Slump Sale vs Asset Sale vs Share Sale in India

Selling a business in India generally happens one of three ways: a slump sale of the whole undertaking as a going concern, an itemised sale of specific assets, or a sale of the shares of the company that owns the business. Each route is taxed differently, attracts a different stamp duty, and needs a different set of approvals.

This guide compares the three routes on tax treatment, stamp duty and approvals, and sets out what buyers tend to prefer against what sellers tend to prefer.

Slump sale: one undertaking, one price

A slump sale, defined in section 2(42C) of the Income-tax Act, 1961, transfers an entire business undertaking as a going concern for a single lump-sum price, without assigning separate values to individual assets and liabilities. Section 50B computes the capital gain as the lump-sum price received minus the undertaking's net worth, with the gain treated as long-term if the undertaking was held for more than 36 months.

Itemised asset sale: a price against every asset

An itemised asset sale transfers specific assets, with a separate price assigned to each one, rather than one lump sum for the whole undertaking. Each asset is taxed on its own terms: depreciable assets under the block-of-assets rules, land and buildings under the ordinary capital gains provisions, and inventory as business income. This route lets a buyer pick exactly which assets and liabilities to take on, leaving behind contracts, employees or liabilities it does not want, but it also means more individual transfer documents and approvals than a single slump sale agreement.

Share sale: the company does not change, its owners do

A share sale transfers ownership of the company itself; the business, its assets, its contracts and its liabilities all stay exactly where they are. The seller is taxed on capital gains on the shares sold, and where the shares are unlisted and the price is below the fair market value computed under Rule 11UA, section 50CA can treat that fair market value as the seller's sale consideration, while section 56(2)(x) can tax the buyer on the shortfall.

Stamp duty and approvals compared

A slump sale and an itemised asset sale both attract stamp duty on the business transfer agreement or conveyance, generally at a meaningfully higher rate than the duty on a share transfer, which in most states is charged at a comparatively low rate on the transfer instrument. None of the three routes needs an NCLT order the way a merger under sections 230 to 232 does, since no scheme of arrangement is involved; what each one needs instead is its own set of commercial contracts, consents from lenders and key counterparties, and, for a share sale, compliance with any transfer restrictions in the company's articles or a shareholders' agreement.

What buyers prefer, and what sellers prefer

Buyers often prefer an asset sale or a slump sale because historical liabilities, including undisclosed tax or legal exposure sitting inside the company, stay with the seller's corporate entity rather than transferring across with the business. Sellers, in turn, often prefer a share sale because it is usually simpler to execute, avoids re-assigning every contract and licence individually, and can qualify for a more favourable capital gains computation than a slump sale's net-worth-based calculation produces in some cases.

Due diligence either way

Whichever route is chosen, a buyer's diligence looks different depending on the structure: in a share sale, diligence covers the company's entire history, since every past liability comes along with the shares; in a slump sale or asset sale, diligence can focus more narrowly on the specific assets, contracts and employees being transferred, though key contracts still need consent to assign.

Frequently asked questions

Is a slump sale always more tax-efficient than a share sale?

Not always; it depends on the undertaking's net worth relative to the price, the holding period, and each party's own tax position. A slump sale's net worth computation under section 50B can produce a larger or smaller taxable gain than a share sale's cost-of-acquisition computation, depending on the specific numbers, so both calculations are worth running before choosing a structure.

Does a slump sale need shareholder approval?

Selling an undertaking that qualifies as substantially the whole of the company's undertaking generally needs special resolution approval from shareholders under the Companies Act, in addition to board approval, even though no NCLT order is required.

Why is stamp duty usually higher on an asset sale than a share sale?

Most state stamp laws charge duty on a conveyance or business transfer agreement, which an asset sale or slump sale uses, at rates linked to the value of the property transferred, while a share transfer instrument is charged at a comparatively low, often nominal, rate in most states; the exact rate depends on the state and should be checked there.

Can a buyer insist on a share sale and a seller insist on a slump sale for the same deal?

Yes, and this is a common negotiating point precisely because each structure shifts tax exposure and historical liability risk differently between the parties; the final structure is usually a commercial decision reached after comparing the tax and liability outcome each side faces under both routes.

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