Expert verified Understanding the tax implications of selling your business in India is a must, because if you get it wrong, you could lose a huge chunk of your profits to taxes, penalties, and interest.
This guide breaks it all down all you need to know about taxation when selling a business whether it is an asset sale, share sale, or a slump sale.
Main Types of Business Sales in India
When a business is sold in India, it typically happens through one of the following two structures which also largely impact its tax implications:
Asset Sale
In an asset sale, the business sells specific assets rather than the entire entity.
Commonly Transferred Assets May Include:
- Machinery and equipment
- Land or commercial property
- Inventory and stock
- Brand name and goodwill
- Customer databases
This method tends to be more complex from a legal and compliance perspective and requires detailed asset transfer agreements and due diligence.
Share Sale
A share sale involves the transfer of ownership by selling shares of the company (commonly in a private limited structure).
It is a simpler legal process with less documentation.
Slump Sale
It refers to the transfer of an entire business undertaking—comprising all assets and liabilities—for a lump-sum consideration, without assigning individual values to specific assets.
Taxes Applicable on Selling Your Business in India
When selling a business in India, several taxes and charges may apply depending on the structure of the sale. Here’s a look at each tax and charge:
Capital Gains Tax
No matter how you sell your business, if you make a profit, you will have to pay capital gains tax.
This is the tax on the profit from selling capital assets (business, shares, real estate, goodwill, etc.).
There are two types:
Short-Term Capital Gains (STCG): If you held the business assets for less than 24/36 months, it’s called short-term. It is taxed at normal income tax slab rate.
Long-Term Capital Gains (LTCG): Most assets held for over 24/36 months will be taxed at a flat 12.5% without any indexation.
The applicability of capital gains tax can vary with the kind of sale:
| Sale Type | Tax Rate | Key Points |
| Slump Sale | LTCG: 12.5% (no indexation) STCG: Slab rates | Net worth of undertaking is cost of acquisition; no indexation benefit |
| Asset Sale | Each asset taxed separately:Capital assets: LTCG 12.5%/ 20% (with/without indexation)Depreciable assets: STCG at slab/corporate ratesInventory: Taxed as business income | Indexation may be available for some assets; gains/losses computed asset-wise |
| Share Sale | Seller pays capital gains tax:Unlisted shares: LTCG 12.5%, Listed shares: LTCG ₹1.25L exemptSTCG: Slab rates | Company is not taxed; only the selling shareholder is liable |
Business Income Tax
This applies when businesses sell assets that are not considered capital assets under tax law.
This happens more often with asset sales, especially if the business is regularly selling off assets (like inventory or stock-in-trade).
In such cases, the profits from those sales get taxed as normal income, based on the applicable income tax slab.
These assets include:
- Depreciable Assets (like machinery, vehicles): Sale amount above written-down value (WDV) is taxed as business income (up to 30% + cess).
- Inventory/Stock: Profit is taxed as ordinary business income.
In share sales and slump sales, income tax is usually not applied separately, as the gain is already covered under capital gains.
Note: It is important to understand the classification because business income is taxed at higher rates than capital gains. So, classifying an asset sale correctly can significantly impact your tax liability.
Goods & Services Tax (GST)
GST can also apply on sale of business in India, but again, it depends on the type of sale.
Asset Sale:
In an asset sale, GST is usually applicable. Selling things like machinery, furniture, and especially goodwill may trigger GST.
So you’ll need to charge GST on those individual items and file GST returns accordingly.
Share Sale:
In a share sale, there’s no GST. This is because shares are treated as securities, not goods or services.
Slump Sale:
In a slump sale, if the business is transferred as a going concern, then GST is exempt. This means you don’t have to charge GST.
Tax Deducted at Source (TDS)
TDS might come into play depending on the transaction size and what’s being sold during a business sale.
Asset Sale:
TDS depends on the asset type. For immovable property, 1% TDS under Section 194-IA applies.
For other types of assets, 0.1% TDS under Section 194Q may apply if conditions are met. The buyer is responsible for deducting and depositing TDS.
Share Sale:
No TDS if the seller is a resident. If the seller is a non-resident, TDS under Section 195 may apply. The buyer must verify the seller’s residency status.
Slump Sale:
Usually, no TDS is required. Sections 194-IA (property) and 194Q (goods) do not apply. TDS may apply only in special cases, such as payments to non-residents under Section 195.
Surcharge and Cess
These apply to all types of sales—whether it’s capital gains or business income.
The applicable rates depend on the total income and the type of entity (like an individual or a company).
Health and education cess is generally 4%, and surcharge rates vary with income slabs.
Stamp Duty and Registration Charges
Stamp duty comes in when immovable property is involved.
Slump Sale:
Stamp duty is charged on the value of immovable property and, in some states, also on movable assets. The rates and rules vary by state, and specific values may be assigned for stamp duty purposes.
Asset Sale:
Stamp duty applies to each asset being transferred. This includes immovable property and, in some states, movable assets. Each transfer may need separate documents and stamp duty payments.
Share Sale:
Stamp duty is 0.015% of the value of shares transferred, applied uniformly across India. No registration charges apply—only stamp duty on the share transfer form.
How Can PKC Help With Business Sale Taxation?
✅Pre-transaction tax due diligence risk assessment specialists
✅Strategic asset vs share purchase guidance expertise
✅Capital gains tax minimization through timing optimization
✅GST input tax credit preservation strategies
✅Stamp duty cost reduction through structure planning
✅Hidden tax liability identification and mitigation services
✅Regulatory approval coordination for tax-neutral transactions
✅Future-proof deal structures against evolving tax laws
Penalties for Non-Compliance in Business Sale Taxation
Non-compliance with tax, GST, TDS, or stamp duty requirements in a business sale can result in substantial financial penalties, late fees, and even prosecution.
The risk and type of penalty depend on the sale structure. Let’s take a quick look at these:
1. Income Tax Penalties
- Late Return Filing (Sec 234F): ₹5,000 penalty (₹1,000 if income ≤ ₹5 lakh).
- Missing Audit Report (Sec 271B): 0.5% of turnover (max ₹1.5 lakh) if audit/report (e.g. Form 3CEA) not filed—key for slump/asset sales.
- Income Misreporting (Sec 270A/276C): 50% penalty on under-reported income; 200% for misreporting. Jail (3–7 yrs) if evasion > ₹25 lakh.
- TDS/TCS Defaults (Sec 234E, 271H): ₹200/day for delay (up to TDS amount); ₹10,000–₹1 lakh for wrong/missed filing. Applies to asset sales with TDS.
- Cash Transaction Breach (Sec 269SS/ST): Penalty = cash amount received in violation (e.g., over ₹2 lakh in one transaction).
2. GST Penalties
- Wrong Filing (Sec 122): ₹1 lakh or 10% of tax (whichever is higher); ₹50,000 for repeated errors (e.g., e-way bills).
- Fraud or Evasion (Sec 74): 100–150% penalty on evaded GST.
- No GSTR-3B Revisions (from July 1, 2025): Mistakes become permanent and penalizable.
3. Surcharge & Cess
No specific penalty, but interest and late fees apply on unpaid amounts.
4. Stamp Duty
Underpaying stamp duty (esp. in asset/slump sales) can lead to:
- Penalties up to 10× the shortfall (varies by state).
- The sale document may be invalid until paid.
5. Other Penalties
Missing/Incorrect PAN (Sec 272B): ₹10,000 per error. This applies to all sale types.
Penalties by Sale Type
Slump Sale:
- Must file CA certificate (Form 3CEA); missing it risks audit penalties.
- GST issues are rare if sale is a going concern; wrong classification can lead to fines.
- Stamp duty applies to the whole undertaking.
Asset Sale:
- Higher GST and TDS risk; each asset needs separate compliance.
- Stamp duty charged per asset; underpayment invites penalties.
- Multiple assets raise chances of TDS/TCS return errors.
Share Sale:
- Fewer tax steps, but capital gains or PAN errors can cause issues.
- No GST or major stamp duty—lower compliance risk.
Frequently Asked Questions
1. What is the capital gains tax on selling a business in India?
If you sell your business assets or shares, capital gains tax applies based on how long you’ve held them.
2. Is GST applicable when selling a business in India?
GST is applicable if you’re selling individual business assets. But if you’re selling the entire business as a going concern (like in a slump sale), GST is usually not applicable.
3. How is tax different in a share sale vs an asset sale?
In a share sale, the shareholder pays capital gains tax and there’s no GST. In an asset sale, the business pays capital gains tax on each asset, and GST may apply.
4. Do I need to pay stamp duty when selling a business?
Stamp duty is payable if the sale involves immovable property like land or buildings. It varies from state to state in India.
