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Income Tax On Partnership Firms
Income Tax On Partnership Firms
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Although Partnership Firms don’t have a separate legal entity, for the purpose of Income Tax, they are
treated as different from their partners. Partnership Firms whether registered or unregistered are therefore
required to register with the Income Tax Dept. and obtain a PAN Card No. and Income Tax on Partnership
Firms is levied in the manner as explained below.
Recommended Read:
Moreover, for the purpose of Income Tax; LLP’s are treated the same as Partnership Firms and income tax
on LLP’s is also levied in the same manner as Income Tax on Partnership Firms.
Recommended Read: Benefits of creating a Limited Liability Partnership
Many a times, partner introduces capital in the Partnership by way of transfer of assets to the Partnership
Firm. In such cases, provisions of Section 45(3) would be applicable and the amount recorded in the books of
accounts of the Partnership Firm would become the Sale Consideration received in the hands of the Partner
and tax would be levied in the hands of the partner based on the Sale Consideration Received.
In some cases, at the time of dissolution, the partnership firm also gives assets to the Partners. In such cases,
provisions of Section 45(4) would be applicable and income tax would be levied in the hands of the
partnership firm on the sale of asset. The fair market value of the asset on the date of sale of asset would be
taken as the sale price and tax levied thereon.
A Personal Finance enthusiast, Karan is the founder of charteredclub.com and loves to discuss about Money
related matters.
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