What is slump sale?

A single entity could have separate segments or undertakings with its own set of assets and liabilities each focused on a different business. Therefore, when the need arises, the entity can sell off a segment or the undertaking. This is called a slump sale.

CONTENTS

Slump Sale under Income Tax

Tax Effect in a Slump Sale

Slump sale vs. Itemised sale

Case study

Other matters

Slump Sale under Income Tax

A slump sale for income tax purposes would be one where an undertaking is sold without considering the individual values of the assets or liabilities contained within the undertaking.

It may be important to note here that finding out individual values may be of relevance only for the purpose of determining stamp duty or any other similar taxes. 

(Applicable in case of Land & Building transferred along with the respective undertaking)

Tax Effect in a Slump Sale

The gain or loss resulting out of a slump sale shall be a Capital Gain/Loss under the Income Tax Act.

(In the hands of the seller)

The computation has been prescribed as follows:

The capital gain or loss as computed above will be either long-term or short-term depending upon the period for which the undertaking is held.

If the undertaking is held for more than 36 months, the resulting capital gain or loss shall be long-term and if it is held for less than 36 months, the resulting capital gain or loss shall be short-term.

Further, there will be no indexation benefit available in the computation of the capital gains.

Net worth: In computing the net worth of the entity, the following points need to be considered:

The value of net worth should not take into account any change in the value of the asset or liability resulting from the revaluation of such asset or liability.

In case of depreciable assets under the Income Tax Act, the Written Down Value of such assets as per the Act shall be considered.

In the case of assets on which 100% deduction has been allowed u/s 35AD (specified business), the value of such assets will not be considered.

In the case of any other asset, value as appearing in the books of accounts shall be considered.

After considering the above points, if the resulting net worth is negative, then the cost of acquisition shall be taken as nil for the purpose of computation of capital gains.

Tax rates: The rates of tax applicable to the capital gain in a slump sale are as follows:

Short Term Capital Gain: Normal Rates of taxation

Long Term Capital Gain: 20%

Reporting Formality: The Company has to furnish a report by a Chartered Accountant as per Form 3CEA.

Taxation under GST: The basis of taxation under the Goods and Services Tax Act revolves around ‘supply’. A slump sale would also be a supply and hence fall under the purview of GST. The supply would be in the nature of ‘transfer as a going concern’ and such a transfer attracts a nil rate of GST.

Transfer as a going concern would roughly mean that the current business as a whole will be carried on by a different person or that there is a change in the ownership of the business.

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Taking your company to IPO | Online Startup Registration Services

The Indian public markets are projected to be worth $2.7 trillion. There is a sizable retail investor base, and the public awareness of listed companies is on the rise. Companies seeking to obtain funds are increasingly opting for an initial public offering (IPO).

 

The road to IPO, on the other hand, must be meticulously planned. There has been an influx of enterprises, particularly Micro, Small, and Medium Enterprises (MSMEs) and startups, seeking public listing in recent years. In fact, the Indian government is announcing policies that will aid these businesses in their endeavors. 

 

IPO listings enable MSMEs and startups to gain access to finance, albeit they come with a lot of responsibilities. Former MSME Minister Nitin Gadkari stated in June 2020 that the government is considering establishing a specifically established "MSME Stock Exchange" on which such small enterprises will be listed. Businesses that list on the platform will receive a 15 percent equity injection from the government.

 

Unlike MSMEs, startups should only consider an IPO when they are completely prepared - ready for examination and with a new playbook that includes recruiting the correct board of directors and establishing communication lines with stakeholders.

 

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High governance and stable business (growth) performance or cycles are required in public markets. Going public for a business to consumer (B2C) brand would entail higher branding visibility, which could be used to boost income and (perhaps) increase consumer engagement. In comparison to a private raise, however, reaching public markets is difficult.

 

Going public would necessitate the rigour and discipline of quarterly meetings with major investors, large shareholders, and equity analysts. Depending on the days spent per quarter on this activity, this could entail time away from the primary business.

 

Companies considering an IPO should first decide whether to list on the NSE or the BSE.

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Expectations from Union Budget 2022 | Business setup services India

Amidst the current Omicron wave across the world, leading world economies, including India, are on the path of recovery from the damage the COVID-19 pandemic has done. With the predicted growth of real GDP estimated at 8.3 per cent, as forecasted by the World Bank, the Indian economy is at the center of the limelight in world economics.

In this article on expectations from the Union Budget 2022, we have highlighted industry-wise expectations for reforms, subsidies, and support mechanisms from the Government of India.

 

Hospitality Sector

 

The hospitality sector is amongst the sectors that have been most disrupted from the COVID-19 pandemic and pursuant lockdown and travel restrictions that were imposed across the country.

 

This sector has been significantly suffered a crunch on liquidity and hence we expect the following reforms, support and benefits to accrue from the union budget 2022:

 

1. Reduction in tax rates on both corporate and normal assesses.
2. Fund for extending liquidity to the sector in form of collateral-free top-up of working capital limits
3. Increased or priority access to MSME reforms for the stressed entities.
4. Introduction of schemes for the promotion of travel and tourism by the government.

​

Textile Sector

 

The textile sector has relatively been relaxed post the deferred increase of GST rates. However, the entities are stressed due to rapid increase in the cost of inputs such as:

 

• Cotton

​
Problem:

Cotton prices have swiftly gone high due to the high level of exports.

​

Solution:

 

1. The textile industry is looking for relief in form of export duties so that more quantity can be made available for domestic and captive consumption and prices can be kept at valuation.​
2. The industry is also expecting the Government to remove or reduce the import duty of 5% levied on the import of raw cotton.

 

• Logistics Cost

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Problem:

Pursuant to the double-digit increase in the cost of fuel. The increase in logistics cost has squeezed the markup margins of manufacturers as well as traders.

 

Solution:

 

1. The Industry wants the Government to either reduce the fuel prices, or

2. Increase the Duty Drawback incentives available for exporters.

 

Services Sector

 

The services sector has been an integral promoter of the increase in Gross Value Added to the Net Income. Wherein growth in basic gross value added by financial services, etc. alone is at 4 per cent as per the First Advance Estimate of National Income for 2021-22.

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FinTech's to play a role in greater financial inclusion

Digital banking is a huge play in India, according to KPMG's Pulse of Fintech, which also points out that it has a unique model compared to other jurisdictions, with digital banks serving primarily as Software as a Service (SaaS) providers and regulatory responsibilities remaining with bank partners. The fintech business received USD 2 billion in investments in the first half of 2021, which is equivalent to the total amount invested in the entire year of 2020.

 

Commenting on the scope of fintechs, Nishant Arora, founder, Sixth Element Finserv's Setup Services India (SSI), says, "After working in the financial advisory/consultancy industry for more than seven years, I found out that there is no brand in the financial advisory industry that guaranteed quality services to the general public. The Fintech companies have to realize that not every startup can or want to hire a huge accounting firm because they are not only expensive to hire, but also lack the flexibility that a startup may wish to. As a result, SSI was founded as a pure management consulting firm with advisors, facilitators, and problem solvers to help SMEs, young entrepreneurs, salaried employees/professionals, foreign investors, and business owners overcome their challenges." 

 

According to Nishant, "The goal of the Fintechs should be to assist startups by making it easier to do business in India. At SSI, our goal is to become an extensive KPO in the B2B arena and provide various solutions to the new India. We use advanced data metrics and new methods to handle finances professionally."

 

Nishant began working in finance even before graduating with a bachelor's degree in commerce from the University of Delhi in 2016. He started his career as an Articled Trainee in an accounting firm in 2013 and later continued as a Senior Associate, until 2017. He worked on Statutory Audits, financial structures, and taxes of leading companies in the housing and real estate, consumer goods manufacturing, engineering, heavy equipment manufacture, textile, automobile, hospitality, entertainment, banking industries and PSUs throughout his time with the accounting company.

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