Section 77 · Computation of total income
Section 77 of the Income-tax Act, 2025 — Capital Gains on Slump Sale (Net Worth Rule)
By CA Rajat Agrawal
Updated 04 Jul 2026
Chapter IV
📜 What the law says — Section 77, Income-tax Act 2025
77. (1) Any profits or gains arising from the slump sale effected in the tax year
shall be chargeable to income-tax as long-term capital gains and shall be
deemed to be the income of the tax year in which the transfer took place, subject
to the provisions of sub-section (2).
(2) The profits and gains arising from a slump sale involving the transfer of a capital
asset, being one or more undertakings or divisions owned and held by an assessee
for thirty-six months or less, immediately before the date of its transfer, shall be
treated as short-term capital gains.
(3) In relation to capital assets, being an undertaking or division transferred by
way of slump sale,—
(a) the “net worth” of the undertaking or division shall be deemed to be the
cost of acquisition and the cost of improvement for sections 72 and 73;
and
(b) the fair market value of the capital assets on the date of transfer, calcu-
lated in such manner, as may be prescribed, shall be deemed to be the
full value of the consideration received or accruing as a result of such
transfer.
(4) Every assessee, in the case of a slump sale, shall furnish in the prescribed form
a report of an accountant, before the specified date referred to in section 63, and
the report shall—
(a) include the computation of the net worth of the undertaking or division;
and
(b) certify that the net worth has been correctly arrived at as per the provi-
sions of this section.
(5) For the purposes of this section,—
(a) the “net worth” shall be the “aggregate value of total assets” of the under-
taking or division, as reduced by the value of its liabilities as appearing
in the books of account, and for computing net worth, any change in the
value of assets due to revaluation shall be ignored;
(b) the “aggregate value of total assets” shall,—
(i) for depreciable assets, be the written down value of the block of
assets determined under section 41(1)(c);
(ii) for capital asset being goodwill of a business or profession, which
was not acquired by the assessee by purchase from a previous
owner, be nil;
(iii) for capital assets for which the entire expenditure has been allowed
or is allowable as a deduction under section 46, be nil; and
(iv) for other assets, be the b
In plain language
What Section 77 is about
Section 77 of the Income-tax Act, 2025 lays down a special way to compute capital gains when a business is sold as a "slump sale". A slump sale means transferring one or more undertakings or divisions of a business as a going concern for a single lump-sum price, without putting separate price tags on each asset and each liability. Because the buyer and seller agree on one combined figure for the whole business unit, the normal capital-gains machinery (which needs an individual cost for each asset) does not work. Section 77 solves this by treating the "net worth" of the undertaking as the deemed cost of acquisition and comparing it against the sale consideration. This provision replaces Section 50B of the Income-tax Act, 1961, and carries forward the same core logic with cleaner drafting.
Who it applies to
- Any assessee — company, LLP, firm, or individual — who transfers a whole business undertaking or division for a lump-sum consideration.
- Common in mergers and acquisitions, business restructuring, and division sell-offs, where a buyer wants the entire running unit (staff, contracts, plant, goodwill) rather than cherry-picked assets.
- It does not apply to an itemised asset sale where each asset carries its own agreed value — that is not a slump sale.
Long-term vs short-term (the 36-month test)
- Section 77(1): Gains from a slump sale are normally chargeable as long-term capital gains (LTCG) in the tax year the transfer takes place.
- Section 77(2): If the undertaking or division was owned and held for 36 months or less immediately before transfer, the gain is short-term capital gain (STCG).
- The holding period is measured on the undertaking as a whole, not on individual assets inside it. So even brand-new machinery inside a long-held division does not reset the clock.
How the gain is computed
- Full value of consideration = the lump-sum price. However, if the agreed price diverges from market values, the fair market value (FMV) of the capital assets on the date of transfer is deemed to be the full value of consideration (an anti-abuse rule to stop under-pricing).
- Cost of acquisition and improvement = "net worth" of the undertaking. Indexation benefit is not available — net worth stands in place of indexed cost.
- Capital gain = Full value of consideration (or FMV) − Net worth.
How "net worth" is calculated (Section 77(5))
- Net worth = aggregate value of total assets − value of liabilities as appearing in the books of account.
- Any increase from revaluation of assets is ignored — you cannot inflate net worth by revaluing property just before the sale to reduce the gain.
- Depreciable assets: taken at their written-down value (WDV) as per the tax depreciation rules.
- Self-generated goodwill and assets whose cost has been fully allowed as a deduction (e.g. certain capital expenditure already written off) are taken at nil.
- All other assets: taken at book value.
Mandatory accountant's report
Under Section 77(4), the assessee must obtain and furnish a report from a Chartered Accountant certifying that the net worth has been correctly computed. This is filed in Form No. 28 (under the Income-tax Rules, 2026) electronically on the e-filing portal, on or before the due date of filing the return referred to in Section 63. Missing this can lead to disallowance and disputes, so plan the CA certification early in a deal.
Practical implications
- A negative net worth is possible (liabilities exceed assets); in that case net worth is taken as nil for cost, increasing the taxable gain.
- Slump sale is a tax-efficient exit for a whole division because the buyer avoids item-wise stamp valuation disputes and the seller gets LTCG treatment if the unit was held over 36 months.
- Watch GST, stamp duty and transfer-pricing implications separately — Section 77 governs only income-tax capital gains.
💡 Example
Example 1 — Long-term slump sale. Suppose XYZ Ltd sells its "Foods Division" (held for 8 years) as a going concern for a lump sum of Rs. 50 crore. The division's assets per books total Rs. 40 crore, of which depreciable plant is carried at a book figure of Rs. 15 crore but its tax WDV is Rs. 12 crore, and there is self-generated goodwill of Rs. 3 crore in the books. Liabilities are Rs. 8 crore. Net worth = (Rs. 40 cr − Rs. 3 cr self-generated goodwill − Rs. 3 cr revaluation/WDV adjustment) − Rs. 8 cr liabilities = Rs. 32 crore (approx). Capital gain = Rs. 50 cr − Rs. 32 cr = Rs. 18 crore, taxable as LTCG (no indexation).
Example 2 — Short-term slump sale. ABC Ltd launched a new "App Division" 20 months ago and sells it for Rs. 10 crore. Net worth works out to Rs. 6 crore. Because the division was held for 36 months or less, the gain of Rs. 4 crore (Rs. 10 cr − Rs. 6 cr) is short-term capital gain, taxed at the company's normal rate rather than the concessional LTCG rate.
A relatable story. Meera runs a mid-sized company with two divisions — garments and a small logistics arm. A larger group wants to buy just the logistics arm, complete with its trucks, drivers, warehouse leases and client contracts, for one price of Rs. 12 crore. Instead of negotiating a value for every truck and lease, Meera's CA structures it as a slump sale. They compute the logistics arm's net worth at Rs. 9 crore, get a Form 28 certificate, and report Rs. 3 crore as long-term capital gain since the arm is 6 years old. The clean lump-sum deal saves months of asset-by-asset haggling and gives Meera the lower LTCG treatment.
| Item | Treatment under Section 77 |
|---|
| Nature of transaction | Transfer of an undertaking/division as a going concern for a lump sum |
| Full value of consideration | Lump-sum price; but FMV of assets on transfer date if price is understated |
| Cost of acquisition/improvement | Net worth of the undertaking (no indexation) |
| Holding period > 36 months | Long-term capital gain (Section 77(1)) |
| Holding period 36 months or less | Short-term capital gain (Section 77(2)) |
| Depreciable assets in net worth | Written-down value (WDV) |
| Self-generated goodwill / fully-deducted assets | Nil value |
| Revaluation increase | Ignored while computing net worth |
| Compliance | CA's report in Form 28 under Section 77(4), filed by Section 63 due date |
| Old law equivalent | Section 50B of the Income-tax Act, 1961 |
Related sections
Section 50B (1961 Act) — Slump sale predecessor of Section 77 Section 67 — Mode of computation of capital gains Section 63 — Due date for furnishing return of income Section 72 — Meaning of transfer of a capital asset Section 76 — Special provision for full value of consideration (immovable property) Section 2 — Definitions including 'slump sale' and 'undertaking'
Frequently asked questions
What is a slump sale under Section 77?
A slump sale is the transfer of one or more business undertakings or divisions as a going concern for a single lump-sum consideration, without assigning individual values to the assets and liabilities transferred.
How is capital gain calculated in a slump sale?
Capital gain equals the lump-sum consideration (or the fair market value of assets on the transfer date, if the price is understated) minus the net worth of the undertaking. Net worth acts as the deemed cost of acquisition.
Is indexation allowed on a slump sale?
No. Section 77 treats net worth as the cost of acquisition and improvement, and the benefit of indexation is not available on slump-sale gains.
When is a slump sale gain long-term versus short-term?
If the undertaking or division was owned and held for more than 36 months before transfer, the gain is long-term; if held for 36 months or less, it is short-term.
How is net worth computed and can revaluation be added?
Net worth is total assets less liabilities per books, with depreciable assets taken at WDV and self-generated goodwill at nil. Any increase due to revaluation of assets is specifically ignored.
Is a Chartered Accountant's report mandatory?
Yes. Section 77(4) requires a CA's report in Form No. 28 certifying that net worth has been correctly computed, filed electronically by the return due date under Section 63.
Which old-law section does Section 77 replace?
Section 77 of the Income-tax Act, 2025 replaces Section 50B of the Income-tax Act, 1961, retaining the same net-worth-based computation with updated drafting and references.
C
CA Rajat Agrawal
Chartered Accountant, EaseValue · Reviewed 04 Jul 2026
This explainer is prepared and reviewed by EaseValue's tax team, based on the text of the Income-tax Act, 2025 (as amended by the Finance Act, 2026).
Disclaimer: This page explains the law in general terms for education and is not professional advice. The Income-tax Act, 2025 takes effect from 1 April 2026; provisions, thresholds and interpretations may change. Please confirm your specific position with our team before acting.
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