Will Slump Sale Attract GST? Key Insights & Analysis

GST on slump sale has emerged as a not-so-unpopular business in India. It also enables transfers as a going concern for some Lump Sum considerations. Lump sales provide certain tax rewards over other modes of transfer. Under the GST regime, taxation of slump sales has been an ambiguous area with limited clarity in law. There have been differing views on whether GST is applicable to slump sales or exempt.

It is crucial to set up a business from zero in India as there are many procedures regarding formation & taxation. Also, for the growth of the business, Businessmen have to arrest huge market capitalization as well as many customers and other factors that lead to the progress of the business. Therefore, the concept of Merger, besides Amalgamation & Corporate restructuring, came to light. In corporate restructuring, Merger, or amalgamation, the transferee will get ready control of market capitalization, customers, and other benefits associated with the business in return for lump-sum consideration. Hence, it is the ideal tool to capture the big advantages of the present business.

Whether Slump-Sale is Supply?

GST law provides the explanation of supply under Section 7(1) of the CGST Act, 2017. The expression “supply” includes all methods of supply of goods or services or both, such as sale, transfer, barter, exchange, license, rental, lease, or disposal made or settled to be made for a consideration by a person in the sequence or furtherance of business. From the above-mentioned definition, it is clear that slump sales do not sum to the sale of goods or Services, as it is a contract for the sale of the business as a whole or part as a going worry and not the mere sale of goods. Further, a slump sale is a transaction not accepted in the course or furtherance of business.

Valuation of Slump Sale

As per Notification No. 12/2017-CT (Rate) dated 28.06.2017, the transfer of a business as a going concern is exempt from GST. However, the term "going concern" is not defined under GST, leading to interpretation challenges.

Key considerations:

1. Transfer of business assets is treated as a supply of goods.

2. Transfer of business as a going concern is treated as a supply of service and is exempt from GST.

3. The distinction between "not a supply" and "exempt supply" is crucial for GST reporting and input tax credit (ITC) calculations.

Availability of ITC in Case of Slump-Sale

According to Rule 28 of the CGST Rules, 2017, when consideration is in the form of money, GST valuation is based on:

1. The open market value of the supply.

2. Value of goods or services of like kind and quality if open market value is unavailable.

3. Transaction value if neither of the above methods apply.

Since slump sales are unique transactions and not available in the open market, Rules 28 and 30 (cost-based valuation) are not applicable. Instead, valuation follows Rule 31 (residual method), which relies on the transaction value agreed upon between the parties.

Availability of ITC in Case of Slump Sale

Since a slump sale as a going concern is exempt from GST, no tax is levied on the transaction. Consequently, ITC is not available to the transferee.

Transfer of ITC from Transferor to Transferee

Section 18(3) of the CGST Act, 2017 allows for the transfer of unutilized ITC in cases of business transfer, merger, demerger, or amalgamation. As per Rule 41 of the CGST Rules, the registered person must submit Form GST ITC-02 on the GST portal to facilitate ITC transfer.

Process for Slump Sale Under GST

1. The transferor submits Form GST ITC-02 electronically on the GST portal along with a request for ITC transfer.

2. A certified accountant verifies the transfer and liabilities involved.

3. The transferee accepts the details on the GST portal, and the ITC is credited to their electronic credit ledger.

4. The transferee records the transferred assets in their books of accounts.

Key Takeaways

We hope that this blog and information get you helpful, about the transferee shall, on the common portal, take the details so furnished by the transferor, and upon such taking, the unutilized credit specified in FORM GST ITC 02 shall be credited to his microelectronic credit ledger. The inputs and money goods so transferred shall be duly accounted for by the transfer in his books of account.

FAQS

1. Does a slump sale attract GST?

A slump sale would also be a supply and hence fall underneath the purview of GST. The supply would be in the nature of 'transfer as a going concern', and such a handover attracts a nil rate of GST.

2. What are the tax implications of slump sales?

The capital gains arising out of a slump sale shall be taxable in the year of transfer. What is the treatment of transfer of typical in case of slump sale u/s 50B? No profit under the head profit from business & profession intends to arise even if stock is transferred in case of slump sale.

3. What are the advantages of slump sales?

One of the biggest rewards of a slump sale over an asset sale is its tax treatment for the seller. Since individual values are assigned to each of the assets in a strength transfer, capital gains arising from the sale of properties will also be ascertained for each advantage separately.

4. Is there GST on flat sales after completion?

5% GST; ITC may or may not be passed to consumers, affecting the final cost. No GST on completed properties; 5% GST applies if interior work is unfinished. No GST on onward sale flats classified as immovable property after completion certificate issuance.

5. Do I need to pay tax after selling my flat?

The capital gain tax for the short term will be valid as per the income tax slab rate. You will have to pay an appropriate capital gain tax based on your annual income. However, in the long term, the capital gain tax payable will be 20.8% through indexation.

6. How much capital gain is tax-free?

Capital gains up to Rs 1.25 lakh per year (equity) are exempt from capital gains tax. The long-term capital gain tax rate on fairness investments/shares will continue to be charged at 12.5% on the gains.