Question ID :
44932
Proprietorship to Partnership
What are the Implications in Income Tax on conversion from Proprietorship to Partnership Firm.Will there be any capital gains tax and whether the brought forward lossess of proprietorship firm be allowed to be carried forward to the new entity?
Posted by
Anuj Kumar Khaitan
on
Nov 06, 2025
Filed Under
Capital Gains
As per Section 45(3) and Section 47(xiv) of the Income-tax Act, 1961, when a sole proprietorship is converted into a partnership firm, the transfer of assets by the proprietor to the partnership is not regarded as a transfer for the purpose of capital gains if certain conditions are satisfied.
The brought-forward business losses of a proprietorship cannot be transferred to the new partnership firm since both are distinct taxable entities.
Posted by
CA. SURAJ KUMAR CHOUDHARY on
Nov 10, 2025
Answer ID :
86016
No CG on conversion ...see sec 47....
Posted by
SIVADAS CHETTOOR on
Nov 12, 2025
Answer ID :
86021
1. Capital Gains on asset transfer: No capital gain if transferred at book value; Sec 45(3) applies.
2. Tax on stock transfer: FMV taxed as business income under Sec 28(via).
3. Goodwill introduced Taxable capital gain (cost = Nil).
4. Carry-forward losses of Proprietorship ? Not allowed to Partnership firm.
5. Same-year loss before conversion ? Allowed to be set off within same year (in proprietor's return).
Posted by
CA. JHA SHANKAR KUMAR on
Nov 17, 2025