Transfer of assets to a partner
This query is : Resolved
16 July 2012
Dear Experts
Can an Partnership firm can it assets to its partner ?
What will be value of such transfer ?
(partnership firm is not dissolving it is continuing its operation)
Can an Partnership firm can it assets to its partner ?
What will be value of such transfer ?
(partnership firm is not dissolving it is continuing its operation)
17 July 2012
it will be covered under the head capital gains
the fair market value of the asset on the date of such transfer shall be deemed to be the full value of the consideration received.
the fair market value of the asset on the date of such transfer shall be deemed to be the full value of the consideration received.
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17 July 2012
Thank You CA Sourabh
It would be wrong if we transfer the asset at it written down value ?
(asset is an non functional )
It would be wrong if we transfer the asset at it written down value ?
(asset is an non functional )
02 August 2025
No, it **would be incorrect to transfer the asset at its written down value (WDV)** if the transfer is between a partnership firm and its partner (while the firm continues its operations). Here's why:
---
### Tax Treatment & Valuation of Asset Transfer from Firm to Partner
1. **Capital Gains Triggered:**
* When a partnership firm transfers an asset to a partner (other than in case of dissolution), it is considered a **transfer of capital asset** by the firm.
* This transfer triggers **capital gains tax** in the hands of the firm.
2. **Valuation for Capital Gains:**
* As per Income Tax rules, the **fair market value (FMV)** of the asset on the date of transfer is treated as the **full value of consideration received**.
* This means, even if the asset is transferred at written down value (WDV) in the books, for tax purposes, the sale consideration is deemed to be the FMV.
3. **Implication:**
* Transferring at WDV in books may not reflect the true market value.
* The firm will have to pay capital gains tax on the difference between FMV and the cost of acquisition (or WDV if asset is depreciable).
* The partner will take the asset at FMV for their own books.
4. **Non-Functional Asset:**
* Even if the asset is non-functional or obsolete, FMV must be determined (could be low, but must be based on a reasonable valuation).
* Discounted FMV due to non-functionality can be supported by valuation reports, but arbitrarily taking WDV is not allowed for tax.
---
### Summary:
| Aspect | Explanation |
| ------------------------------ | ------------------------------------- |
| Transfer Value | Fair Market Value (FMV) as per IT Act |
| Written Down Value (WDV) | Not accepted as sale consideration |
| Capital Gains | Taxable in hands of partnership firm |
| Asset Value in Partner's Books | Taken at FMV |
---
### Recommendation:
* Get a **professional valuation** done for the asset to determine FMV.
* Record the transaction in books at FMV.
* File capital gains tax accordingly.
If you want, I can help you draft journal entries or further explain the tax sections involved! Would you like me to?
---
### Tax Treatment & Valuation of Asset Transfer from Firm to Partner
1. **Capital Gains Triggered:**
* When a partnership firm transfers an asset to a partner (other than in case of dissolution), it is considered a **transfer of capital asset** by the firm.
* This transfer triggers **capital gains tax** in the hands of the firm.
2. **Valuation for Capital Gains:**
* As per Income Tax rules, the **fair market value (FMV)** of the asset on the date of transfer is treated as the **full value of consideration received**.
* This means, even if the asset is transferred at written down value (WDV) in the books, for tax purposes, the sale consideration is deemed to be the FMV.
3. **Implication:**
* Transferring at WDV in books may not reflect the true market value.
* The firm will have to pay capital gains tax on the difference between FMV and the cost of acquisition (or WDV if asset is depreciable).
* The partner will take the asset at FMV for their own books.
4. **Non-Functional Asset:**
* Even if the asset is non-functional or obsolete, FMV must be determined (could be low, but must be based on a reasonable valuation).
* Discounted FMV due to non-functionality can be supported by valuation reports, but arbitrarily taking WDV is not allowed for tax.
---
### Summary:
| Aspect | Explanation |
| ------------------------------ | ------------------------------------- |
| Transfer Value | Fair Market Value (FMV) as per IT Act |
| Written Down Value (WDV) | Not accepted as sale consideration |
| Capital Gains | Taxable in hands of partnership firm |
| Asset Value in Partner's Books | Taken at FMV |
---
### Recommendation:
* Get a **professional valuation** done for the asset to determine FMV.
* Record the transaction in books at FMV.
* File capital gains tax accordingly.
If you want, I can help you draft journal entries or further explain the tax sections involved! Would you like me to?
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