The government has introduced Draft Form No. 28 to standardize reporting of slump sale transactions under Section 77(4) of the Income Tax Act. The form requires an accountant certification and detailed disclosure of FMV (both asset-based and consideration-based) and net worth computation of the transferred undertaking. The higher of FMV1 or FMV2 will determine capital gains. The form must be filed along with the income tax return, enhancing transparency and compliance in slump sale taxation.
The form requires certification by an "accountant" as defined under Section 515(3)(b) of the Act and mandates detailed disclosure of both the transferor and transferee, including PAN, address, tax year and nature of business.
Detailed FMV Computation Framework
One of the most significant aspects of Draft Form 28 is its structured mechanism for determining Fair Market Value (FMV). The form introduces a two-tier FMV computation:
- FMV1: Fair market value of capital assets transferred, calculated based on book value adjustments, valuation reports for jewellery and artistic works, FMV of shares and securities under Rule 057 and stamp duty value of immovable property.
- FMV2: Fair market value of consideration received, including monetary consideration and non-monetary consideration such as property, securities, or immovable assets.
The higher of FMV1 or FMV2 will be treated as the fair market value of capital assets for capital gains computation purposes.
Net Worth Determination
The form also provides a detailed framework for calculating the net worth of the undertaking or division, which is central to slump sale taxation. It specifies:
- Written down value (WDV) for depreciable assets
- Book value for non-depreciable assets
- Reduction of liabilities as per books
- Exclusion of revaluation impact on assets
This structured computation ensures standardization and reduces ambiguity in determining slump sale capital gains.
Mandatory Filing With Return of Income
Draft Form 28 is required to be filed along with the return of income in accordance with Section 263 of the Act. It also mandates uploading of the Profit & Loss Account and Balance Sheet of the relevant tax year.
The move appears aimed at strengthening transparency, minimizing valuation disputes, and ensuring uniform capital gains computation in slump sale transactions.
Tax professionals and corporates undertaking business restructuring, mergers, or divestment transactions will need to closely examine the proposed reporting requirements once the form is finalized.
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