A comprehensive guide to the capital gains tax implications of asset transfers between partners and partnership firms under Sections 45(3), 9B, and 45(4), along with ITR reporting requirements for AY 2026-27.
Khush Dharmeshkumar Trivedi | Jun 24, 2026 |
Capital Gains on Transfer of Assets between Partners and Firms
As recently Income Tax Department has released the Online & excel based offline utility for ITR 3 AY 2026-27.
If you are a partner in a partnership firm & earned any income, then you have to file the ITR-3
Asset movement between a partner/members and a firm/AOP/BOI is one of the most frequently mis-reported areas in practice.
Let’s decode it
LEGAL BACKGROUND
| Section | Direction of Transfer | Taxable In Hands Of | Deemed Full Value of Consideration | Relevant ITR |
| 45(3) | Partner → Firm (capital contribution) | Partner (individual) | Value recorded in firm’s books | ITR-3 (partner) |
| 9B | Firm → Partner (dissolution or reconstitution) | Firm / AOP / BOI | Fair market value (FMV) on date of receipt | ITR-5 (firm) |
| 45(4) | Firm → Partner (reconstitution only) | Firm / AOP / BOI | Statutory formula: (money + FMV of asset received) less capital account balance | ITR-5 (firm) |
Section 45(3): Asset Contributed by a Partner to the Firm
Section 45(3) applies when a partner brings a capital asset into the firm as a capital contribution or as their contribution towards capital in any other manner & such transaction is treated as a transfer for capital gains purposes.
How to compute CG
Note: Stamp duty value under section 50C does not override the book-value rule for section 45(3) transactions.
Sections 9B & 45(4) Asset or Money Received by a Partner from the Firm
It’s very important to distinguish these two sections, as both have their own purposes
Section 9B deemed transfer to the firm’s own account
Section 45(4): The reconstitution-only charge
This section basically charges the tax upon the additional gain of the partner in excess of his capital contribution due to an increase in the fair value of assets or goodwill of the firm on the date of reconstitution.
However, the question of double taxation would also arise, as when the firm sells these properties in the future, the capital gain will arise hence in order to resolve such concern CBDT vide Rule No. 8AB given a mechanism for allocating this taxed amount across the firm’s remaining capital assets on the basis of their increase, so it isn’t taxed again when such assets are eventually sold & the apportioned profit will be deducted on the sale of such an asset while calculating CG.
| Particulars | Section 9B | Section 45(4) |
| Trigger event | Dissolution OR reconstitution | Reconstitution only |
| What is taxed | Capital asset and/or stock-in-trade received by partner | Money + capital asset received by partner, net of capital account balance |
| Base for computation | FMV of the specific asset received | Statutory formula (Explanation to s.45(4)) |
| Double-tax safeguard | Section 48(iii) excludes amount already taxed u/s 45(4) from 9B’s consideration | Rule 8AB attributes the gain to remaining assets to avoid re-taxation on later sale |
Mapping to the ITR-3
There is no specific category to report 45(3) transactions in ITR, as there is no dedicated row towards it, hence one has to report it in the residual category.
| Scenario | Schedule CG row to use | What to report |
| 45(3): short-term asset contributed to firm | Item A6 — “From sale of assets other than at A1 to A5” | Consideration = book value recorded by firm |
| 45(3): long-term asset contributed to firm | Item B9 — “From sale of assets where B1 to B8 above are not applicable” | Consideration = book value recorded by firm cost/indexation as applicable |
| 9B/45(4) on the firm’s reconstitution | Not reported in partner’s Schedule CG at all | Reported by the firm in its own ITR-5, Schedule CG, using the relevant residual item with FMV as consideration |
| Partner’s firm particulars | Schedule IF — “Information regarding partnership firms” | Firm name, PAN, share of profit unaffected by 9B/45(4), but should be reconciled against the firm’s partnership deed |
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