Slump sale (Section 50B)
How selling an undertaking as a going concern is taxed, and the GST exemption
A slump sale is the transfer of an entire business or undertaking for a lump-sum price, without assigning values to individual assets and liabilities. It is taxed under Section 50B as a single capital gain, the consideration less the undertaking's net worth (which is its deemed cost of acquisition), rather than asset by asset. The gain is long-term if the undertaking was held for more than 36 months (taxed at 12.5% without indexation since 23 July 2024) and short-term otherwise. Net worth is computed in a specific way (depreciable assets at written-down value, self-generated goodwill and Section 35AD assets at nil, everything else at book value, less liabilities). On the GST side, a transfer of a business as a going concern is exempt, so a properly structured business sale carries no GST.
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What a slump sale is, and how the gain is computed
A slump sale (Section 2(42C)) is the transfer of one or more undertakings for a lump sum where no values are assigned to the individual assets and liabilities, the business moves as a whole. Section 50B taxes it as a single capital gain: the sale consideration less the undertaking's net worth, which is treated as its cost of acquisition. The gain is long-term if the undertaking was held for more than 36 months (slump sale kept the 36-month threshold even after the Finance Act 2024 reduced other assets to 24 months), taxed at 12.5% without indexation since 23 July 2024, or short-term otherwise. A company on the 22% concessional regime folds the gain into its income at 22%.
Net worth: the goodwill and FMV traps
Net worth is the deemed cost, and how it is built matters. Depreciable assets are taken at their written-down value, Section 35AD assets (already 100%-written-off) at nil, and self-generated goodwill (not purchased) at nil since the Finance Act 2021, with other assets at book value, less liabilities at book value (revaluation is ignored). A negative net worth is treated as nil, so the whole consideration becomes the gain. Separately, Rule 11UAE deems the fair market value of the undertaking (or the consideration, whichever is higher) as the full value of consideration, so an agreed price below FMV does not reduce the tax. The self-generated-goodwill-at-nil rule in particular inflates the taxable gain on a business built up over years.
warningSelf-generated goodwill counts as zero cost in the net-worth computation, so the value you built up over years is taxed in full as gain. And Rule 11UAE can deem a fair-market value above your agreed price, you cannot reduce the tax just by agreeing a lower number.
GST exemption, and slump sale vs demerger
The genuinely useful point for any business exit: a transfer of a business as a going concern is exempt from GST (no 18% on the sale), provided the business is transferred as a running unit (whole or an independent part), not a cherry-picked pool of assets, and the buyer continues it (employees, contracts, customers). So structure a business sale as a going concern to avoid GST. Note the contrast with a demerger: a qualifying demerger under a scheme of arrangement, with consideration in shares to shareholders and continuity, is tax-neutral, whereas a slump sale (cash or mixed consideration) is taxed under 50B. Choose the route deliberately with advice, as the tax outcomes differ sharply.
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Calculators
Source / notes
- Income-tax Act 1961 s.2(42C) + s.50B (slump sale; net worth = deemed cost) (Income-tax Act 2025 s.77)
- Income-tax Act 1961 Rule 11UAE (FMV deeming) + FA2021 (self-generated goodwill nil)
- CGST Act 2017 Notification 12/2017-CTR Entry 2 (going-concern transfer GST-exempt)
Frequently asked questions
How is selling a whole business taxed?+
As a slump sale under Section 50B if it is transferred for a lump sum without assigning values to individual assets. The tax is a single capital gain, the consideration less the business's net worth (its deemed cost), not asset by asset. The gain is long-term at 12.5% without indexation if the undertaking was held more than 36 months, or short-term otherwise. A 22%-regime company folds it into income at 22%.
Do I pay GST when I sell my business?+
Not if it is sold as a going concern. The transfer of a business as a running concern (whole or an independent part) is exempt from GST, provided the buyer continues the business with its employees, contracts and customers, rather than buying a cherry-picked set of assets. So structuring a business exit as a going-concern transfer avoids the 18% GST that a plain asset sale would attract.
Why does goodwill increase my slump-sale tax?+
Because self-generated goodwill (goodwill you built up rather than purchased) is taken at nil in the net-worth computation since the Finance Act 2021. Net worth is the deemed cost subtracted from the consideration, so counting goodwill as zero increases the taxable gain. A business built up over years, where much of the value is goodwill, therefore has a larger taxable slump-sale gain than the book figures alone suggest.
What is the difference between a slump sale and a demerger?+
A slump sale transfers an undertaking for cash or mixed consideration and is taxed under Section 50B as a capital gain. A qualifying demerger is a court-approved scheme of arrangement where the consideration goes to shareholders in shares with business continuity, and it is tax-neutral. So the same business reorganisation can be taxed or tax-free depending on which route it takes, which is why these are planned carefully with advice.
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