Capital gains tax

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Respected Sir,

There is a partnership firm consisting of 3 partners, one of the partners is retiring from the firm, he is paid a lump sum amount which is more than his capital balance. Is the excess amount received by the retiring partner liable to capital gains tax, if so under which section of the income tax act. kindly elicit your views with elaborately.

 

Replies (1)

Yes, the excess amount will be subject to tax as Goodwill on retirement from firm. If you have been a partner for more than 3 years it will be recokoned as long term. The cost will be taken as zero unless you have contributed something towards goodwill when you joined the firm.

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