Sale of Partnership Share

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Querist : Anonymous

Querist : Anonymous (Querist)

11 September 2010 A Partner wishes to sell his stake in Partnership Firm (1 lac) to another person for Rs. 10 lacs. What is the nature of income for premium recd of 9 lacs in the hands of the partner?

Thanks

CMA. Dinesh S Adhikari, ACMA

CMA. Dinesh S Adhikari, ACMA (Expert)
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11 September 2010 Because this does not fall under exceptions of section 2(14) and this is the case of sale, therefore it should be taxable as sale of Capital Assets, i.e., Capital Gain should be there.

However, other experts should also show their opinions.

Regards!!!
Dinesh S. Adhikari

Querist : Anonymous

Querist : Anonymous (Querist)

13 September 2010 Mr Dinesh
Thanks for u reply, plz clarify

if it is to be treated as Capital Asset, what is the Cost & Date of Acquisition. whether indexation benefit is avaiable.

Regards
Anil

Querist : Anonymous

Querist : Anonymous (Querist)

13 September 2010 This query is still open for discussion.

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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22 July 2025 Great question! Here's the explanation regarding the **sale of a partnership share** and the tax implications on the premium received:

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### 1. Nature of Income on Sale of Partnership Share

* The **partnership share** is treated as a **capital asset** in the hands of the partner (as per Income Tax Act).
* The amount received over and above the **book value (stake value)** is treated as **capital gain**.
* So, the premium of ₹9 lakhs (Rs. 10 lakhs sale price - Rs. 1 lakh stake value) is **capital gain** income.

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### 2. Cost & Date of Acquisition

* The **cost of acquisition** for the partner will be the **amount originally paid** for the partnership stake.
* The **date of acquisition** will be the date when the partner originally acquired the partnership share.
* If the partner acquired the share on different dates (like in case of additional capital introduced later), the date corresponding to that acquisition should be considered.

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### 3. Indexation Benefit

* **Yes, indexation benefit is available** if the asset (partnership share) is held for **more than 36 months** (long-term capital asset).
* The cost of acquisition is indexed using the Cost Inflation Index (CII) published by the Government to arrive at the indexed cost, thereby reducing taxable capital gains.

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### Summary Example:

| Particulars | Amount (₹) |
| ------------------------------------------- | ------------------------------------- |
| Sale Price | 10,00,000 |
| Cost of Acquisition (Original Stake) | 1,00,000 |
| Capital Gain Before Indexation | 9,00,000 |
| Indexed Cost of Acquisition (if applicable) | Higher than 1,00,000 (depends on CII) |
| Taxable Capital Gain | Sale Price - Indexed Cost |

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### Note:

* If the partnership share is held for **less than 3 years**, gains will be treated as **Short-Term Capital Gains (STCG)**.
* If held for **more than 3 years**, gains will be **Long-Term Capital Gains (LTCG)** with indexation benefit.

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If you want, I can help you calculate the exact capital gains if you provide:

* Date of original acquisition of partnership share
* Cost of acquisition
* Date of sale
* Sale amount (which you mentioned as 10 lakhs)

Would you like me to help with that?

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