Tax implication on conversion of partnership into pvt ltd co

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yogesh vijaykumar shah (Querist)
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29 April 2012 Please let us know Tax Implications for conversion of Partnership into Private Limited Company. Also let us know tax implications under income tax if such private limited company merged into another company in a scheme of amalgamation after five years.

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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29 April 2012 Please refer Section 47(xiii) of the Income Tax Act, 1961.
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There will be no capital gains, if a firm is converted into Pvt Ltd company by following the prescribed conditions as regards to the-
1. Transfer of all assets and liabilities of firm to the company.
2. Share holding in proportion to the Balance in Capital Accounts of the erstwhile Partners.
3. Consideration in form of Shares only
4. 50% or more voting right to be held by partners for 5 continuous years.
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After 5 years the Pvt Ltd Company can be merged with another company and the same will be not treated as transfer subject to the condition that Section 47(vi) would have not been amended.
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