Section 320
Section 320: taxing a discontinued business or profession
Section 320 addresses the tax treatment of a business or profession that stops operating partway through a tax year. The Assessing Officer has the discretion to tax the income up to the discontinuance date within that same year, the taxpayer must give notice of the discontinuance within fifteen days, and amounts received even after the business has stopped can still be taxed if they relate to it.
This explanation is AI-assisted and pending review by our CA/CS team. It is general information, not professional advice - always cross-check against the bare law text above or talk to our tax team for guidance specific to your situation.
Discretionary immediate assessment on discontinuance
Irrespective of section 4, where a business or profession is discontinued in any tax year, the income of the period from the first day of that tax year up to the discontinuance date may, at the Assessing Officer's discretion, be charged to tax in that tax year.
The total income of each completed tax year, or part of a tax year, within that period is chargeable at the rate(s) in force for that tax year, with separate assessments for each such completed year or part-year.
Fifteen-day notice of discontinuance
A person discontinuing a business or profession must give the Assessing Officer notice of the discontinuance within fifteen days of it.
Sums received after discontinuance can still be taxed
Where a business is discontinued, any sum received after discontinuance is deemed the recipient's income and taxed in the year of receipt, if it would have been included in the total income of the person who carried on the business had it been received before discontinuance.
The same rule applies where a profession is discontinued because the practitioner ceased practising, retired, or died - any sum received after discontinuance is taxed in the recipient's hands in the year of receipt on the same basis.
Notice procedure and additional tax
For an assessment under this section, the Assessing Officer may serve a notice - on the person whose income is to be assessed, on any person who was a partner of a discontinued firm at the time of discontinuance, or on the principal officer of a company - containing any of the requirements that could be included in a notice under section 268(1); such a notice is treated, so far as may be, as if issued under section 268(1).
Irrespective of section 268 or 280, where Section 320(1) applies, the Assessing Officer may also issue a notice under section 268 or 280 requiring a return for tax chargeable under any other provision of the Act, within a period of not less than seven days as the Assessing Officer thinks proper.
Tax chargeable under Section 320 is in addition to any tax chargeable under any other provision of the Act.
Frequently asked questions
Is a discontinued business always taxed immediately in the year it stops?
Not automatically - Section 320(1) gives the Assessing Officer discretion to tax the income up to the discontinuance date within that same tax year, rather than making it mandatory.
How soon must a discontinuance be reported to the tax department?
Within fifteen days of the discontinuance, under Section 320(3).
Are amounts received after a business has already shut down still taxable?
Yes - under Section 320(4) and (5), a sum received after discontinuance (of a business, or of a profession due to cessation, retirement or death) is taxed as the recipient's income in the year it is actually received, if it would have been taxable had it been received before discontinuance.
Related sections
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Get help with business discontinuance tax complianceLast updated 9 September 2026