There are three partners in a partnership firm. The firm
has office premises in the name of firm. Depreciation on
this asset is charged every in the books of the firm. Now
after depreciation the book value of this assets has become
Rs. 1000. Whereas the market vakue of this premises id Rs.
10 crorer. To bring this property at MV the partners
revalued this premised at Rs. 8 crorers in the books of the
firm and accordingly credited partner's capital account in
their profit sharing ratio. My questions are as under.
What is the income tax liability of the firm on revaluation?
What is the income tax liability of partner of each partner
on revaluation and credit to his capital account.
In future whether depreciation to the firm is allowed on
revalued amount under the income tax act.
What happens to the tax liability if one partner withdraw
his entire capital from the firm which includes credit on
revaluation of office premises?
When partners can withdraw out of their credit balance in
their capital account without attracting any tax liability
either by the firm or by partner?
What happens if one partner retires and he gets amount
equal to his capital account which inclides credit on
account of revaluation? is there any tax liability to the
retiring partner?
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Answer / engineer
No IT for firm. Only capital increased, not profits.
No depreciation is allowed as no purchase of asset has taken place.
Partner has to pay income tax on the withdrawn capital depending on type of asset. If it is building etc there are indexation and long term capital gain exemption. But otherwise, by withdrawing the capital the asset has been sold to other 2 partners and a profit has been made and therefore liable to IT as rules of IT.
When the firm is dissolved and capital is taken back by the partners, there will be no IT.
Retirement causes payment of income tax.
these are my understanding. CA will answer this better
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