Finance Act, 2021, brought an amendment in sub-section (2) of Section 50B of the Income Tax Act and the very first time in slump sale transaction the concept of fair market value of capital assets had been introduced for full value of consideration for capital gain calculation.
Prior to that amendment, for computing capital gain the actual consideration received in slump sale transaction is considered as full value of consideration and there was no requirements of fair market value.
The amended provision of Section 50B now read as, in relation to capital assets being an undertaking or division transferred by way of slump sale, the fair market value of the capital assets as on the date of transfer, calculated in the prescribed manner, shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of such capital assets.
On May 24, 2021, the Central Board of Direct Tax (‘CBDT’) has notified Slump Sale Amendment Rules via Income Tax (16th Amendment) Rules, 2021. Through said amendment a new Rule 11UAE has been notified which prescribed the manner of computation of fair market value of capital assets for the purpose of Section 50B of the Income Tax Act.
Fair Market Value (FMV) of Capital Assets: The FMV of the capital assets shall be the higher of FMV1 determined under sub-rule (2) or FMV2 determined under sub-rule (3.) The detailed notification can be accessed at : https://egazette.nic.in/WriteReadData/2021/227139.pdf
Since the said amendment came into effect from April 01, 2020 and now methods for FMV is also notified by CBDT, hence It is pertinent to note that no matter the full value of consideration has been received by the seller or not, any slump sale transaction done on and onwards April 01, 2020, would need to re-assess the value of transaction size and consequential tax implications for all the slump sale transactions carried out during the period.