Mr. X was a proprietor earlier, converted his proprietorship into partnership firm by introducing his earlier assets in the partnership firm. The partnership firm is registered under GST.
Now Mr. X is exiting from this partnership. The rest of the partners have decided to pay him on his exit like his share of profit, remuneration and goodwill.
Here I wish to know whether the partnership is required to charge GST on this payout to the exiting partner? At what rate, will it be charged?
I will be happy if anyone elaborates this situation also.
20 August 2020
GST not applicable on such payment as it's in the nature of sharing of profit. GST applicable only on supply of goods or services in the course of business.
20 August 2020
Authority of Advanced Ruling (AAR) said sale or transfer of a business classified as ‘going concern’ would be classified as supply under the goods and services tax (GST), but it would be exempt from the new tax. This would be applicable to running units sold wholly or its independent parts. The Karnataka AAR also clarified the definition of a ‘going concern’. “A going concern is a concept of accounting and applies to the business of the company as a whole.
Transfer of a going concern means transfer of a running business which is capable of being carried on by the purchaser as an independent business. Such transfer of business as a whole will comprise comprehensive transfer of immovable property, goods and transfer of unexecuted orders, employees, goodwill, etc,” the order said.