Handbook on Taxation of Partnerships, Firms & Limited Liability Partnerships – Frequently Asked Questions By All India Federation of Tax Practitioners, Shashi Ashok Bekal

Handbook on Taxation of Partnerships, Firms and Limited Liability Partnerships is a question-and-answer treatise, recalibrated for the Income-tax Act 2025 and continuously cross-referenced to the erstwhile Income-tax Act 1961. Commissioned by the All India Federation of Tax Practitioners (AIFTP) in its golden jubilee year, the work arrives at the moment of statutory transition: the 2025 Act renumbers and rearranges without disturbing settled interpretive jurisprudence, and Section 536(2)(j) preserves the validity of circulars, notifications and instructions issued under the 1961 Act so long as they are not in conflict with the new statute. Practitioners therefore require a reference that follows every provision across both regimes and maps the case law built around the 1961 Act onto the renumbered provisions of 2025. The Second Edition addresses 437 questions across 24 chapters, covering the entire commercial and tax life of a firm—formation, partner-level economics, residency, reconstitution events under Sections 8 and 67(10), conversion, set-off of losses, prosecution, stamp duty, GST, the four new Labour Codes, and assessment of AOPs and BOIs. The treatment is reinforced by 13 specimen deeds, three worked case studies that compute capital gains under Sections 8, 67(10) and 72(5) read with Rules 6 and 50 of the Income-tax Rules, 2026, and the bare texts of allied legislation in the appendices, making the volume a self-contained desk reference rather than a commentary in isolation.

This book is intended for the following audience:

• Chartered Accountants and Tax Consultants advising partnership firms, LLPs, AOPs and BOIs across direct and indirect tax matters
• Advocates and Senior Advocates practising before Tribunals, High Courts and the Supreme Court on firm reconstitution, retirement settlements, dissolution and conversion disputes
• In-House Tax Counsel and Finance Leadership of family-owned businesses and professional firms operating as partnerships or LLPs, including those evaluating conversion or restructuring
• Departmental Officers and Judicial Officers dealing with firm-level assessments, reconstitution litigation and prosecution proceedings
• Members of the AIFTP and Other Tax Practitioner Associations seeking a consolidated FAQ reference under the 2025 Act
• Faculty and Post-Graduate Students of direct taxes, International Tax and corporate law

The Present Publication is the 2^nd Edition, commissioned by AIFTP and published by Taxmann. It is edited by Dr K. Shivaram [Senior Advocate] and authored by Mr Shashi Ashok Bekal [Advocate], with the following noteworthy features:

• [Twin-statute Referencing on Every Provision] Every section of the Income-tax Act 2025 carries its corresponding section under the 1961 Act in square brackets in the running text, so the reader is never required to perform the renumbering conversion separately
• [FAQ Architecture Engineered for Retrieval] The entire content is structured as 437 numbered questions and answers, designed for direct application during assessment, advisory and litigation work rather than continuous reading. Each answer follows a uniform pattern—statutory provision, judicial authority, departmental view, and the author’s analytical position
• [Judicial Substratum Carried Forward to the 2025 Regime] Every interpretive answer integrates Supreme Court, High Court and ITAT authorities decided under the 1961 Act, with an express note that such case law continues to govern the renumbered provisions in keeping with Section 536(2)(j) of the 2025 Act
• [Multi-disciplinary Treatment] Direct tax issues are read alongside the following:
  • Indian Partnership Act 1932
  • LLP Act 2008
  • The Four New Labour Codes
  • GST
  • Stamp Duty
  • FEMA & Overseas Direct Investment Regulations
  • SARFAESI
  • IBC
  • Negotiable Instruments Act
  • Consumer Protection Act
  • Arbitration Framework
• [Drafting Library of 13 Specimen Deeds] Ready-to-adapt instruments covering the formation, change, exit and conversion events in the life of a firm, drafted to reflect post-2025 statutory requirements
• [Three Worked Case Studies with Computational Arithmetic] Illustrations that take the reader from book value and revaluation through to the tax effect of Section 8, Section 67(10), the attribution of profits under Section 72(5), and the long-term/short-term characterisation under Rules 6 and 50 of the Income-tax Rules 2026
• [Constitutional, FEMA and Overseas Dimensions] This book includes the constitutional validity of the reconstitution provisions, retrospective applicability, Permanent Establishment and POEM analysis for cross-border firms, overseas direct investment under the Automatic and Approval routes, and the position of foreign firms acquiring agricultural land or practising law in India
• [Bare Legislative Appendices] The Indian Partnership Act 1932, the LLP Act 2008, the relevant Income-tax sections and rules, and CBDT Circular No. 14 of 2021 are reproduced in full for self-contained reference
• [Consolidated List of Cases and Subject Index] Designed to support evidentiary lookup during assessment, appellate and advisory work

The coverage of the book is as follows:

• Formation and Constitutional Framework of Firms and LLPs
  • Formation, registration and constitutional questions of partnership firms and LLPs, including admission of HUFs, companies, trusts, minors and non-residents as partners, the position of a coparcener entering partnership with their own HUF, and the application of GAAR, the doctrine of substance over form and the principle of mutuality to firms
• Operational and Computational Issues
  • Method of accounting (cash, mercantile and percentage-completion), classification of non-corporate entities for Accounting Standards purposes, format and disclosures in LLP financial statements, partners’ capital account movements, MSME disclosure, computation of book profits, treatment of capital gains and income from other sources for the purpose of remuneration ceilings, and the statutory limit on remuneration to working partners
• Cross-Border, Residency and FEMA Dimensions
  • Residency, Place of Effective Management, foreign LLPs, Permanent Establishment (including agency PE arising from a partner-as-agent), transfer pricing for firms and LLPs, foreign direct investment, overseas direct investment by Indian firms, and the position of non-resident managing partners
• Compliance Architecture
  • PAN, return filing due dates, the distinction between a firm and a company for compliance purposes, audit thresholds under the presumptive income regime, advance tax, TDS and TCS obligations, signatory rules, and the digital signature framework
• Section 8 of the 2025 Act (Erstwhile Section 9B)
  • Meaning of specified entity and specified person, computation at fair market value, applicability to rural agricultural land, applicability to legal heirs, the interaction with deeming provisions on stamp value, and the implications for raw material and work-in-progress in the real estate context
• Section 67(10) of the 2025 Act (Erstwhile Section 45(4))
  • Trigger on reconstitution, computation, and attribution of profits under Section 72(5) (erstwhile Section 48(iii)) of the 2025 Act across remaining assets in the books of the firm
• Interplay Between Section 8 and Section 67(10)
  • The two charging mechanisms read together on a single reconstitution event, addressing the no-double-counting principle
• Life-Cycle Events of a Partnership
  • Admission of a partner, retirement of a partner (including the treatment of self-generated goodwill at nil cost), expulsion, death, insolvency, reconstitution and dissolution, each examined for its direct tax, allied-law and drafting consequences
• Conversion and Restructuring
  • Conversion of firms into LLPs and companies, and of companies into LLPs, with the seven statutory conditions under the 2025 Act, the lock-in periods, the continuation of tax holidays, the carry-forward of bad debts and unabsorbed depreciation, and the position on slump sale of a firm
• Set-Off and Carry-Forward of Losses
  • Including the newly enabling Section 116(12) of the 2025 Act for amalgamation and demerger of LLPs
• Special Tax Issues for Firms
  • Gift taxation, deemed-dividend principles, applicability of MAT and AMT to firms, presumptive taxation and keyman insurance treatment
• Liability and Prosecution
  • Liability and prosecution of working, sleeping, retired, minor and over-70 partners; the principal officer concept; compounding of offences; and the decriminalisation of certain TDS offences under the 2025 Act, including replacement of prosecution by monetary penalty for TDS defaults of up to Rs. 10 lakh
• Stamp Duty Implications
  • Stamp duty across assignment, retirement, dissolution and conversion events, and the interaction between Section 67(9) of the 2025 Act and the stamp-value deeming provisions
• Goods and Services Tax
  • Registration, fresh registration on conversion, recovery and arrest of partners under Section 132 of the CGST Act, the position of sleeping partners, and partners’ joint and several liability under Section 90 of the CGST Act
• Labour Law Implications under the Four New Codes
  • Application of the Code on Wages, the Code on Social Security, the Occupational Safety, Health and Working Conditions Code, and the Industrial Relations Code to firms and LLPs, covering wage, bonus, gratuity, EPF, ESI, occupational safety, working conditions and industrial relations, together with the post-2026 amendment to Section 29(1)(e) of the 2025 Act on employee contribution timing
• Assessment of Associations of Persons and Bodies of Individuals
  • The Maximum Marginal Rate, indeterminate-share cases, the option of the Assessing Officer to assess the AOP or its members, and the applicability of Sections 8 and 67(10) to AOPs and BOIs
• Practitioner-Grade Miscellaneous Issues
  • Winding-up of LLPs versus dissolution, dishonour of cheques by a firm under the Negotiable Instruments Act, partner-as-guarantor analysis, applicability of SARFAESI and IBC to firms, the Consumer Protection Act position of an investor-partner, arbitration clauses surviving dissolution and binding legal heirs, search and survey at the partner’s residence, retraction of one partner’s statement by another, unexplained credits in the books of the firm versus the books of the partner, and protective additions across firm and partner

The structure of the book is as follows:

• Block I – Foundations and Computational Framework (Chapters 1 to 8)
  • Conceptual fundamentals of partnerships and LLPs and constitutional questions on partners
  • Operational issues including accounting, book profits and partners’ remuneration, interest and commission
  • Residency, FEMA, POEM, PE and transfer pricing
  • Return filing, audit, ITR forms and compliance under the 2025 Act
  • Registration and inception of firms and LLPs, including succession, profit-sharing ratio, partner capital and the treatment of immovable property and stock-in-trade introduced as capital contribution
  • Section 8 of the 2025 Act analysed for trigger, computation, fair market value, specified entity and specified person
  • Section 67(10) of the 2025 Act analysed for trigger and computation
  • The interplay between Section 8 and Section 67(10) on a single reconstitution event
• Block II – Life-Cycle Events of a Firm (Chapters 9 to 14)
  • Admission of a partner
  • Retirement of a partner
  • Expulsion, death and insolvency of a partner
  • Reconstitution of a partnership firm
  • Dissolution of a partnership firm
  • Conversion of a firm into an LLP, and the rules governing conversion of a company into an LLP
• Block III – Specific Heads and Allied Laws (Chapters 15 to 22)
  • Set-off and carry-forward of losses
  • Gift taxation in the context of firms
  • Liability and prosecution of the firm and its partners, including decriminalisation
  • Stamp duty implications across firm events
  • Goods and Services Tax implications
  • Labour law implications under the four new Codes
  • Assessment of Associations of Persons and Bodies of Individuals
  • Miscellaneous issues, including search, survey, arbitration, SARFAESI, IBC, unexplained credits and protective additions
• Block IV – Drafting Aids and Worked Computations (Chapters 23 to 24)
  • Specimen deeds—partnership, admission, retirement, dissolution, admission of a minor to the benefits of partnership, assignment of property, supplementary deed recording past understanding, deed of admission of a minor on attaining majority, expulsion, reconstitution, modification, supplementary deed for financial changes, and a full LLP agreement
  • Worked case studies—application of Section 67(10) on partner retirement with self-generated goodwill; combined application of Sections 8 and 67(10) where the retiring partner takes a specific asset; computation under Section 67(10) with attribution under Section 72(5) and characterisation as long-term or short-term capital gain under Rules 6 and 50 of the Income-tax Rules, 2026
• Appendices
  • Indian Partnership Act, 1932 (complete text)
  • Limited Liability Partnership Act, 2008 (complete text)
  • Relevant Sections and Rules of Income-tax
  • CBDT Circular No. 14 of 2021 dated 2^nd July 2021
• Reference Apparatus
  • Consolidated List of Cases
  • Detailed Subject Index