Explain the provisions of the Income-tax Act, 1961 in relation to computation of capital gains arising out of slump sale.

In comparison to demerger, slump sale is not generally tax efficient as the transfer of assets could be subject to capital gains tax in the hands of the transferor. Section 50B of the Income-tax Act, 1961 specifically deals with capital gains arising from a slump sale. Key Provisions for Computation of Capital Gains on Slump Sale (Section 50B): Slump Sale Definition: 'Slump sale' means the transfer of one or more undertakings as a result of the sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sales. Capital Gains Nature: If the undertaking being transferred was held for more than 36 months (3 years) prior to the date of the slump sale, the gains from such a sale would qualify as long-term capital gains . The effective rate of tax would be 20% (plus surcharge and cess). If the undertaking had been held for 36 months or less, prior to the date of the slump sale, then the income would be taxable as short-term capital gains . The effective rate of tax would be as per the applicable slab rates for companies (currently 30% plus surcharge and cess). Computation of Capital Gains: The capital gains arising from a slump sale are computed as the difference between the sale consideration received and the 'net worth' of the undertaking transferred. Net Worth Calculation: For the purpose of Section 50B, 'net worth' is defined as the aggregate value of total assets of the undertaking or division as reduced by the value of its liabilities as appearing in the books of account. Depreciable Assets: The written down value (WDV) of depreciable assets (as per Section 32) is considered. Other Assets: The book value of other assets is considered. Revaluation: Any revaluation of assets not recognised in the books of account on the date of slump sale is ignored. Cost of Acquisition: The 'cost of acquisition' for the undertaking or division transferred by way of slump sale is considered to be its net worth. Indexation Benefit: No indexation benefit is available for computing capital gains on slump sale, even if it is a long-term capital gain. Dividend Distribution Tax (DDT): Any distribution by the company to its shareholders out of such capital gains could attract dividend distribution tax.