When proprietary business is converted into firm it is mostly seen that there is doubt regarding Capital Gain, whether it will arise or not? As there is transfer of interest of proprietor to other partners on conversion of proprietary business into firm so capital gain will arise and will be computed u/s 45(3) of the Income Tax Act, 1961.

However, where no consideration is received for such transfer on conversion of proprietary business into firm no capital gains arise which can be taxed.

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