Reconstitution of partnership in the event of death

Here is the process for reconstitution after death of a partner:

1. Check Partnership Deed: First, look at the original deed — does it have a 'continuation clause' stating that the firm shall not dissolve on death and the remaining partners can continue? If yes, no dissolution is needed.

2. Reconstitution Steps:
- Pass a resolution/mutual consent among surviving partners to continue the firm.
- Settle the deceased partner's share: Determine his capital account balance, goodwill share, and profit till date of death. Pay or treat as loan payable to his legal heirs/estate.
- Execute a Supplemental Deed of Reconstitution showing: removal of deceased partner, continuation by surviving partners, revised profit-sharing ratio.
- Get the deed notarized and registered if the firm has immovable property, else notarization suffices.

3. GST/Tax Implications: Reconstitution of a partnership firm triggers Sections 9B and 45(4) of the IT Act — any transfer of assets on reconstitution to the heirs may attract capital gains. Consult a CA to evaluate this angle before settlement.

4. GST Impact: Reconstitution itself is not a supply under GST (Schedule II clarification), but any assets distributed to the deceased's heirs at the time of settlement may attract GST if the firm is GST registered.

5. Registration: File intimation with relevant registrar (if firm is registered under Partnership Act). Update GST registration with revised partner details on gst.gov.in within the prescribed time.

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modassir jamal

Aashok Kumar Sharma

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