Capital Gains on Transfer of Assets between Partners and Firms:

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.

Decoding Sections 45(3), 9B & 45(4) and ITR Reporting for AY 2026-27

Khush Trivedi

Jun 24, 2026

Last update on 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

Full value of consideration: The amount recorded in the books of account of the firm for the asset, not the market value.
Cost of acquisition/improvement: Cost to the partner on an actual basis
The resulting gain is taxed as the partner’s income for the previous year in which the contribution is made

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

Triggered when a partner/member receives a capital asset or stock-in-trade from the firm/AOP/BOI on dissolution or reconstitution.
The firm has deemed to have transferred the asset to the partner on the date of receipt by the partner
Capital assets are taxed as capital gains in the hands of the firm. (FMV on the date of receipt is the deemed full value of consideration.)
Stock-in-trade is taxed as business income.

Section 45(4): The reconstitution-only charge

Applies only on reconstitution (admission, retirement, or change in profit-sharing ratio) & not on full dissolution
If a capital asset is received by a partner under reconstitution, then this section will be applicable in addition to section 9B
Before applying this section, one has to adjust the partners’ capital accounts against the accounting treatment of profit or loss & Tax expense arising upon transfer of such asset

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

Please let me know your queries in comment section!