Can a husband and wife form a partnership firm?
A client recently asked us this — and our initial reaction was cautious. But he came prepared.
The Indian Partnership Act doesn’t prohibit it — a point confirmed by his legal counsel. So yes, it's legally allowed.
But here’s the tax catch: Under Section 64 of the Income Tax Act, if one spouse only contributes capital without active participation, the income may be clubbed with the other’s. That can shift the tax dynamics significantly.
Moral of the story: Legal permissibility ≠ tax neutrality.
Have you encountered a similar situation?
Would love to hear your perspective.