Chapter XVII - Special Provisions Relating to Certain Persons
Section 313
Section 313: succession to business or profession otherwise than on death
Section 313 covers what happens for tax purposes when a business or profession is taken over by someone else (not because the previous owner died) but continues operating. It splits the assessment between predecessor and successor around the date of succession, and provides fallback rules for when the predecessor can't be found or can't pay.
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This article is for general information. Refer to the Income-tax Act, 2025 as amended by the Finance Act, 2026 and the Taxation and Other Laws (Amendment) Act, 2026 for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
(1) Where a person carrying on any business or profession (hereinafter referred to as the predecessor) has been succeeded therein by any other person (hereinafter referred to as the successor) who continues to carry on that business or profession,—
(a) the predecessor shall be assessed in respect of the income of the tax year in which the succession took place up to the date of succession;
(b) the successor shall be assessed in respect of the income of the tax year after the date of succession.
(2) Irrespective of anything contained in sub-section (1), when the predecessor cannot be found, the assessment of the income of the tax year in which the succession took place up to the date of succession and of the tax year preceding that year shall be made on the successor in like manner and to the same extent as it would have been made on the predecessor, and all the provisions of this Act shall, so far as may be, apply accordingly.
(3) Irrespective of anything contained in sub-sections (1) and (2), where there is succession, the assessment or reassessment or any other proceedings, made or initiated on the predecessor during the course of pendency of such succession, shall be deemed to have been made or initiated on the successor and all the provisions of this Act shall, so far as may be, apply accordingly.
(4) When any sum payable under this section in respect of the income of such business or profession assessed on the predecessor,––
(a) for the tax year in which the succession took place up to the date of succession; or
(b) for the tax year preceding the year in which the succession took place, cannot be recovered from him, the Assessing Officer shall record a finding to that effect and the sum payable by the predecessor shall thereafter be payable by and recoverable from the successor, and the successor shall be entitled to recover from the predecessor any sum so paid.
(5) Without prejudice to the provisions of this section, where any business or profession carried on by a Hindu undivided family is succeeded to, and simultaneously with the succession or after the succession there has been a partition of the joint family property between the members or groups of members, the tax due in respect of the income of the business or profession succeeded to, up to the date of succession, shall be assessed and recovered in the manner provided in section 315.
(6) For the purposes of this section,—
(a) “income” includes any gain accruing from the transfer, in any manner, of the business or profession as a result of the succession; and
(b) “pendency” means the period commencing from the date of filing of application for such succession of business before the High Court or tribunal or the date of admission of an application for corporate insolvency resolution by the Adjudicating Authority as defined in section 5(1) of the Insolvency and Bankruptcy Code, 2016, and ending with the date on which the order of such High Court or tribunal or such Adjudicating Authority, is received by the jurisdictional Principal Commissioner or the Commissioner.
Introduction
A business or profession may pass from one person to another without the predecessor’s death. Section 313 separates assessment of predecessor and successor around the succession date.
The successor can face recovery of tax due from the predecessor to the statutory extent, so the transfer records and pending proceedings matter.
Key takeaways
Succession splits the tax year
The predecessor is ordinarily assessed up to the succession date and the successor for the period after it.
Absent predecessor rule
If the predecessor cannot be found, specified predecessor-period income may be assessed on the successor.
Unpaid tax can follow the business
The section provides for recovery of specified predecessor tax from the successor subject to its conditions.
Splitting the assessment at the date of succession
Where a person carrying on a business or profession (the predecessor) is succeeded by another person (the successor) who continues carrying it on: the predecessor is assessed on the income up to the date of succession for the tax year in which succession took place; the successor is assessed on the income after the date of succession.
If the predecessor cannot be found
If the predecessor cannot be found, the assessment for the income of the year of succession up to the date of succession, and for the preceding tax year, is instead made on the successor, in like manner and to the same extent as it would have been made on the predecessor - all provisions of the Act apply accordingly.
Proceedings pending during succession carry over to the successor
Where succession occurs, any assessment, reassessment or other proceedings made or initiated on the predecessor during the pendency of the succession are deemed made or initiated on the successor, and all provisions of the Act apply accordingly.
Recovering unpaid predecessor tax from the successor
If a sum payable under this section for the income of the business or profession assessed on the predecessor - for the year of succession up to the date of succession, or the preceding tax year - cannot be recovered from the predecessor, the Assessing Officer records a finding to that effect, and the sum then becomes payable by and recoverable from the successor. The successor is then entitled to recover that sum from the predecessor.
Succession of an HUF business followed by partition
Where a business or profession carried on by a Hindu undivided family is succeeded to, and there is a partition of the joint family property (simultaneously with, or after, the succession), the tax on the income of the business or profession up to the date of succession is assessed and recovered as provided in section 315.
Meaning of "income" and "pendency"
- "Income" includes any gain accruing from the transfer, in any manner, of the business or profession as a result of the succession.
- "Pendency" means the period from the date of filing an application for the succession before the High Court or tribunal (or the date of admission of a corporate insolvency resolution application by the Adjudicating Authority under section 5(1) of the Insolvency and Bankruptcy Code, 2016) up to the date the relevant order is received by the jurisdictional Principal Commissioner or Commissioner.
Step-by-step flow for assessing income on succession to a business under Section 313
- 1
Has a person carrying on a business or profession been succeeded by another person who continues it?
- No: Section 313 does not apply.
- Yes: Go to the next step.
- 2
Split the tax year of succession
Under Section 313(1), the predecessor is assessed on income of that tax year up to the date of succession, and the successor on income after that date. Under Section 313(6)(a), income includes any gain from the transfer of the business or profession as a result of the succession.
- 3
Can the predecessor be found?
- No: Under Section 313(2), income of the year of succession up to the date of succession, and of the preceding tax year, is assessed on the successor as it would have been on the predecessor. Go to step 4.
- Yes: Go to step 4.
- 4
Were proceedings made or started on the predecessor while the succession was pending?
Under Section 313(3), they are deemed to be made or started on the successor. "Pendency" runs from the filing of the application before the High Court or tribunal, or admission of the insolvency application, until the order is received by the jurisdictional Principal Commissioner or Commissioner (Section 313(6)(b)).
- 5
Can the predecessor's tax for these years be recovered from him?
If not, the Assessing Officer records a finding, and the sum becomes payable by and recoverable from the successor, who may recover it from the predecessor (Section 313(4)). For a Hindu undivided family business succeeded to with a partition, Section 313(5) applies Section 315.
Practical checklist
Do
- Document the exact date and terms of business succession.
- Separate predecessor and successor income and retain pending tax notices.
Avoid
- Treat succession as automatically cancelling the predecessor’s tax liability.
Illustrative example
Worked example: sale of a proprietary business mid-year
Hypothetical facts (illustration only, not a real taxpayer): Mr. Mehta runs a proprietary distribution business. On 1 October 2026 he transfers it to Ms. Shah, who continues it. His business income for 1 April 2026 to 30 September 2026, including the gain on the transfer, is an assumed ₹12,00,000. The tax on it is an assumed ₹2,40,000, which Mr. Mehta later fails to pay.
Predecessor's period
Mr. Mehta is assessed on the income from 1 April 2026 to 30 September 2026 (₹12,00,000), including the transfer gain, under Section 313(1)(a) and 313(6)(a).
Successor's period
Ms. Shah is assessed on the income of the business from 1 October 2026 onwards under Section 313(1)(b).
Non-recovery
The ₹2,40,000 cannot be recovered from Mr. Mehta. The Assessing Officer records a finding to that effect under Section 313(4).
Shift of liability
₹2,40,000 then becomes payable by and recoverable from Ms. Shah. She is entitled to recover the amount she pays from Mr. Mehta.
Outcome
- The year is split at 1 October 2026 between predecessor and successor.
- Unrecovered tax of the predecessor (₹2,40,000 here) can be collected from the successor after a recorded finding, with a right of recovery against the predecessor.
Frequently asked questions
Who pays tax on a business's income for the year it changes hands?
The predecessor is assessed on income up to the date of succession, and the successor is assessed on income after that date, under Section 313(1) - unless the predecessor cannot be found, in which case the successor is assessed for both periods under Section 313(2).
Can the tax authorities recover the predecessor's unpaid tax from the successor?
Yes - if tax assessed on the predecessor for the relevant periods cannot be recovered from him, Section 313(4) makes it payable by and recoverable from the successor, who can then recover that amount from the predecessor.
Does "income" for this section include gains from the succession itself?
Yes - Section 313(6)(a) expressly includes any gain accruing from the transfer of the business or profession as a result of the succession.
Need help applying this provision to your situation?
Get help with business succession tax planningLast updated 9 October 2026