New rule notified for computation of fair value of capital assets in slump sale

The Central Board of Direct Taxes has notified a new rule for computation of fair market value of capital assets in slump sale.

As per the amendment made to the income tax rules, the new Rule 11UAE under section 50B has given two formulae for calculation and has stated that the fair market value will be the higher among the two values.

The rule essentially provides that all assets of the business undertaking other than five specific categories of assets - immovable property, jewelry, shares, securities and artistic work – will be valued essentially based on book value.


On the other hand, fair market value of these five categories will be determined as per existing valuation rules, assuming these assets were being transferred individually.

“The new valuation rules for valuation of business undertaking in slump sale cases, now make tax planning in those cases more difficult, where businesses holding high value immovable property, shares or other specified assets in their books at low historical cost,” said Shailesh Kumar, Partner, Nangia & Co LLP.

He added that in all such cases, businesses will need to pay tax considering fair market value of specified assets, irrespective of actual transaction price, if such transaction price is lower than fair market value.

“The definition and the computation mechanism are not in conformity,” said Amrish Shah, partner at Deloitte Haskins and Sells LLP.