Start with what the buyer needs to acquire
A merger can vest an undertaking in a successor under an approved scheme. A slump sale transfers a business undertaking under a contract. A share purchase changes ownership of the existing company. Decide first whether the buyer needs the entity, a division or particular assets, then compare cash, approvals, taxes and liabilities.
| Issue | Merger or amalgamation | Slump sale | Share purchase |
|---|---|---|---|
| Legal route | Sections 230–232 of the Companies Act for a tribunal scheme; check section 233 if a fast-track route is available. | Business transfer agreement, consents, asset transfer and applicable corporate approvals. | Share purchase agreement and the applicable physical or demat transfer procedure. |
| Income tax | Qualifying company and shareholder transfers may be excluded; a tribunal order alone does not establish tax neutrality. | Seller computes capital gains on deemed consideration less statutory net worth. | Seller computes gain on shares; valuation rules can affect seller and buyer separately. |
| Losses | Check eligibility, continuity and remaining carry-forward time. | A contract does not transfer the seller’s unused tax losses to the buyer. | Losses remain in the target, subject to the applicable continuity or other restrictions. |
| GST | Analyze whether a going concern transfers and whether section 18(3) allows credit transfer. | Transfer of a going concern as a whole or independent part can qualify for exemption. | Securities are outside the definitions of goods and services. Deal services and fees are separate supplies. |
| Stamp duty | Check each relevant state law, the order and consideration base, property situs, and applicable relief. | Check stamp on the instrument and property by location and class. | For a transfer of securities other than debentures on a delivery basis, check the 0.015% rate and applicable collection and valuation rules. |
| Historic liabilities | Read the vesting order, statutory consequences and the scheme’s allocation. | Read assumed liabilities and any statutory successor liability; section 85 of the CGST Act can create joint and several liability to the stated extent. | Historic liabilities generally stay in the target; allocate economic risk through diligence and contract. |
| Tax depreciation | Apply carryover and apportionment rules where applicable. | Verify actual cost by asset and the anti-inflation rules. Accounting purchase price allocation does not by itself establish tax cost. | The target keeps its existing asset tax bases; the buyer acquires a basis in the shares. |
| Timing | Scheme meetings, objections, regulator notices, filings and effectiveness conditions drive timing. | Land, employees, permits, contracts and lender consents drive the closing timetable. | Transfers can be simpler, but competition, securities, foreign investment or sector rules may still control timing. |
Corporate approvals and tax definitions
Under section 232, the scheme and order govern the assets and liabilities that vest and whether the transferor dissolves without winding up. Distinguish the appointed date, legal effectiveness and filings; check licences and third-party consents separately. Legacy sections 2(1B), 47(vi) and 47(vii) contain separate conditions, including the Indian transferee condition and, for shareholders, the required share consideration subject to the statutory wording. A demerger has its own conditions under section 2(19AA) and the relevant section 47 clauses. The 2025 Act has corresponding provisions; apply the relevant tax year and savings.
For a business transfer, check section 180(1)(a) where applicable and whether a private-company exemption applies. A share deal may require approvals or restrictions in articles, demat rules, merger control, foreign investment rules or sectoral approvals. Use Form SH-4 where the applicable physical transfer procedure requires it. Do not assume it applies to a demat transfer.
Slump sale value, costs and holding period
A slump sale transfers one or more undertakings for a lump sum without assigning individual values, except as the statutory definition permits, including values solely for stamp duty, registration or similar charges. Under section 50B of the 1961 Act and section 77 of the 2025 Act, a holding of 36 months or less immediately before transfer yields short-term gains under the special rule. The net worth computation uses prescribed tax written-down values, nil amounts for specified assets, applicable book values and liabilities, and ignores revaluation. It does not allow indexation. Obtain the prescribed accountant’s report by the applicable deadline. For section 77, Rule 54 of the 2026 Rules prescribes Form 28.
Legacy Rule 11UAE and Rule 53 of the Income-tax Rules, 2026 compare FMV1 and FMV2 on the transfer date. FMV1 uses prescribed adjusted book values for ordinary assets, open-market valuation for jewellery and artistic work, the prescribed values for shares and securities, stamp value for immovable property and a deduction for prescribed liabilities only. FMV2 uses monetary and prescribed non-monetary consideration. The higher amount is deemed consideration. Net worth is computed separately; do not reuse the FMV1 figures or subtract a liability twice.
Losses, unabsorbed depreciation and below-market share deals
For qualifying legacy amalgamations, section 72A includes eligibility and continuity conditions. In the industrial undertaking example, check the predecessor’s three years of business, two years holding at least three-fourths of the applicable fixed asset book value, and the successor’s five years of business and asset retention. Check Rule 9C, or section 116 and Rule 60 under the current framework, including the applicable requirement to reach 50% of installed capacity before the end of four years and maintain it through the prescribed period. Read any relaxation and certification provisions. Where the revised loss limit applies, an eight-year business loss period runs from the original predecessor’s loss year; an amalgamation does not restart it. Distinguish business losses from unabsorbed depreciation, and test restrictions under any concessional tax regime.
In a share purchase, sections 50CA and 56(2)(x) of the 1961 Act are separate tests. Rule 11UAA refers to the applicable Rule 11UA(1) valuation for the seller’s unquoted shares. For unquoted equity under Rule 11UA(1)(c)(b), use the prescribed adjusted net asset formula; do not assume that an issue-price DCF method is available. A qualifying buyer’s shortfall over ₹50,000 can be taxable as the full difference, subject to exceptions. Under the 2025 Act, check sections 79 and 92 and the applicable valuation rules.
The legacy section 79 business loss test ordinarily requires at least 51% of voting power to be beneficially held at the relevant year-ends by the same persons. The statutory eligible-startup alternative and other exceptions have their own conditions; recognition alone is not enough. For periods under the 2025 Act see section 119. Analyze ownership continuity for each loss year and keep unabsorbed depreciation separate.
Stamp duty checks by jurisdiction
Do not use a single national rate for merger orders or business conveyances. Check the relevant state schedule on the instrument date, any local levies, valuation rules and concessions, and whether adjudication is appropriate.
| Jurisdiction | What to verify before pricing |
|---|---|
| Maharashtra | Check Schedule I, Article 25, the applicable merger or demerger clause, the aggregate shares and consideration, and the Maharashtra immovable property limb. |
| Delhi (NCT) | Check local treatment of the actual order or instrument, property classification, buyer status if relevant and registration charges. |
| Karnataka | Check the applicable state schedule and the location and classification of property, including any additional levy. |
| Gujarat | Check the state schedule for the order or conveyance, its value base and any current limitation or exemption. |
| Tamil Nadu | Check the local statute, applicable scheme/order treatment and the conveyance or registration base. |
| Haryana | Check the state schedule and applicable urban or rural classification, additional charges and the instrument base. |
Seven worked illustrations
1. A division with ₹80 crore enterprise value
Assume the purchase price bridge gives ₹65 crore cash consideration after ₹15 crore of assumed liabilities, and no further amount is included in monetary or non-monetary consideration for this illustration. Assume ₹25 crore of tax written-down assets and ₹10 crore of other eligible assets before subtracting those liabilities; statutory net worth is ₹20 crore. If the higher prescribed FMV is ₹65 crore and the undertaking was owned and held seven years, long-term gain is ₹45 crore. For a domestic seller outside section 115BAA, assume an FY 2025–26 transfer and ₹45 crore as its only taxable income. At 12.5% plus 12% surcharge and 4% cess the illustration gives ₹6.552 crore. If the statutory FMV, liabilities or other income differ, recompute.
For a demerger followed by a sale of resulting-company shares, establish whether the demerger qualifies, then compute the sellers’ share gain from actual consideration, allocated share cost and applicable holding period. The ₹45 crore company-level gain does not become the shareholders’ gain. Dividend extraction depends on any amount actually distributed and the recipients’ tax position; the two routes cannot be ranked from the given inputs alone.
2. ₹45 crore in eligible losses and depreciation
An amalgamating foundry operated for eight years and has ₹20 crore in business losses and ₹25 crore in unabsorbed depreciation. If all conditions and usable periods are met and ₹30 crore of profit can be fully offset, the first year uses ₹20 crore of losses and ₹10 crore of depreciation, leaving ₹15 crore of depreciation. Under a separate assumption that the successor validly pays section 115BAA tax, the amounts are eligible under that regime, and the entire ₹30 crore would otherwise bear 22% plus 10% surcharge and 4% cess, the gross tax difference is ₹7.5504 crore. Later use depends on available income and continued eligibility.
3. Factory plot with a ₹22 crore stamp value
Assume the land’s eligible book value is ₹1.20 crore, the other ₹4 crore of assets use the same permitted values for net worth and FMV1, and ₹2 crore of liabilities qualify under both computations. FMV1 is ₹22 crore + ₹4 crore − ₹2 crore = ₹24 crore; FMV2 is ₹12 crore cash. Net worth is ₹1.20 crore + ₹4 crore − ₹2 crore = ₹3.20 crore and gain is ₹20.80 crore. If the undertaking is long-term and the FY 2025–26 domestic seller assumptions in example 1 apply with this gain as its only taxable income, tax is ₹3.02848 crore. Use the transfer date, rather than the signing date alone, to identify the valuation date.
4. ₹250 crore of Maharashtra warehouses
Assume a comparison under the April 2025 Maharashtra schedule, with ₹250 crore of Maharashtra immovable property and a separate aggregate of ₹250 crore for shares issued plus other consideration. The amalgamation formula starts at 10% of the latter (₹25 crore), limited by the higher of the two 5% limbs (₹12.50 crore each). Base duty under those assumptions is ₹12.50 crore. For comparison, if the applicable total conveyance rate for a direct acquisition were 6%, that would be ₹15 crore, a ₹2.50 crore difference on those assumptions. Confirm rates, local additions and the applicable schedule on the actual date; the 6% rate is an input to this comparison, not a statewide statement.
5. An investor acquires 55% of voting power
Assume all prior beneficial shareholders are founders, they held 100% at the relevant loss-year end, and the new fund’s purchase leaves them with 45% at the set-off year-end. They do not meet the ordinary 51% continuity threshold. The ₹18 crore of business losses would not be available for set-off under that test unless a statutory exception applies. An issue of new shares can also dilute voting power; test any alternative against actual rights and, for an eligible startup, the statutory shareholding and loss-period requirements.
6. ₹5 crore price for equity valued at ₹16 crore
An investor buys all the unquoted equity of a distressed property company for ₹5 crore. If the applicable prescribed FMV is ₹16 crore and no exception applies, the ₹11 crore shortfall exceeds ₹50,000 and may be taxable in full to the buyer. The seller’s deemed consideration is a separate computation. If the buyer is a domestic company validly using section 115BAA and the full amount bears 22% plus 10% surcharge and 4% cess, the illustration gives ₹2.76848 crore. A different buyer or other facts can produce a different liability.
7. Apportioning a ₹8.40 crore GST credit balance
Assume a registered transferor has ₹8.40 crore of eligible unutilized credit in the relevant State, a scheme transfers liabilities as required, and the new unit receives 60% of that State’s assets by value. The illustrative credit transfer is ₹5.04 crore, leaving ₹3.36 crore with the transferor. Apply section 18(3), Rule 41 and CBIC Circular 133 to each relevant registration, using the scheme values and the applicable filing-date credit balances. File ITC-02 with the required practising CA or CMA certificate and have the transferee accept it. Reconcile tax heads and check utilization eligibility before using the credit.
Frequently asked questions
1. Is a slump sale always exempt from GST?
The exemption covers a transfer of a going concern as a whole or an independent part. An isolated collection of assets does not qualify solely because the price is a lump sum.
2. Does the buyer get depreciation on every allocated asset?
No. Check the asset’s eligibility, tax actual cost and valuation support, including any applicable anti-inflation rule.
3. Does an NCLT order make a merger tax neutral?
No. Apply the statutory tax definition and the conditions for each transfer, including shareholders’ consideration.
4. How does a high stamp value affect a slump sale?
It can increase FMV1 for immovable property. Compare FMV1 with FMV2 and deduct independently computed net worth.
5. Can losses survive a share purchase?
They may, depending on ownership continuity, eligible exceptions and the type of loss. Model each loss year.
6. What should an M&A model show?
Separate cash consideration, deemed consideration, tax basis, seller and buyer liabilities, GST credit, stamp and registration costs, and evidence for each assumption.
Sources
- Companies Act, 2013, sections 56, 180 and 230–233
- Income-tax Act, 1961, including sections 47, 50B, 50CA, 56, 72A, 79, 112 and 115BAA
- Finance Act, 2025, corporate rates and loss provisions
- Income-tax Act, 2025, as amended
- Income-tax Rules, 1962, Rule 11UAE
- Income-tax Rules, 1962, Rule 11UAA
- Income-tax Rules, 1962, Rule 11UA
- Notified Income-tax Rules, 2026, including Rules 53 and 60
- Notification 12/2017-Central Tax (Rate), entry 2
- CGST Act, including sections 2, 18 and 85
- CGST Rules, Rule 41
- CBIC Circular 133/03/2020-GST
- Indian Stamp Act, securities stamp schedule
- Government copy of Maharashtra Stamp Act, Schedule I Article 25
- Maharashtra Stamp Act, April 2025 statutory text, Schedule I Article 25
- Maharashtra Stamp (Amendment) Act, 2025