Death explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
When a partner dies, the firm owes his estate what he was owed at the date of death: his capital, his share of reserves and revaluation gains, his share of goodwill and his share of profit earned up to that date, less his drawings. The accounts follow the same steps as retirement; two points are new, the profit up to the date of death, and the account opened in the name of his executors. This guide works one invented firm through both. Our partnership deed drafting team writes the death clause so that the method of computing the profit and the settlement terms are already agreed.
Close the deceased partner's account at the date of death. Credit his share of reserves, revaluation gain, goodwill and profit to the date of death; debit his drawings. The profit to date is found from accounts drawn up to that date, or, if none, by a time basis or a turnover basis as the deed provides. The balance is transferred to the executors' account, which is settled at once or in instalments, with interest if agreed. Where the business continues without settlement, section 37 gives the estate an option.
The law, by link
The Indian Partnership Act, 1932 deals with the deceased partner's estate and a competing business in sections 35 and 36; see our post on sections 35 and 36. Section 37, as printed, says that where a partner has died and the surviving or continuing partners carry on the business with the firm's property without any final settlement, then, in the absence of a contract to the contrary, the estate is entitled at its option to the share of profits attributable to the use of his share of the property, or to interest at six per cent a year on his share. Our post on sections 37 and 38 explains this. Succession and tax matters are outside this article.
The steps
| Step | Treatment |
|---|---|
| 1. Fix the date of death | The accounts are closed at that date |
| 2. Revalue assets and liabilities | Revaluation account; result shared in the old ratio, including the deceased |
| 3. Reserves | Transferred to all partners in the old ratio |
| 4. Goodwill | The deceased's share is credited to him; the surviving partners bear it in the gaining ratio |
| 5. Profit to date of death | From accounts to that date; otherwise on a time or turnover basis as the deed says |
| 6. Drawings | Debited to the deceased's account (and interest, if provided) |
| 7. Amount due | Transferred to the executors' account, then settled |
A joint life policy, if the firm holds one, is dealt with before the amount is struck: the sum received on the death is shared among all partners in the old ratio. Details depend on the policy and the deed.
Profit to the date of death
Time basis: take the profit of the previous year, apportion it for the period from the start of the year to the date of death, and apply the deceased's share. It assumes profit accrues evenly through the year.
Turnover basis: take the previous year's profit, multiply by the ratio of turnover to the date of death to turnover of the previous year, then apply the share. It follows seasonal selling better.
The deed fixes which to use. Neither is a rule of law.
Worked example: Joshi, Kiran and Lal
The entity and all figures in this example are invented for illustration.
Joshi, Kiran and Lal share profits 3:2:1. Lal dies on 31 July 2026, four months into the year that began on 1 April 2026. The firm's last balance sheet, at 31 March 2026, is:
| Capital and liabilities | Amount | Assets | Amount |
|---|---|---|---|
| Joshi's capital | 6,00,000 | Premises | 6,00,000 |
| Kiran's capital | 4,00,000 | Machinery | 3,00,000 |
| Lal's capital | 2,00,000 | Stock | 2,40,000 |
| General reserve | 1,20,000 | Debtors | 2,20,000 |
| Creditors | 1,80,000 | Bank | 1,40,000 |
| Total | 15,00,000 | Total | 15,00,000 |
Facts. Premises are revalued at 6,80,000 and machinery at 2,80,000. Goodwill is agreed at 3,60,000. Lal drew 40,000 in the four months. The profit of 2025-26 was 5,40,000; sales were 36,00,000, and sales from 1 April to 31 July 2026 were 14,40,000. The deed says to compute profit on the turnover basis. Joshi and Kiran continue in the ratio 3:2.
Step 1 – profit to the date of death.
| Basis | Working | Firm's profit to date | Lal's share (1/6) |
|---|---|---|---|
| Time | 5,40,000 x 4/12 | 1,80,000 | 30,000 |
| Turnover | 5,40,000 x 14,40,000 / 36,00,000 | 2,16,000 | 36,000 |
The deed requires the turnover basis, so Lal's share is 2,16,000 x 1/6 = 36,000. Only his share is brought into the books now, through a profit and loss suspense account that is cleared against the profit and loss account at the year-end; the shares of Joshi and Kiran come from the accounts drawn up at the year-end.
Step 2 – revaluation. Premises up by 80,000; machinery down by 20,000; net profit 60,000 shared 3:2:1: Joshi 30,000; Kiran 20,000; Lal 10,000.
Step 3 – general reserve 1,20,000 shared 3:2:1: Joshi 60,000; Kiran 40,000; Lal 20,000.
Step 4 – goodwill. Lal's share is 3,60,000 x 1/6 = 60,000. Gaining ratio: new Joshi 3/5, Kiran 2/5; old Joshi 3/6, Kiran 2/6. Gain: Joshi 3/5 - 1/2 = 1/10; Kiran 2/5 - 1/3 = 1/15. The ratio 1/10 : 1/15 is 3:2. Joshi bears 36,000 and Kiran 24,000.
Step 5 – amount due to Lal's executors.
| Lal's capital account | Debit | Credit |
|---|---|---|
| Balance b/d | 2,00,000 | |
| Revaluation profit | 10,000 | |
| General reserve | 20,000 | |
| Profit to date of death | 36,000 | |
| Goodwill | 60,000 | |
| Drawings | 40,000 | |
| Transferred to executors' account | 2,86,000 | |
| Total | 3,26,000 | 3,26,000 |
Journal entries on 31 July 2026
| Particulars | Debit | Credit |
|---|---|---|
| Premises A/c Dr | 80,000 | |
| To Revaluation A/c | 80,000 | |
| Revaluation A/c Dr | 20,000 | |
| To Machinery A/c | 20,000 | |
| Revaluation A/c Dr | 60,000 | |
| To Joshi's capital A/c | 30,000 | |
| To Kiran's capital A/c | 20,000 | |
| To Lal's capital A/c | 10,000 | |
| General Reserve A/c Dr | 1,20,000 | |
| To Joshi's capital A/c | 60,000 | |
| To Kiran's capital A/c | 40,000 | |
| To Lal's capital A/c | 20,000 | |
| Profit and Loss Suspense A/c Dr | 36,000 | |
| To Lal's capital A/c | 36,000 | |
| Joshi's capital A/c Dr | 36,000 | |
| Kiran's capital A/c Dr | 24,000 | |
| To Lal's capital A/c (goodwill) | 60,000 | |
| Lal's capital A/c Dr | 40,000 | |
| To Drawings A/c | 40,000 | |
| Lal's capital A/c Dr | 2,86,000 | |
| To Lal's Executors A/c | 2,86,000 | |
| Lal's Executors A/c Dr | 86,000 | |
| To Bank A/c | 86,000 | |
| Total | 7,88,000 | 7,88,000 |
Check on the journal: debits 80,000 + 20,000 + 60,000 + 1,20,000 + 36,000 + 60,000 + 40,000 + 2,86,000 + 86,000 = 7,88,000; credits 80,000 + 20,000 + 60,000 + 1,20,000 + 36,000 + 60,000 + 40,000 + 2,86,000 + 86,000 = 7,88,000.
Step 6 – settlement in two instalments. The executors receive 86,000 now. The balance of 2,00,000 is paid in two equal annual instalments of 1,00,000, with interest at 8 per cent a year on the outstanding balance (an assumed rate, for arithmetic only).
| Year | Opening balance | Interest at 8% | Instalment | Paid in total | Closing balance |
|---|---|---|---|---|---|
| 1 | 2,00,000 | 16,000 | 1,00,000 | 1,16,000 | 1,00,000 |
| 2 | 1,00,000 | 8,000 | 1,00,000 | 1,08,000 | nil |
Lal's Executors account
| Particulars | Debit | Particulars | Credit |
|---|---|---|---|
| To Bank (cash paid now) | 86,000 | By Lal's capital (amount due) | 2,86,000 |
| To Balance c/d | 2,00,000 | ||
| Total | 2,86,000 | Total | 2,86,000 |
Check: 86,000 + 2,00,000 = 2,86,000; loan repaid 1,00,000 + 1,00,000 = 2,00,000; interest 16,000 + 8,000 = 24,000 is a charge to the firm's profit, so the executors receive 2,86,000 + 24,000 = 3,10,000 in all (86,000 + 1,16,000 + 1,08,000). The deceased's account closes to nil: credits 3,26,000 = debits 3,26,000.
Common mistakes
- Using the old ratio for goodwill instead of the gaining ratio.
- Leaving out drawings to the date of death.
- Taking a full year's profit instead of profit to the date of death.
- Choosing the basis for profit to date against the deed.
- Ignoring interest on instalments when the deed provides for it.
Need help with the death clause or an estate settlement?
If your deed does not say how profit to the date of death is found or how the estate is paid, we can add the clause, and we can work out the amount due on an actual death. Our partnership deed drafting service covers death, retirement and continuing-partner terms.
Key takeaways
- The deceased partner's account is closed at the date of death.
- Profit to date comes from interim accounts, or a time or turnover basis as the deed provides.
- Goodwill share is borne by the surviving partners in the gaining ratio.
- The balance moves to the executors' account and is settled in cash or instalments.
- Section 37 protects the estate where the business continues without final settlement.
Read next
- Retirement of a partner: accounting
- Goodwill in partnership accounts
- Dissolution of a partnership firm: accounting
- Sections 35 and 36: deceased partner's estate
Disclaimer: Based on the Accounting Standards issued by the Institute of Chartered Accountants of India as on 1 April 2025, the Companies (Accounting Standards) Rules, 2021 as amended up to G.S.R. 169(E) of 10 March 2026, the Companies Act, 2013 and the ICAI guidance named in the article, as consulted on 4 October 2026. The worked example uses invented figures. Later amendments should be checked on icai.org and mca.gov.in. This article is general information, not legal advice; check the official text before acting.