Market-Linked Debentures and Slump Sale Capital Gains: Sections 76 and 77 of the Income Tax Act 2025
Sections 76 and 77 of the Income Tax Act 2025 are two special capital gains rules. Section 76 treats gains on market-linked debentures, certain debt mutual fund units and unlisted bonds or debentures as short-term capital gains, whatever the holding period, with no deduction for securities transaction tax. Section 77 taxes a slump sale as long-term capital gains if the undertaking was held for more than 36 months, and short-term if held 36 months or less, with the cost fixed at the undertaking's "net worth" and an accountant's report in Form 28.
This guide covers who is affected, how each gain is computed, and the forms and dates. All figures come from the Act as amended by the Finance Act, 2026 and the Income-tax Rules, 2026, and the examples use tax year 2026-27. This is information, not tax advice.
What does section 76 say about market-linked debentures?
Section 76(1) overrides the normal holding-period test in section 2(101) and the computation in section 72. For the assets listed in section 76(2), any gain on transfer, redemption or maturity is a short-term capital gain, even if you held the asset for years.
Which assets does section 76 cover?
| Asset (section 76(2)) | Condition |
|---|---|
| Unit of a Specified Mutual Fund | Acquired on or after 1 April 2023 (clause (a)) |
| Market Linked Debenture | No date condition in clause (a) |
| Unlisted bond or unlisted debenture | Transferred, redeemed or matures on or after 23 July 2024 (clause (b)) |
Two definitions in section 76(5) decide whether you are caught:
- Market Linked Debenture: a security, by whatever name called, with an underlying principal component in the form of a debt security and returns linked to market returns on other securities or indices. It includes any security SEBI classifies or regulates as a market linked debenture.
- Specified Mutual Fund: a mutual fund that invests more than 65% of its total proceeds in debt and money market instruments, or a fund that invests 65% or more of its proceeds in units of such a fund. The percentage is measured on the annual average of the daily closing figures.
How are gains under section 76 computed?
Section 76(3) gives the formula X = A - B - C:
| Item | Meaning |
|---|---|
| X | Short-term capital gain |
| A | Full value of consideration received or accruing on transfer, redemption or maturity |
| B | Cost of acquisition of the debenture, unit or bond |
| C | Expenditure incurred wholly and exclusively in connection with the transfer, redemption or maturity |
Section 76(4) adds that securities transaction tax (STT) paid under Chapter VII of the Finance (No. 2) Act, 2004 is not deductible. Section 72(3)(b) says the same for capital gains generally.
Worked example 1: market-linked debenture held for three years
Assumptions: Ravi bought a market-linked debenture for Rs 10,00,000 in tax year 2023-24 and it matured in 2026-27 for Rs 11,80,000. He paid Rs 2,000 of brokerage on the exit.
| Step | Amount (Rs) |
|---|---|
| A: maturity proceeds | 11,80,000 |
| B: cost of acquisition | 10,00,000 |
| C: expenditure on exit | 2,000 |
| X = 11,80,000 - 10,00,000 - 2,000 | 1,78,000 short-term capital gain |
Three years is longer than the 24 months in section 2(101)(a), but section 76(1) overrides that test. The Rs 1,78,000 is a short-term gain.
Worked example 2: unlisted bond redeemed after 23 July 2024
Assumptions: Meena bought an unlisted bond for Rs 5,00,000 and it was redeemed in tax year 2026-27 for Rs 5,90,000, with no redemption expense. Under section 76(2)(b), a redemption on or after 23 July 2024 qualifies.
| Step | Amount (Rs) |
|---|---|
| A - B - C = 5,90,000 - 5,00,000 - 0 | 90,000 short-term capital gain |
What is a slump sale?
Section 2(103) defines a slump sale as the transfer of one or more undertakings, by any means, for a lump sum consideration without values being assigned to the individual assets and liabilities. Fixing values only to compute stamp duty, registration fees or similar taxes is not treated as assigning values. Section 2(103)(b)(i) takes the meaning of "undertaking" from section 2(35)(i), which this article does not reproduce.
A real-life case: Ravi runs a trading business and a separate packaging division. He sells the packaging division to a buyer for Rs 1.5 crore as a going concern, with one price for everything. That is a slump sale. If the agreement instead priced the machinery, stock and debtors separately, it would not be a slump sale under this definition.
How is a slump sale taxed under section 77?
Section 77(1) makes profits from a slump sale chargeable as long-term capital gains, deemed income of the tax year in which the transfer took place. Section 77(2) carves out the exception: if the undertaking or division was owned and held for 36 months or less immediately before the transfer, the gain is short-term.
Section 77(3) fixes the two numbers:
- The net worth of the undertaking is deemed to be both the cost of acquisition and the cost of improvement, for sections 72 and 73.
- The fair market value of the capital assets on the date of transfer, calculated as prescribed, is deemed to be the full value of consideration.
Gain therefore equals fair market value minus net worth, less transfer expenses under section 72(1)(a). Section 77 does not say how the long-term rate works for slump sales. Section 197 is the long-term capital gains tax section; see our guide on long-term capital gains rates and the short-term position in tax on short-term capital gains.
How is net worth calculated for a slump sale?
Section 77(5)(a): net worth is the aggregate value of total assets of the undertaking, reduced by its liabilities as they appear in the books. Any change in asset value caused by revaluation is ignored. Section 77(5)(b) sets the value of each asset class:
| Asset | Value taken |
|---|---|
| Depreciable assets | Written down value of the block of assets under section 41(1)(c) |
| Goodwill not acquired by purchase from a previous owner | Nil |
| Assets whose entire expenditure is allowed or allowable under section 46 | Nil |
| All other assets | Book value |
How is fair market value fixed under rule 53?
Rule 53(1) takes the higher of FMV1 and FMV2, both determined on the date of the slump sale (rule 53(4)).
- FMV1 (rule 53(2)) = A + B + C + D - L. A is the book value of assets other than jewellery, artistic work, shares, securities and immovable property, reduced by income-tax paid (net of refund claimed) and by amounts shown as assets that do not represent any asset value. B is the open-market price of jewellery and artistic work on a registered valuer's report. C is the value of shares and securities under rule 57. D is the stamp duty value of immovable property. L is the book value of liabilities, excluding items such as paid-up equity capital, reserves and surplus, unascertained provisions and contingent liabilities (other than arrears of cumulative preference dividend).
- FMV2 (rule 53(3)) = E + F + G + H: the value of the money received, plus the fair market value of non-monetary consideration (shares and securities, other property on a registered valuer's report, immovable property at stamp duty value).
Worked example 3: slump sale of a division held for five years
Assumptions (tax year 2026-27): Ravi sells his packaging division, held for five years, for Rs 1,50,00,000 in cash. Books show: block of depreciable assets at written down value Rs 40,00,000; self-generated goodwill Rs 10,00,000; stock Rs 25,00,000; debtors Rs 15,00,000; land at book value Rs 20,00,000. Liabilities in the books are Rs 30,00,000. Selling costs are Rs 1,00,000. Assume FMV1 works out lower than Rs 1.5 crore.
| Step | Amount (Rs) |
|---|---|
| Depreciable block (WDV) | 40,00,000 |
| Goodwill, not purchased (nil) | 0 |
| Stock + debtors + land at book value (25,00,000 + 15,00,000 + 20,00,000) | 60,00,000 |
| Aggregate value of total assets | 1,00,00,000 |
| Less liabilities | 30,00,000 |
| Net worth (deemed cost) | 70,00,000 |
| FMV2 = monetary consideration; higher than FMV1, so deemed full value | 1,50,00,000 |
| Less transfer expenditure (section 72(1)(a)) | 1,00,000 |
| Long-term capital gain = 1,50,00,000 - 1,00,000 - 70,00,000 | 79,00,000 |
Deducting selling costs under section 72(1)(a) follows from section 77(3) feeding section 72. Confirm treatment of your costs with your CA.
Worked example 4: slump sale of a division held for 30 months
Assumptions: Meena sold a unit she had held for 30 months. Net worth is Rs 50,00,000, FMV1 is Rs 62,00,000 and FMV2 (cash received) is Rs 65,00,000. Rule 53(1) takes the higher, Rs 65,00,000. Section 77(2) applies because the holding period is 36 months or less.
| Step | Amount (Rs) |
|---|---|
| Deemed full value (higher of FMV1, FMV2) | 65,00,000 |
| Less net worth | 50,00,000 |
| Short-term capital gain | 15,00,000 |
What report is required for a slump sale?
Section 77(4) requires every assessee in a slump sale to furnish an accountant's report before the "specified date" in section 63. The report must compute the net worth and certify that it has been correctly arrived at under section 77. Rule 54 prescribes Form No. 28, from an accountant as defined in section 515(3)(b).
Section 63 defines the specified date as one month before the due date for furnishing the return of income under section 263(1). Meena should therefore get the report before that date and not at the time of filing.
Quick reference
| Section 76 | Section 77 | |
|---|---|---|
| Applies to | MLD, specified mutual fund units, unlisted bonds and debentures | Slump sale of undertakings or divisions |
| Nature of gain | Always short-term | Long-term; short-term if held 36 months or less |
| Cost | Cost of acquisition | Net worth |
| Sale value | Actual consideration | Fair market value (rule 53) |
| STT | Not deductible | Not addressed in section 77 |
| Report | None | Form 28 before the specified date (rule 54) |
Common mistakes
- Treating a market-linked debenture held over 24 months as long-term. Section 76(1) overrides section 2(101).
- Missing that an unlisted bond redeemed or maturing on or after 23 July 2024 falls under section 76.
- Using revalued figures for net worth. Section 77(5)(a) ignores revaluation.
- Giving goodwill or section 46 assets a value in net worth. Both are nil in the cases in section 77(5)(b)(ii) and (iii).
- Using only the sale price for full value. Rule 53 takes the higher of FMV1 and FMV2.
- Leaving the Form 28 report until return filing. It is due before the specified date in section 63.
Where this is in the Act
- Section 76: market linked debentures, specified mutual funds, unlisted bonds and debentures
- Section 77: slump sale computation, net worth and accountant's report
- Section 2(103): slump sale definition; section 2(101): short-term capital asset
- Section 72: mode of computation of capital gains; section 63: specified date
- Rule 53: fair market value for section 77; Rule 54: Form 28
For a CA firm, a slump sale means collecting books, valuation reports and the Form 28 timeline for each client. Finexo's practice management software lets you track such tasks and due dates across your client book. For another example of rules in this Act, see our guide to TDS on rent.
Frequently Asked Questions
Are market-linked debenture gains short-term or long-term under the Income Tax Act 2025?
Always short-term. Section 76(1) treats gains on transfer, redemption or maturity of a Market Linked Debenture as short-term capital gains, whatever the holding period.
Which debt mutual fund units fall under section 76?
Units of a Specified Mutual Fund acquired on or after 1 April 2023. That is a fund investing more than 65% of its proceeds in debt and money market instruments, or 65% or more in units of such a fund, measured on the annual average of daily closing figures.
What is a slump sale under the Income Tax Act 2025?
Under section 2(103), it is the transfer of one or more undertakings for a lump sum consideration without values assigned to individual assets and liabilities.
When is a slump sale long-term or short-term?
Section 77(1) makes it long-term. Section 77(2) makes it short-term if the undertaking or division was held for 36 months or less immediately before the transfer.
How is net worth calculated in a slump sale?
Under section 77(5), it is the aggregate value of total assets less liabilities as per the books. Depreciable assets are taken at block written down value, non-purchased goodwill and section 46 assets at nil, and other assets at book value. Revaluation is ignored.
What is Form 28 for slump sale?
Form No. 28 is the accountant's report under section 77(4) and rule 54. It computes net worth and certifies it, and must be furnished before the specified date in section 63.