Vat Applicable or not

This query is : Resolved

Shailendra Kumar (Querist)
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28 June 2009 If stock or fixed assets given to partner against his capital for running their business as a individual then VAT applicable or not. If yes the what percentage?

Secondly partnership continue.

CA Nitin Wadhwani

CA Nitin Wadhwani (Expert)
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29 June 2009 Is this case of lease?
If yes, then VAT will be levied @ 4%.
If you could further elaborate your case, a clear picture can be formed.

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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02 August 2025 Hey! About VAT applicability when stock or fixed assets are given to a partner against his capital in a partnership firm:

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### Key points:

* When **stock or fixed assets are transferred to a partner** in a partnership firm **against his capital contribution**, it is generally considered a **transfer of goods/assets**.
* But, this transfer is **not a sale** in the usual commercial sense, as it’s a capital transaction within the firm.
* **VAT applicability depends on the state VAT laws** and their interpretation regarding capital contributions.

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### Generally:

* **Most VAT laws do NOT levy VAT on capital contributions**, because no sale or supply for consideration has taken place.
* Transfer of stock or assets to a partner **against capital is treated as a capital transaction, not a taxable sale**.
* Hence, **VAT is normally not applicable** in such cases.

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### Important considerations:

* **If the partnership continues** and these assets/stocks remain in the firm, it strengthens the argument that this is a capital transaction, not a sale.
* But if the assets are transferred **outside the partnership or for some commercial purpose**, VAT could apply.
* Always check your **state VAT rules and notifications** to be sure.

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### Percentage:

* If VAT is applicable (which is rare here), the rate would be as per the VAT rate on goods involved (varies by goods).
* But practically, **no VAT is charged** on capital contribution transfers.

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If you want, I can help find relevant state-specific VAT rulings or circulars. Which state is your business registered in? That will help me give a more precise answer!

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