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TAXABILITY OF RETIREMENT AND ADMISSION OF PARTNER AS PER INCOME TAX ACT, 1961

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Avigyan De

SERVICE

23 Points Posted on 29 July 2021

Sir,

If in a partnership firm, a partner is retiring from firm due to his personal reason and in his place a relative of that partner is joining the firm, what will be the income tax treatment if the incoming partner does not bring in capital and retiring partner is not receiving his share of capital.

Is there any capital gain tax arising due to such transfer? Please guide me in light of Partnership Act, and Income Tax Act, 1961.

Thanking you

Replies (1)

Aashok Kumar Sharma

Finance/Compliance Consultant

77994 Points Posted on 02 July 2026

Summary: In the scenario where a partner retires without receiving their capital share and an incoming relative contributes no capital, there is effectively no "transfer" or "receipt" of assets/money. Consequently, neither the firm, the retiring partner, nor the incoming partner typically faces capital gains tax under the current provisions of the Income Tax Act, 1961, as the fundamental conditions for these taxes—namely, the distribution of assets or the receipt of consideration—are not met.