Selling your Indian business as a going concern, and the tax on it

When you sell an entire business or an undertaking as a going concern for a single lump sum, without assigning values to the individual assets, it is a slump sale (Section 50B). The gain is computed in a particular way: your cost of acquisition is deemed to be the net worth of the business, its assets at book value, depreciable assets at written-down value, minus its liabilities, and no indexation is allowed on that figure.

The holding period test is also different from ordinary assets. The gain is long-term only if you held the undertaking for more than 36 months, not the 24 months that now applies to property and unlisted shares; slump sale kept the older 36-month line. And you cannot understate the price: the full value of consideration is taken as the higher of what you actually received and a fair value computed under the prescribed rule, an anti-undervaluation measure, so a low declared price does not reduce the tax.

Goodwill is where a business sale often carries the most tax. Under Section 55(2)(a), the cost of acquisition of goodwill you built yourself, self-generated goodwill, is nil (it is the purchase price only if you had bought the business from someone else). So when you sell self-generated goodwill, there is no cost to set against it and almost the whole sale value is a capital gain.

A related change matters if you had been claiming depreciation. From FY 2020-21, goodwill of a business was removed from the block of depreciable assets, so no depreciation is allowed on goodwill any more, and where it had been claimed, the block is adjusted with any excess taxed as a short-term gain. A practising CA works the goodwill and the slump-sale computation together, because how the price is split between the business's net assets and its goodwill drives the tax.

For a non-resident seller, the buyer must deduct TDS under Section 195 on the gain embedded in the price. Because the buyer cannot compute your net-worth-based gain, a Form 13 lower-deduction certificate is the way to get the withholding set to your real gain rather than a heavy figure on the whole consideration, so most of your money reaches you at closing.

A slump sale also carries a compliance requirement: a report from an accountant computing the net worth and the gain has to be filed with your return. This is not optional, and getting it prepared correctly is part of the sale, not an afterthought. A practising CA runs the whole exit from the Indian side, the net-worth and goodwill computation, the accountant's report, the Form 13 and the return, so the sale closes cleanly and the tax is right.