Section 77 Income Tax Act 2025: How Is Slump Sale Capital Gain Calculated?
Section 77 lays down special rules for computing capital gains when an undertaking or division is transferred through a slump sale. It determines the holding-period classification, substitutes prescribed fair market value for consideration, and treats net worth as the relevant acquisition and improvement cost.
Updated: 10 November 2026 | Chapter IV - Computation of Total Income
What is a slump sale?
A slump sale is a transfer of one or more undertakings for a lump-sum consideration without assigning individual sale values to the assets and liabilities transferred. For the precise statutory meaning, read the definition of slump sale in section 2 of the Income-tax Act, 2025 together with section 77. The character of the transaction depends on the transfer of an undertaking as a whole, rather than an ordinary item-by-item asset sale.
Section 77: Sub-section-wise explanation
Section 77(1): Tax year and long-term treatment
Profits or gains from a slump sale effected during a tax year are charged as long-term capital gains in the tax year in which the transfer takes place, subject to the short-term rule in sub-section (2).
Section 77(2): Undertaking held for 36 months or less
If the transferred undertaking or division was owned and held for 36 months or less immediately before transfer, the resulting capital gain is treated as short-term. An undertaking held for more than 36 months generally falls within the long-term rule in sub-section (1).
Section 77(3): Deemed cost and consideration
For an undertaking or division transferred by slump sale, its net worth is deemed to be its cost of acquisition and cost of improvement for the purposes of sections 72 and 73. The fair market value of the capital assets on the transfer date, computed in the prescribed manner, is deemed to be the full value of consideration. The contractual lump sum is therefore not necessarily the figure used as deemed consideration for capital-gains computation.
Section 77(4): Accountant's report
The assessee must furnish an accountant's report in the prescribed form before the specified date referred to in section 63. The report must set out the undertaking's net worth and certify that it has been computed correctly under section 77.
Section 77(5): How net worth is calculated
Net worth equals the aggregate value of the undertaking's total assets, determined under the statutory valuation rules, less the liabilities appearing in the books of account. Asset revaluations are ignored for this purpose.
Statutory rules for computing net worth
Example: Calculation of slump sale capital gains
Assume a business division held for five years is transferred. The prescribed fair market value is Rs. 5,00,00,000. Its depreciable block has written down value of Rs. 1,40,00,000; other qualifying assets have book value of Rs. 2,10,00,000; self-generated goodwill is Rs. 0; and book liabilities are Rs. 80,00,000. Assume no deductible transfer expenditure.
| Particulars | Amount (Rs.) |
|---|---|
| Deemed consideration (prescribed FMV) | 5,00,00,000 |
| Depreciable assets (WDV) | 1,40,00,000 |
| Other assets (book value) | 2,10,00,000 |
| Less: book liabilities | (80,00,000) |
| Net worth | 2,70,00,000 |
| Illustrative long-term capital gain | 2,30,00,000 |
Because the undertaking was held for more than 36 months, the example results in a long-term capital gain. The applicable tax rate, surcharge, cess and any other adjustments must be determined separately for the relevant assessee and tax year. This simplified example does not replace the prescribed fair market value calculation.
Reporting requirements and practical considerations
- Identify the undertaking or division being transferred and establish the transfer date.
- Document the ownership and holding period to determine whether the gain is short-term or long-term.
- Compute prescribed fair market value under the applicable Income-tax Rules, 2026, including Rule 53 where applicable.
- Prepare a net-worth working paper with depreciation schedules, asset books and liability balances.
- Obtain and furnish the accountant's report in Form No. 28 under Rule 54, within the applicable deadline.
- Check other tax consequences separately, including indirect taxes, stamp duty and transaction-specific obligations.
The Income Tax Department's guidance identifies Form No. 28 under the 2026 Rules as the report corresponding to the earlier Form 3CEA for section 50B of the 1961 Act. Always confirm the filing requirements and due date for the relevant tax year.
Comparison with Section 50B of the Income-tax Act, 1961
Section 77 of the 2025 Act broadly carries forward the slump-sale capital gains framework of section 50B of the 1961 Act. Earlier judicial decisions interpreting similar wording may remain relevant, but their applicability depends on the precise statutory text, facts and amendments governing the transaction. No specific case citation is attributed to section 77 here without independent verification.
Frequently asked questions
Is every slump sale taxed as long-term capital gains?
No. If the undertaking or division was owned and held for 36 months or less immediately before transfer, section 77(2) treats the gain as short-term.
Is the agreed sale price always the taxable consideration?
No. Section 77(3)(b) deems the prescribed fair market value on the transfer date to be the full value of consideration for the computation.
Can an asset revaluation increase the net worth?
No. Section 77(5)(a) requires changes in asset values arising from revaluation to be ignored in computing net worth.
Is an accountant's report compulsory?
Yes. Section 77(4) requires a report certifying the net-worth computation, in the prescribed form and by the applicable specified date.
Which provision governed slump sales under the 1961 Act?
Section 50B of the Income-tax Act, 1961.
Official legislation and guidance
Editorial note: This article is general legal and tax information. The statutory provisions, rules and applicable forms should be checked against the official text before a transaction or filing.