Finance Act, 2021--Capital Gains

Tax Treatment of Distribution of Capital Asset or Money or Stock-in-Trade at Time of Dissolution or Reconstitution of Firm/AoP/BoI

CA. Manoj Gupta

Hitherto a planning was going on whereunder firm's assets were revalued just before retirement from firms and partners, were getting out revaluation amount from firm without paying tax. A controversy was also going on whether the provisions of Section 45(4) will apply in case of reconstitution of firm. To curb this and clarify intent of law the Finance Act, 2021 has substituted sub-section (4) of Section 45 and introduced a new Section 9B from the assessment year 2021-22. The learned author explains this critical amendment with the help of case studies and apt illustrations.

I. Position upto Assessment Year 2020-21

1. Capital gains tax on distribution of assets or money at time of dissolution or otherwise of firm to be paid by firm--Position prior to Finance Act, 2021