What is a Slump Sale Agreement ?
Slump Sale agreement also known as business transfer agreement, is entered into between a Seller, who owns one or more business undertaking and a buyer, who intends to purchase such undertaking . It has to be prepared in Slump Sale agreement format. While there are several assets, tangible and intangible which are transferred in a slump sale agreement draft, each one of which may have their own values in books of the Sellers, the transfer of undertaking is for a lump sum consideration , where no mention is made of values of the individual assets and liabilities in such sales .
Technically speaking, Slump sale is the transfer of one or more than one undertaking, where there is a lump sum consideration for such transfer of undertaking and in the agreement, there is no specific values assigned to the individual assets and liabilities which are comprised in such sales
Important considerations while drafting a slump sale agreement
From an income tax perspective, the SSA should contain few points/ precautions which would ensure that the favorable tax treatment given under the IT Act is available : –
- No individual values should be assigned to individual assets/ liabilities ;
- The transfer should be of business as a whole. Transfer of individual assets/ liabilities may result in different capital gains treatment, GST applicability and other tax consequences ;
- Risk of tax liabilities of the Seller should not flow to the Buyer (Section 281 of the Income Tax liabilities)
- GST credits for stock/ other assets transferred should be considered by the Buyer
Key headings of Slump sale agreement draft / Slump sale agreement Format
- Preamble to the Agreement – This section outlines the parties to the agreement, and the subject matter of the agreement that is the business which is proposed to be transferred.
- Definitions and interpretations – This section defines the meaning of various terms used in the slump sale agreement ;
- Agreement to sell and purchase and consideration – This section outlines that the parties to the agreement, are desirous to sell the business undertaking on various terms and conditions outlined in the agreement.
- Completion of the proposed transaction – This section mention the various milestones and dates by which the parties intend to close the agreement .
- Post completion – This section mentions the various aspects on which, the parties to the agreement would co-operate, post completion of the agreement. It typically contains the following clauses : –
- Assistance in proceedings
- Reports and returns
- Access to records
- Parties’ responsibilities
- Representations and warranties of the Buyer and the Seller to the agreement
- Termination – This section mentions the circumstances under which the buyer or the seller may have the right to terminate the agreement ;
- Governing law and jurisdiction – Generally, the agreement is governed by the law of India, and specifically the state where the business is situated.
- Confidentiality and public announcements
- Indemnity – If the party to the agreement do not meet their obligation, how they will indemnify the other party is normally covered in this part of the agreement
- Notice – The address to which the notices may be served by either of the parties and the mode of notice
- Miscellaneous – Other aspects not covered in any of the preceding part of the agreement
Tax implications under a Slump Sale
For detailed tax implications of slump sale, you can visit our content here https://sortingtax.com/slump-sale/ .
It covers the following topics
- Slump Sale Meaning
- Slump Sale meaning as per Income Tax Act, 1961
- How is Capital gains computed in case of Slump Sale – Section 50B of the Income Tax ActComputation of Net Worth
- Whether Capital gains computed is long-term or short -term
- What is the rate of tax on Capital gains
- Whether GST is payable on Slump Sale Agreement ?
- Whether stamp duty is payable on Slump Sale Agreement ?
Need help in Preparation of SSA
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Slump Sale agreement is also known as business transfer agreement
We hope this Article on Slum Sale Agreement India would have been useful.
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