Transfer of Fixed Assets purchases
This query is : Resolved
06 April 2011
There are two entities X Pvt Ltd and Y LLP.
Both are the sister concern, where Y LLP is newly formed LLP.
Y LLP have purchased some fixed assets but the purchase invoices were given in the name of X Pvt Ltd by the supplier and input cedit on the same was availed by X Pvt Ltd.
As asset purchased for Y LLP they want to show fixed assets in thier accounts, how can we transfer assets from X Pvt Ltd to Y LLP & What are the tax implications?
Both are the sister concern, where Y LLP is newly formed LLP.
Y LLP have purchased some fixed assets but the purchase invoices were given in the name of X Pvt Ltd by the supplier and input cedit on the same was availed by X Pvt Ltd.
As asset purchased for Y LLP they want to show fixed assets in thier accounts, how can we transfer assets from X Pvt Ltd to Y LLP & What are the tax implications?
06 April 2011
Hello Experts, please help me to resolve above query on urgent basis.
02 August 2025
This is an interesting situation involving transfer of fixed assets between two related entities — X Pvt Ltd (a company) and Y LLP (a newly formed LLP). Since the assets were purchased by X Pvt Ltd (as per invoices) but actually meant for Y LLP, the following points and procedure can be considered:
---
### 1. **Accounting Treatment / Transfer of Fixed Assets**
* X Pvt Ltd will need to **transfer the fixed assets to Y LLP** through a proper inter-company transaction.
* This should be done by **selling the assets from X Pvt Ltd to Y LLP** at an agreed value (usually fair market value or book value, depending on the agreement).
* X Pvt Ltd will **remove the fixed assets from its books** and recognize any gain or loss on the sale if applicable.
* Y LLP will **capitalize the fixed assets in its books at the purchase price (or agreed transfer value)**.
* The transaction should be supported by a **sale deed/transfer agreement** between X Pvt Ltd and Y LLP.
---
### 2. **Tax Implications**
* **For X Pvt Ltd:**
* Sale of fixed assets to LLP is considered a **transfer** under Income Tax.
* If assets are sold above the **written down value (WDV)**, the difference is a **capital gain**.
* For depreciable assets, any gain above WDV is taxable as **short-term capital gain** under Section 50.
* If sold at WDV or less, then no capital gain arises; instead, the difference may be a loss.
* Also, reversal of any **Input Tax Credit (ITC)** claimed on the asset may be required if the asset is sold.
* **For Y LLP:**
* The fixed assets will be recorded at the **purchase/transfer value**.
* Depreciation will be claimed as per the Income Tax rules on the value of the asset.
* For GST, if applicable, Y LLP should pay GST on the transfer price if the transaction is treated as a sale.
---
### 3. **GST Implications**
* Since it is a **transfer of goods between two separate entities**, GST may apply.
* X Pvt Ltd may need to **issue a tax invoice** charging GST to Y LLP on the transfer value.
* Y LLP can claim **Input Tax Credit** (ITC) on this purchase, subject to conditions.
---
### 4. **Other Considerations**
* Ensure that the transaction is **at arm's length** to avoid any transfer pricing or tax scrutiny.
* Maintain proper documentation of the transfer including board resolutions, transfer deed, and invoices.
* Inform auditors and tax consultants for proper accounting and compliance.
---
### Summary:
| Aspect | X Pvt Ltd | Y LLP |
| ------------- | ------------------------------------ | ---------------------------------------- |
| Accounting | Sale of fixed assets, remove asset | Purchase and capitalize asset |
| Income Tax | Capital gain/loss on sale | Depreciation on asset |
| GST | Charge GST on transfer value | Claim ITC on GST paid |
| Documentation | Sale deed, invoice, board resolution | Transfer agreement, asset capitalization |
---
If you want, I can help draft a sample transfer agreement or explain how to compute capital gains here. Would you like me to?
---
### 1. **Accounting Treatment / Transfer of Fixed Assets**
* X Pvt Ltd will need to **transfer the fixed assets to Y LLP** through a proper inter-company transaction.
* This should be done by **selling the assets from X Pvt Ltd to Y LLP** at an agreed value (usually fair market value or book value, depending on the agreement).
* X Pvt Ltd will **remove the fixed assets from its books** and recognize any gain or loss on the sale if applicable.
* Y LLP will **capitalize the fixed assets in its books at the purchase price (or agreed transfer value)**.
* The transaction should be supported by a **sale deed/transfer agreement** between X Pvt Ltd and Y LLP.
---
### 2. **Tax Implications**
* **For X Pvt Ltd:**
* Sale of fixed assets to LLP is considered a **transfer** under Income Tax.
* If assets are sold above the **written down value (WDV)**, the difference is a **capital gain**.
* For depreciable assets, any gain above WDV is taxable as **short-term capital gain** under Section 50.
* If sold at WDV or less, then no capital gain arises; instead, the difference may be a loss.
* Also, reversal of any **Input Tax Credit (ITC)** claimed on the asset may be required if the asset is sold.
* **For Y LLP:**
* The fixed assets will be recorded at the **purchase/transfer value**.
* Depreciation will be claimed as per the Income Tax rules on the value of the asset.
* For GST, if applicable, Y LLP should pay GST on the transfer price if the transaction is treated as a sale.
---
### 3. **GST Implications**
* Since it is a **transfer of goods between two separate entities**, GST may apply.
* X Pvt Ltd may need to **issue a tax invoice** charging GST to Y LLP on the transfer value.
* Y LLP can claim **Input Tax Credit** (ITC) on this purchase, subject to conditions.
---
### 4. **Other Considerations**
* Ensure that the transaction is **at arm's length** to avoid any transfer pricing or tax scrutiny.
* Maintain proper documentation of the transfer including board resolutions, transfer deed, and invoices.
* Inform auditors and tax consultants for proper accounting and compliance.
---
### Summary:
| Aspect | X Pvt Ltd | Y LLP |
| ------------- | ------------------------------------ | ---------------------------------------- |
| Accounting | Sale of fixed assets, remove asset | Purchase and capitalize asset |
| Income Tax | Capital gain/loss on sale | Depreciation on asset |
| GST | Charge GST on transfer value | Claim ITC on GST paid |
| Documentation | Sale deed, invoice, board resolution | Transfer agreement, asset capitalization |
---
If you want, I can help draft a sample transfer agreement or explain how to compute capital gains here. Would you like me to?
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