Chapter XVII - Special Provisions Relating to Certain Persons
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.
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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) Irrespective of anything contained in section 4, where any business or profession is discontinued in any tax year, the income of the period beginning from the first day of that tax year up to the date of such discontinuance may, at the discretion of the Assessing Officer, be charged to tax in that tax year.
(2) The total income of each completed tax year or part of any tax year included in such period shall be chargeable to tax at the rate or rates in force in that tax year, and separate assessments shall be made in respect of each such completed tax year or part of any tax year.
(3) Any person discontinuing any business or profession shall give to the Assessing Officer notice of such discontinuance within fifteen days thereof.
(4) Where any business is discontinued in any year, any sum received after the discontinuance shall be deemed to be the income of the recipient and charged to tax accordingly in the year of receipt, if such sum would have been included in the total income of the person who carried on the business had such sum been received before such discontinuance.
(5) Where any profession is discontinued in any year on account of the cessation of the profession by, or the retirement or death of, the person carrying on the profession, any sum received after the discontinuance shall be deemed to be the income of the recipient and charged to tax accordingly in the year of receipt, if such sum would have been included in the total income of the said person, had it been received before such discontinuance.
(6) Where an assessment is to be made under the provisions of this section, the Assessing Officer may serve on the person whose income is to be assessed or, in the case of a firm, on any person who was a partner of such firm at the time of its discontinuance or, in the case of a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under section 268(1) and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under section 268(1).
(7) Irrespective of anything contained in section 268 or 280, where the provisions of sub-section (1) are applicable, the Assessing Officer may issue any notice under section 268 or 280, requiring the furnishing of the return by the person whose income is to be assessed in respect of any tax chargeable under any other provisions of this Act, within such period, not being less than seven days, as the Assessing Officer may think proper.
(8) The tax chargeable under this section shall be in addition to the tax, if any, chargeable under any other provision of this Act.
Introduction
When a business or profession is discontinued, section 320 allows an immediate assessment of income up to discontinuance and requires notice of the discontinuance.
Sums received later from the discontinued activity can still be taxed under the section.
Key takeaways
Discontinuance can speed assessment
The Assessing Officer may assess income from the start of the tax year to the date a business or profession is discontinued.
Fifteen-day notice
The person discontinuing the activity must notify the Assessing Officer within fifteen days.
Later receipts still matter
Certain receipts after discontinuance remain taxable in the year of receipt if the statutory condition is met.
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.
Step-by-step flow for a discontinued business or profession under Section 320
- 1
Was the business or profession discontinued in the tax year?
- No: Section 320 does not apply.
- Yes: Go to the next step.
- 2
Give notice of discontinuance
The person discontinuing must notify the Assessing Officer within fifteen days of discontinuance (Section 320(3)).
- 3
Does the Assessing Officer choose to tax the income early?
This is at the officer's discretion under Section 320(1).
- Yes: Income from the first day of the tax year to the date of discontinuance is charged in that tax year, with separate assessments at the rates in force for each completed year or part (Section 320(2)). Notices may be served on the person, a partner at the time of discontinuance, or a company's principal officer (Section 320(6) and (7)). Go to step 4.
- No: The income is assessed in the normal course. Go to step 4.
- 4
Are sums received after discontinuance?
If a sum would have been income had it been received before discontinuance, it is taxed in the recipient's hands in the year of receipt (Section 320(4) for a business; Section 320(5) for a profession ended by cessation, retirement or death). Tax under Section 320 is in addition to other tax (Section 320(8)).
Practical checklist
Do
- Notify the Assessing Officer within the statutory period after discontinuance.
- Keep records of later receipts attributable to the closed business.
Avoid
- Assume closing the business ends tax exposure on outstanding receivables.
Illustrative example
Worked example: a shop closed mid-year with a debt recovered later
Hypothetical facts (illustration only, not a real taxpayer): Ms. Kaur closes her retail business on 30 June 2026. Her business income from 1 April 2026 to 30 June 2026 is an assumed ₹3,20,000. In March 2027 she recovers an assumed ₹80,000 from a customer for goods sold before the closure, which had not been included in her income.
Notice
She must give notice of discontinuance within fifteen days, i.e. by 15 July 2026 (Section 320(3)).
Early charge
The Assessing Officer may, at discretion, charge the ₹3,20,000 for 1 April to 30 June 2026 in tax year 2026-27 and serve a notice requiring a return (Section 320(1) and (6)).
Later receipt
The ₹80,000 would have been business income had it been received before closure, so it is deemed her income for the year of receipt (Section 320(4)).
Total for the illustration
₹3,20,000 + ₹80,000 = ₹4,00,000 falls in tax year 2026-27, because the March 2027 receipt is in the same tax year.
Outcome
- Notice of discontinuance is due by 15 July 2026.
- The later recovery of ₹80,000 is taxed in the year it is received.
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.
Need help applying this provision to your situation?
Get help with business discontinuance tax complianceLast updated 9 October 2026