Section 318: assessment of an event-based AOP, BOI or artificial juridical person about to dissolve

Introduction

Where an event- or purpose-specific AOP, BOI or artificial juridical person appears likely to dissolve in its formation year or immediately after, Section 318 can bring income up to dissolution into charge in that tax year. The procedural machinery in Section 317(2)–(6) applies so far as it fits.

Key takeaways

When this section is triggered

Irrespective of section 4, where it appears to the Assessing Officer that an association of persons, body of individuals, or artificial juridical person - formed, established or incorporated for a particular event or purpose in a tax year - is likely to be dissolved in that same tax year, or immediately after it, the total income of that entity for the period from the first day of that tax year up to the date of its dissolution is chargeable to tax in that tax year.

The same procedural rules as for persons leaving India

Section 317(2) to (6) - covering how the tax on completed years/part-years is worked out, income estimation, the notice requiring a return, and the rule that this tax is in addition to tax under other provisions - apply, so far as may be, to proceedings against such an entity in the same way they apply to persons leaving India.

When this provision applies

Identify the entity category and the particular event or purpose for which it was formed, established or incorporated. A short operating history alone does not supply all the conditions for this provision.

The Assessing Officer must consider dissolution likely in the formation tax year or immediately afterwards. For the specified case, income from the first day of that tax year up to dissolution is brought into charge in that tax year.

Limits and procedural safeguards

Do not substitute the date of a notice for the dissolution endpoint specified in Section 318. Section 319 uses a different endpoint for its different asset-transfer trigger.

Section 317(2)–(6) applies so far as may be. This includes the relevant rate, estimation and notice provisions; the adaptation does not require the entity itself to be leaving India.

Step-by-step review

1. Establish the entity type, formation date and specific event or purpose.

2. Record the evidence concerning likely dissolution and its timing.

3. Prepare income records for the period specified by Section 318.

4. Read the notice and apply the relevant Section 317(2)–(6) procedure, preserving the computation and response evidence.

Hypothetical example

Hypothetical illustration: an AOP is formed for one event and is expected to dissolve soon after that formation year. If the Assessing Officer reaches the statutory view, Section 318 addresses the relevant income through dissolution. The fact that the members remain in India does not by itself defeat the provision.

Records to prepare

Formation documents, entity classification and event or purpose records.

Expected or actual dissolution records and chronology.

Income computation for the relevant period, notice and response records.

Official amended Act source

• Income-tax Act, 2025 as amended by Finance Act, 2026: Section 318 and related provisions

Step-by-step flow for an event-based AOP, BOI or artificial juridical person under Section 318

1. 1

   Was the AOP, BOI or artificial juridical person formed, established or incorporated for a particular event or purpose in the tax year?

   • No: Section 318 does not apply.
   • Yes: Go to the next step.
2. 2

   Does it appear to the Assessing Officer that it is likely to be dissolved in the same year or immediately after it?

   • No: Section 318 does not apply; normal assessment timing continues.
   • Yes: Go to the next step.
3. 3

   Fix the period

   Income from the first day of that tax year up to the date of dissolution is chargeable in that tax year (Section 318(1)).

4. 4

   Apply the Section 317(2) to (6) procedure

   So far as may be (Section 318(2)): separate assessments for each completed tax year or part, at that year's rates; estimation where income cannot be readily determined; a return notice with not less than seven days; and tax in addition to other tax.

Practical checklist

Glossary

Dissolution endpoint

The date through which the special income period is measured in Section 318.

Adapted procedure

Application of Section 317(2)–(6) so far as it fits the Section 318 case.

Frequently asked questions