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TMI BlogGIFT OF CAPITAL OF PROPRIETARY CONCERN TO DAUGHTERX X X X Extracts X X X X X X X X Extracts X X X X ..... A is running a proprietorship concern in the name of AM Ents and the business data includes debtors,creditors,inventory ,capital etc. A sold the inventory of 1 Cr to a partnership firm QR Ents in which her daughter is a partner so that her daughter can show her capital in the firm received from his father as an inventory sold to its firm. What are the remedies available in such a case so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that his daughter can show her capital in the firm Please advise. - Reply By ANURAG SHARMA - The Reply = Dear Mr. Rakesh, I understand from the query that A wants to transfer amount to his daughter who is a partner in QR Ents so that she can show it as her share of capital in the firm. A can either transfer ₹ 1 cr. to her or transfer inventory worth ₹ 1 cr to her which she ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n introduce in the firm as her capital in kind i.e. in form of inventory. Firstly, Gift to daughter is exempt from tax. So no tax liability either to A or his daughter. Secondly, A has sold inventory either at cost or at profit to QR Ent. In that case, inventory belongs to the firm jointly by all the partners and cannot be shown as capital of A's daughter as liability to pay for purchase of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inventory is on the firm. So A will be a creditor in the books of QR Ents. If A has sold at cost, there would be no profit to his sole proprietorship. If A has sold inventory at profit, he will have to pay tax on profit. A simple way would be to reverse the sale transaction, if possible and gift the inventory to daughter by registered gift deed. The daughter can introduce the inventory in her ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firm as her share of Capital. In A case, since his business books will be separate, A has to show withdrawal of inventory from firm as drawings and A 's capital in sole proprietorship will reduce to that extent. In case, transaction cannot be reversed,in A's books QR Ents would be debtor. He can assign this debt to his daughter through gift deed. Her daughter will take over the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ebt of A in the books of QR Ents, thereby the amount of creditor ( A ) in QR Ents will get transferred to her daughter's capital account. Regards, CA Anurag Sharma (9831581824) - GIFT OF CAPITAL OF PROPRIETARY CONCERN TO DAUGHTER - Query Started By: - RAKESH SHARMA Dated:- 27-4-2020 Income Tax - Got 1 Reply - Income Tax - Discussion Forum - Knowledge Sharing, reply post by an expert, pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal opinion Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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