Capital contribution in Firm

Sirs,

A partnership firm has 3 partners . 

Partners has brought equally plot of land at highway for commercial purpose now they are deciding to trf to firm as capital contribution.

My question is do partner attract capital gain and plot brought to fien should be taken cost to partners or ready reckoner value at date of transfer .

Thanks 

Replies (3)
Quick Summary
Partners proposed transferring a jointly owned commercial plot to a partnership firm as capital contribution. The discussion focused on capital gains implications for partners and whether the firm should record the land at partners' cost or stamp duty value. It was noted that undervaluation may attract tax consequences for the firm.

While the partners use the book value for their capital gains calculation, the firm itself must be cautious regarding the recorded value.

If the partnership firm records the plot of land in its books at a value that is lower than the ready reckoner/stamp duty value by more than the permissible limit (usually ₹50,000 or 10% of the consideration), the difference may be taxable in the hands of the firm under Section 56(2)(x) as "Income from Other Sources" for receiving a property for inadequate consideration.

Thank you sir, 

But if stamp duty value is high then firm will record that value and same value would be sale consideration for partners I guess 

Thanks :)

Yes. The transfer of the land by the partners to the firm as a capital contribution is covered by Section 45(3).

  •  Each partner will have capital gains.
  • The recorded value in the books of the firm (as a credit to the partners' capital accounts) is considered as the sale consideration for calculating capital gains.
  • The firm will generally take the asset at the same value as its cost in the books.
  • Also see the effect of Section 50C if the stamp duty/ready reckoner value is more.

It is recommended that a proper valuation and documentation be carried out before the transfer.

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