The Central Board of Direct Taxes ( CBDT ) has notified the Slump Sale Amendment Rules through Income Tax (16th Amendment) Rules, 2021.

The Finance Act, 2021 brought a few significant changes to the provisions relating to slum sale under the income tax rules. Earlier, in the case of slump sale transactions, under the provisions of section 50B, the actual consideration of the slump sale transaction is respected and considered as the full value of consideration for computing capital gains. In other words, there was no need for arriving at Fair Market Value or requirement of a valuation exercise.

An amendment has been made in the Finance Act, 2021 to provide that FMV of the undertaking/division on the date of transfer (to be determined based on the rules, which may be prescribed later) as a full value of consideration. Accordingly, FMV will have to be considered irrespective of the transaction value actually received by the seller. It would be important to note that this amendment would be applicable from AY 2021-22 and hence, any slump sale transaction done during FY 2020-21 (from April 1, 2020) would be affected.

As per the notification issued by the Board on Monday, a new rule has been inserted after rule 11UAD, for the computation of Fair Market Value of Capital Assets for the purposes of section 50B of the Income TaxAct. The newly inserted provision, rule 11UAE provides that for the purpose of clause (ii) of sub-section (2) of section 50B, the fair market value of the capital assetsshall be the FMV1 determined under sub-rule (2) or FMV2 determined under sub-rule (3), whichever is higher.

The FMV1 shall be the fair market value of the capital assets transferred by way of slump sale determinedin accordance with the formula provided in the notification.

“The fair market value of the capital assets under sub-rule (2) and sub-rule (3) shall be determined on the date of slump sale and for this purpose valuation date referred to in rule 11UA shall also mean the date of slump sale,” the notification said.