Slump sale vs share purchase: how to structure an acquisition in India

Every acquisition of an Indian private company begins with one fork in the road. You can buy the business — the undertaking, with its plant, contracts, people and stock, transferred as a going concern for one lump-sum price. That is a slump sale. Or you can buy the company — the shares — and take the whole legal person as it stands, assets, liabilities, history and all. That is a share purchase. The commercial deal is identical. The tax bill, the stamp duty, the risk you inherit and the paperwork you sign are not.

Neither route is "better". Each is better for something. This is the framework we work through with buyers and sellers before a term sheet is drafted.

What is a slump sale, in law?

Section 2(42C) of the Income-tax Act, 1961 defines a slump sale as the transfer of one or more undertakings, by any means, as a result of the sale of a going concern, for a lump-sum consideration, without values being assigned to the individual assets and liabilities. Three tests hide inside that sentence:

• It must be an undertaking — a coherent business unit capable of being run on its own, not a basket of loose assets.
• It must move as a going concern — the buyer steps in and the business continues.
• The price must be one lump sum for the whole. The moment the agreement prices each asset separately, it stops being a slump sale and becomes an itemised asset sale, taxed and stamped asset by asset.

Since the Finance Act, 2021, where the consideration is non-monetary or absent, fair market value computed under Rule 11UAE is deemed to be the full consideration (Section 50B(2)). The "we transferred it within the family for a rupee" version of this structure no longer survives contact with the tax department.

What is a share purchase, in law?

Simpler in form: the shareholders sell their shares to the buyer under a share purchase agreement, the transfer is recorded (Form SH-4 for physical shares, or through the depository for dematerialised shares), and the company's ownership changes. The company itself — its PAN, GSTIN, licences, contracts, employees, tax history — continues untouched. Only the people who own it change.

The decision table

What exactly are you buying? Slump sale: one identified undertaking — you choose what comes across, and what stays behind. Share purchase: the entire company, every asset and every liability, known and unknown.

Income tax — seller's side. Slump sale: capital gains under Section 50B, computed on a special basis — the net worth of the undertaking is deemed to be its cost of acquisition, certified by an accountant's report in Form 3CEA. If the undertaking was held for more than 36 months the gain is long-term; at 36 months or less, the whole gain is short-term. And note — Section 50B has never allowed an indexation benefit on the net-worth cost; that exclusion sits in the section itself, not in any recent amendment. Share purchase: each selling shareholder is taxed on their own capital gains on the shares, with their actual cost and holding period; long-term gains on unlisted shares currently bear tax at 12.5% without indexation.

Income tax — buyer's side. Slump sale: the buyer gets a stepped-up base — the lump sum is allocated across assets (through the allocation exercise under Section 50B read with the depreciation rules), and depreciable assets carry written-down value based on the price paid. Share purchase: no step-up at all. The company's assets keep their existing tax book values; you bought the shares, not new basis in the plant.

The below-market-value trap. Share deals carry a live one: under Sections 50CA and 56(2)(x), if unquoted shares change hands below their fair market value computed under Rule 11UA, the seller is taxed on the FMV anyway and the buyer is taxed on the shortfall as other income. Slump sales have their own version — the Rule 11UAE deemed-FMV rule above. Either way, a friendly price between related parties is not a private matter anymore.

GST. Slump sale: exempt. Entry 2 of Notification No. 12/2017–Central Tax (Rate) exempts services by way of transfer of a going concern, as a whole or an independent part of it. The buyer also takes over the seller's unutilised input tax credit for that business through Section 18(3) and Form ITC-02, with liabilities transferred. Share purchase: shares and securities are outside GST altogether — neither goods nor services. Itemised asset sales, by contrast, attract GST asset by asset — one more reason the slump route exists.

Stamp duty. Share purchase: duty on share transfers sits in the Indian Stamp Act's securities regime — 0.015% of the consideration for delivery-based transfers (0.003% for non-delivery), collected through the exchanges, depositories or the authorised collection mechanism depending on the form of the shares. Slump sale: a Business Transfer Agreement is stamped under state law, and the bill depends on what moves with the business. In Maharashtra, the duty follows what the agreement actually conveys — conveyance duty under Article 25 of the Maharashtra Stamp Act: 3% of market value on movable property, 5% on immovable property within urban municipal limits, with local cesses on top in cities like Mumbai. Other states run their own schedules and their own agreement articles. Price the stamp paper before you price the deal.

Approvals inside the target. Slump sale of an "undertaking" by a company needs a special resolution of shareholders under Section 180(1)(a) of the Companies Act, 2013 — "undertaking" here means one in which the company's investment exceeds 20% of its net worth, or which generates 20% of its total income. Add board approval, lender consents and change-of-control clauses in key contracts — the undertaking's contracts must be individually assigned or novated. Share purchase: no shareholder approval of the company itself is needed for a private share transfer beyond the Articles — check transfer restrictions, rights of first refusal and any shareholders' agreement, then board approval for registering the transfer.

Liabilities and history. Slump sale: what you do not list does not come — subject to statutory dues and the tax authorities' ability to pursue business-transfer liabilities in defined situations, the buyer ring-fences the past. The seller's shell keeps its history. Share purchase: everything comes. Tax demands for years before you arrived, unrecorded liabilities, that one guarantee nobody mentioned — yours now, managed only through diligence, warranties, indemnities and holdbacks.

Tax losses. Slump sale: the seller keeps its losses; they do not travel with the undertaking. Share purchase: losses can survive in the company — but Section 79 bars carry-forward if the shareholding changes hands beyond the statutory continuity limit (shareholders carrying at least 51% of voting power must remain), unless an exception applies. A 100% buyout of a loss-making private company usually kills the losses you thought you were buying.

Employees. Slump sale: employment moves with the undertaking. Section 25FF of the Industrial Disputes Act, 1947 treats a transfer as retrenchment unless three conditions hold together — service is not interrupted, the new terms are no less favourable, and the buyer accepts liability for future retrenchment compensation on the footing of continuous service. Drafted well, people walk across with continuity; drafted badly, every workman is owed retrenchment compensation at closing. Share purchase: nothing changes in law — the employer is the same company — though senior contracts with change-of-control clauses still need reading.

Speed and friction. Share purchase: faster to sign, register and close — one agreement, transfer forms, done. Slump sale: slower — asset schedules, contract novations, licence transfers (many licences are entity-specific and must be re-applied for), employee communications, stamp adjudication in some states. Budget the difference honestly: weeks for a clean share deal, a quarter or more for a business transfer with property and licences in it.

So which route, when?

Choose a share purchase when the company's licences, registrations, contracts or tax attributes are the value — or when the seller group wants a clean exit and the diligence genuinely comes back clean. Choose a slump sale when you want one division and not the company, when the target's history is murkier than its business, when the buyer needs a depreciation step-up, or when the seller wants to keep the shell, its other businesses and its losses. Where the target company is a single business with clean books and transferable everything, the two routes converge — and the decision turns on the tax arithmetic of the specific parties, which is exactly why this analysis belongs before the term sheet, not after it.

This is the daily work of our mergers and acquisitions practice, sitting alongside corporate restructuring and the due diligence that tells you which route the facts support.

Frequently asked questions

Is GST payable on a slump sale? No — transfer of a business as a going concern, as a whole or as an independent part, is exempt under Notification No. 12/2017–Central Tax (Rate). The conditions matter: it must be a going concern, and the unit transferred must be capable of independent operation. The buyer can also take over the seller's unutilised input tax credit for the transferred business through Form ITC-02.

How is a slump sale taxed for the seller? Under Section 50B: capital gains are computed taking the net worth of the undertaking as the cost of acquisition, certified in Form 3CEA. Held over 36 months, the gain is long-term; held 36 months or less, it is short-term. No indexation benefit arises on the net-worth cost — Section 50B has never permitted one. If the stated consideration is missing or non-monetary, fair market value under Rule 11UAE is deemed to be the consideration.

Can the buyer claim depreciation on assets acquired in a slump sale? Yes. The lump-sum price is allocated across the assets acquired, and depreciable assets take written-down value based on that allocation — one of the structural advantages of the slump route over a share purchase, where no step-up is available inside the company.

Does a slump sale need shareholder approval? Yes, where it is a sale of an "undertaking" within Section 180(1)(a) of the Companies Act, 2013 — broadly, a unit representing more than 20% of net worth or generating 20% or more of total income — the selling company needs a special resolution of its shareholders. A share purchase needs no such approval from the target company; the selling shareholders decide for themselves.

Do the target's tax losses survive an acquisition? In a slump sale, no — losses remain with the seller. In a share purchase, losses stay in the company but Section 79 restricts carry-forward where shareholders carrying at least 51% of voting power do not continue — so a complete change of ownership in a closely held company generally forfeits them, subject to limited statutory exceptions (including for eligible start-ups and IBC resolutions).

This article sets out the framework under the Income-tax Act, GST law, the Companies Act and state stamp law as they stand. Transaction structuring turns on the specific facts — it is general information, not advice for any specific deal.