A client wants to sell one division of its Indian company as a going concern. What tax considerations would you raise?

What the interviewer wants to hear

• Slump sale treatment and computation of capital gains on net worth
• Holding period of the undertaking and fair market value rules
• GST position on transfer of a going concern
• Stamp duty and transfer of tax credits and registrations
• Compare with alternatives such as asset sale or demerger

Model answer

If the division is sold as a whole for a lump sum without assigning values to individual assets, it is typically a slump sale under Section 50B. The gain is computed as consideration minus the net worth of the undertaking, using tax values of assets, and is long-term if the undertaking was held for more than 36 months. Fair market value rules for slump sales can deem a higher consideration, so a valuation is needed. For GST, a transfer of a business as a going concern is generally exempt, but I would make sure the structure really meets that description and plan the transfer of unutilised input tax credit to the buyer, along with registrations. Stamp duty on the transfer of assets, especially land, can be significant and varies by state. I would also look at employee transfers, carried-forward losses, and contracts. Finally, I would compare this with alternatives like an itemised asset sale or a tax-neutral demerger, which has stricter conditions but may suit the client better.

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