Finance Bill: Asset distribution to partners will attract capital gains tax

Various courts and tax authorities have ruled both in favour and against imposition of capital gains in such cases.

In what could impact partnership firms, including those involved in legal and professional services, amendments to the Finance Bill, 2021, propose to impose capital gains tax on any assets or shares received by a partner when he retires. Further, the tax will be levied on the notional gain — that is the difference between fair market value and actual cost in case of asset transfer.
 
So far, it was not clear whether the capital gains tax would cover retirement of a partner from the firm, where the firm continues to exist without any dissolution even after such retirement. Various