Section 8 · Residence
Section 8 of the Income-tax Act, 2025 — Income on Receipt of Capital Asset or Stock-in-Trade by a Specified Person from a Specified Entity (Dissolution or Reconstitution of a Firm/AOP/BOI)
By CA Rajat Agrawal
Updated 04 Jul 2026
Chapter II
📜 What the law says — Section 8, Income-tax Act 2025
8. (1) Where a specified person receives during the tax year any capital asset or
stock-in-trade, or both, from a specified entity in connection with the dissolution
or reconstitution of such specified entity, then the specified entity shall be deemed
to have transferred such capital asset or stock-in-trade, or both, to the specified
person in the year in which such capital asset or stock-in-trade, or both, are received
by the specified person.
(2) Any profits and gains arising from the deemed transfer mentioned in sub-section
(1) by the specified entity shall be—
(i) deemed to be the income of such specified entity of the tax year in which
such capital asset or stock-in-trade, or both, were received by the specified
person; and
(ii) chargeable to income-tax as income of such specified entity under the
head “Profits and gains of business or profession” or under the head
“Capital gains”.
(3) For the purposes of this section, fair market value of the capital asset or stock-
in-trade, or both, on the date of its receipt by the specified person shall be deemed
to be the full value of the consideration received or accruing as a result of such
deemed transfer mentioned in sub-section (1).
(4) If any difficulty arises in giving effect to the provisions of this section and section
67(10), the Board may, with the previous approval of the Central Government, issue
guidelines for removing the difficulty.
(5) Every guideline issued by the Board under sub-section (4) shall be laid before
each House of Parliament while it is in session for a total period of thirty days which
may be comprised in one session or in two or more successive sessions, and if,
before the expiry of the session immediately following the session or the successive
sessions aforesaid, both houses agree in making any modification in such guideline
or both Houses agree that the guideline, should not be issued, the guideline shall
thereafter have effect only in such modified form or be of no effect, as the case may
be; so, however, that any such modification or annulment shall be without prejudice
to the validity of anything previously done under that guideline.
(6) For the purposes of this section,—
(a) “specified entity” means a firm or other association of persons or body
of individuals (not being a company or a co-operative society);
(b) “specified person” means a person, who is a partner of a firm or mem-
In plain language
What Section 8 actually deals with
Despite the internal topic tag "nri-taxation", Section 8 of the Income-tax Act, 2025 has nothing to do with NRIs. It is the direct re-enactment of the old Section 9B of the Income-tax Act, 1961. It is a firm/partnership provision that plugs a long-standing tax leak: when a firm, AOP or BOI gives a capital asset or stock-in-trade to a partner or member on dissolution or reconstitution, that hand-over is now treated as a deemed transfer and the built-in gain is taxed in the hands of the entity (the firm), not the partner.
The two key defined terms
- Specified entity — a firm, or an association of persons (AOP), or a body of individuals (BOI). A company and a co-operative society are specifically excluded.
- Specified person — a person who is a partner of the firm, or a member of the AOP/BOI, during the tax year (whether currently continuing or retiring/exiting).
What triggers the charge
Section 8 fires when all of the following are present:
- A specified person (partner/member) receives during the tax year,
- a capital asset or stock-in-trade (or both),
- from a specified entity,
- in connection with the dissolution or reconstitution of that entity.
When this happens, the firm is deemed to have transferred that asset to the partner in the year of receipt.
How the gain is computed and taxed
- The fair market value (FMV) of the asset on the date the partner receives it is taken as the full value of consideration.
- Gain = FMV on date of receipt minus cost/written-down value/book value in the firm's books.
- The gain is taxed in the hands of the firm/AOP/BOI — under "Profits and gains of business or profession" if the item was stock-in-trade, or under "Capital gains" if it was a capital asset.
"Reconstitution" — what counts
Reconstitution is defined broadly and covers cases where:
- one or more partners/members cease to be associated (retirement, exit, death), OR
- one or more new partners/members are admitted while at least one existing member continues, OR
- all members continue but their profit-sharing ratios change.
How it interacts with Section 67(10) (old Section 45(4))
This is the most important practical point. Section 8 taxes the firm on the asset it gives away. Its companion, Section 67(10) of the 2025 Act (the re-write of Section 45(4) of 1961), taxes the firm on money or assets received by a partner in excess of the balance in his capital account — this represents gain attributable to the assets that remain with the firm. The two operate independently and in addition to each other. To prevent the same gain being taxed twice, the amount already taxed under Section 8 is adjusted (attributed) against the Section 67(10) computation — under the old law this was done through Rule 8AB and CBDT Circular 14/2021, and the same mechanism is carried forward.
Practical implications
- Retiring a partner by handing over a flat, land, machinery or business stock is no longer tax-neutral — the firm pays tax on the embedded appreciation.
- FMV must be documented (a registered valuer's report is advisable) because FMV is the sale price for tax.
- The partner receiving the asset gets a stepped-up cost equal to the FMV, which reduces his tax when he later sells it.
- Firms planning retirements, admissions or dissolutions should model both Section 8 and Section 67(10) before executing the reconstitution deed.
💡 Example
Example 1 — Retiring partner takes an office property. ABC & Co. (a partnership) allots its office building to retiring partner Mr. Rakesh on 10 May 2026. The building's book/cost value is ₹40,00,000; its fair market value on the date of hand-over is ₹1,10,00,000. Under Section 8, the firm is deemed to have transferred the building at FMV. Capital gain in the firm's hands = ₹1,10,00,000 − ₹40,00,000 = ₹70,00,000, taxed as capital gains of ABC & Co. for FY 2026-27. Mr. Rakesh's cost of acquisition for any future sale becomes ₹1,10,00,000.
Example 2 — Stock-in-trade given on dissolution. A trading AOP dissolves and gives goods (stock-in-trade) whose book cost is ₹8,00,000 and FMV is ₹12,00,000 to a member. Under Section 8 the AOP is deemed to have transferred the stock at FMV ₹12,00,000, so ₹4,00,000 is taxed as business income (PGBP) of the AOP.
A short story. Priya and Anil ran a design firm for twelve years. When Priya retired, she happily took the studio flat "as her share" assuming no tax, since no cash changed hands. Their CA gently explained Section 8: the flat, bought years ago for ₹35 lakh, was now worth ₹95 lakh, so the firm faced capital gains on ₹60 lakh. They had to keep aside funds for the firm's tax before signing the retirement deed — a reminder that giving away an appreciated asset is a taxable event even without a rupee of sale price.
| Aspect | Section 8, Income-tax Act 2025 (old Section 9B) | Section 67(10), Income-tax Act 2025 (old Section 45(4)) |
|---|
| What is taxed | Capital asset / stock-in-trade received by the partner | Money or capital asset received by partner in excess of capital account balance |
| Deemed value / consideration | FMV of asset on date of receipt | Formula A = B + C − D (money + FMV of asset − capital account balance) |
| Head of income | PGBP (if stock) or Capital gains (if capital asset) | Capital gains only |
| Who pays the tax | The specified entity (firm/AOP/BOI) | The specified entity (firm/AOP/BOI) |
| Trigger events | Dissolution or reconstitution | Reconstitution |
| Relationship | Operate independently and in addition to each other; double-tax avoided via attribution (old Rule 8AB / Circular 14/2021) |
Related sections
Section 67 — Capital gains (chargeability; incl. 67(10) on reconstitution, old 45(4)) Section 9B (Income-tax Act, 1961) — Direct predecessor of Section 8 Section 45(4) (Income-tax Act, 1961) — Predecessor of Section 67(10) Section 2 — Definitions (capital asset, firm, transfer, fair market value) Section 9 — Income deemed to accrue or arise in India Section 26 — Profits and gains of business or profession (charging head)
Frequently asked questions
Does Section 8 of the Income-tax Act, 2025 apply to NRIs?
No. Despite any 'NRI' tagging, Section 8 is a partnership/firm provision (the re-enactment of old Section 9B). It taxes firms, AOPs and BOIs when they hand over assets to partners/members on dissolution or reconstitution, regardless of residential status.
Who pays the tax under Section 8 — the firm or the partner?
The specified entity (the firm, AOP or BOI) pays the tax, not the partner. The firm is deemed to have transferred the asset at its fair market value and is taxed on the resulting gain.
Is cash received by a retiring partner covered by Section 8?
No. Section 8 covers only capital assets and stock-in-trade. Money received by a partner on reconstitution is dealt with under Section 67(10) (old Section 45(4)), which can also tax the firm.
How is the value of the asset determined?
The fair market value (FMV) of the asset on the date the partner receives it is treated as the full value of consideration. It is advisable to obtain a registered valuer's report to support the FMV.
Can the same gain be taxed under both Section 8 and Section 67(10)?
Both sections operate independently and in addition to each other, but the law prevents double taxation by attributing the amount already taxed under Section 8 against the Section 67(10) computation (the mechanism earlier set out in Rule 8AB and CBDT Circular 14/2021).
What is the tax head — business income or capital gains?
It depends on the asset: gain on stock-in-trade is taxed under 'Profits and gains of business or profession', while gain on a capital asset is taxed under 'Capital gains'.
What cost does the partner take for the asset later?
Because the firm is deemed to transfer at FMV, the partner's cost of acquisition for any future sale is generally the FMV taxed under Section 8, giving a stepped-up cost base.
C
CA Rajat Agrawal
Chartered Accountant, EaseValue · Reviewed 04 Jul 2026
This explainer is prepared and reviewed by EaseValue's tax team, based on the text of the Income-tax Act, 2025 (as amended by the Finance Act, 2026).
Disclaimer: This page explains the law in general terms for education and is not professional advice. The Income-tax Act, 2025 takes effect from 1 April 2026; provisions, thresholds and interpretations may change. Please confirm your specific position with our team before acting.
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