* **Filing:**
* File necessary forms with ROC (e.g., MGT-7 for resolutions, PAS-3 for shares if consideration is in shares).
* Disclosure in financial statements and notes.
---
## 4. **Excise Duty**
* **Excise:**
* Slump sale involving transfer of manufacturing unit assets may attract excise implications.
* Transfer of excisable goods as part of slump sale may require **excise clearance** or **transfer of excise registration**.
* Proper documentation and communication with Excise authorities necessary.
---
## 5. **Service Tax** (applicable before GST regime)
* **Service Tax:**
* If the transaction involves transfer of business as going concern, it is exempt from service tax.
* However, if any service is provided separately (like valuation, advisory), then service tax may apply.
---
## **Summary of Procedure**
| Step | Action Required |
| ------------------- | ------------------------------------------------------- |
| Board Meeting | Approval for slump sale |
| Due Diligence | Legal, financial, tax, excise, and regulatory checks |
| Valuation | To determine consideration and net worth of undertaking |
| Agreement Drafting | Slump sale agreement detailing terms and consideration |
| Tax Compliances | Income tax calculations, advance tax, TDS if applicable |
| ROC Filings | Necessary filings and disclosures |
| Excise Registration | Intimate excise department and transfer registrations |
| GST Compliance | Confirm exemption and proper documentation |
| Execution | Transfer of assets and liabilities |
---
If you want, I can help prepare a checklist or draft agreement templates too. Would you like that?
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