Sections 313-314 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 business or profession changes hands other than on death, the Act has to say who is assessed for what. Section 313 splits the tax year between the predecessor and the successor, lets the Assessing Officer recover the predecessor's tax from the successor in some cases, and carries pending proceedings across. Section 314 covers the return and assessment after an order of a High Court, tribunal or Adjudicating Authority on business reorganisation. This article reads both as per the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026.
The predecessor is assessed on income up to the date of succession and the successor after it. If the predecessor cannot be found, the successor is assessed for both that period and the year before. Pending proceedings against the predecessor are deemed to be on the successor. After an order on business reorganisation, the successor files a modified return within six months from the end of the month in which the order was issued.
Section 313: succession otherwise than on death
Sub-section (1): the split of the tax year
Where a person carrying on a business or profession (the predecessor) has been succeeded in it by another person (the successor) who continues to carry on that business or profession:
- (a) the predecessor is assessed on the income of the tax year in which the succession took place, up to the date of succession;
- (b) the successor is assessed on the income of the tax year after the date of succession.
Sub-section (2): predecessor cannot be found
Irrespective of 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 is 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 the Act apply so far as may be.
Sub-section (3): proceedings pending during succession
Irrespective of sub-sections (1) and (2), where there is succession, the assessment, reassessment or any other proceedings made or initiated on the predecessor during the pendency of such succession are deemed to have been made or initiated on the successor, and the provisions of the Act apply so far as may be.
Sub-section (4): recovery from the successor
When any sum payable under the section in respect of the income of the business or profession assessed on the predecessor, (a) for the tax year of succession up to the date of succession, or (b) for the tax year preceding it, cannot be recovered from him, the Assessing Officer records a finding to that effect. The sum is then payable by, and recoverable from, the successor, who is entitled to recover from the predecessor any sum so paid.
Sub-section (5): Hindu undivided family
Without prejudice to the section, where a business or profession carried on by a Hindu undivided family is succeeded to and, simultaneously or afterwards, the joint family property is partitioned between the members or groups, the tax due on income up to the date of succession is assessed and recovered in the manner provided in section 315. See our article on section 315.
Sub-section (6): two definitions
For section 313:
| Term | Meaning |
|---|---|
| "income" | Includes any gain accruing from the transfer, in any manner, of the business or profession as a result of the succession |
| "pendency" | The period from the date of filing an application for 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 (31 of 2016), to the date on which the order of the High Court, tribunal or Adjudicating Authority is received by the jurisdictional Principal Commissioner or Commissioner |
The Act refers to the Insolvency and Bankruptcy Code, 2016 for the meaning of "Adjudicating Authority"; read that law for it.
If you are buying or taking over a running business, the tax history may come with it. Our tax planning advisory team can help you plan the succession so that the position is clear.
Section 314: effect of an order in respect of business reorganisation
Sub-section (1): the modified return
Irrespective of section 263, if before the date of the order in respect of business reorganisation a return of income has been furnished under section 263 by an entity for a tax year to which the order applies, the successor shall furnish, within six months from the end of the month in which the order was issued, a modified return, in such form and manner as may be prescribed, in accordance with and limited to the order. The form and manner are left to the Income-tax Rules, 2026.
Sub-section (2): effect on assessment
Where the assessment or reassessment for a tax year to which the order applies:
| Position on the date the modified return is furnished | What the Assessing Officer does |
|---|---|
| (a) Completed | Passes an order modifying the total income of the relevant tax year determined in that assessment or reassessment, in accordance with the order in respect of business reorganisation and taking into account the modified return |
| (b) Pending | Passes an order assessing or reassessing the total income of the relevant tax year as per the order in respect of business reorganisation and taking into account the modified return |
Sub-section (3): other provisions and rate
Subject to the other provisions of section 314, in an assessment or reassessment under it all other provisions of the Act apply, and tax is chargeable at the rate or rates applicable to the tax year concerned.
Sub-section (4): definitions
| Term | Meaning |
|---|---|
| (a) "business reorganisation" | The reorganisation of business involving the amalgamation, demerger or merger of business of one or more persons |
| (b) "order in respect of business reorganisation" | An order of a High Court, tribunal or an Adjudicating Authority as defined in section 5(1) of the Insolvency and Bankruptcy Code, 2016 |
| (c) "successor" | All resulting companies in a business reorganisation, whether or not the company was in existence prior to the reorganisation |
A worked example
Names, dates and amounts are assumed.
Section 313. Surya Plastics, run by Mr. Vimal Jain, is taken over by Prakash Moulds Pvt Ltd, which continues the business, on 30 September of a tax year.
- The predecessor, Mr. Jain, is assessed on the income from 1 April to 30 September of that tax year (sub-section (1)(a)). Prakash Moulds is assessed on the income of the tax year after the date of succession (sub-section (1)(b)).
- Suppose Mr. Jain cannot be found. Under sub-section (2), Prakash Moulds is assessed on the income from 1 April to 30 September of the year of succession and on the income of the tax year before that year, as it would have been assessed on him.
- If Rs. 4,00,000 assessed on Mr. Jain cannot be recovered from him and the Assessing Officer records a finding to that effect, the Rs. 4,00,000 becomes payable by and recoverable from Prakash Moulds, which may recover any sum it pays from Mr. Jain (sub-section (4)).
Section 314. A High Court sanctions the merger of Alpha Components Ltd into Beta Industries Ltd, with an order issued on 14 August 2027. Alpha had filed a return for a tax year to which the order applies.
- Beta, as the successor, must furnish a modified return within six months from the end of August 2027, that is, by 29 February 2028 (2028 being a leap year), in accordance with and limited to the order.
- If Alpha's assessment for that year was completed before the modified return, the Assessing Officer passes an order modifying the total income; if it was pending, he assesses or reassesses it on the order and the modified return (sub-section (2)).
Need help with a business transfer or reorganisation?
A change of ownership or a court-approved reorganisation leaves tax history behind, and the Act can make the new owner answer for it. If you are planning a succession, a merger or a demerger, our team can help you map the tax consequences and the return that follows. See our tax planning advisory service.
Key takeaways
- The predecessor is assessed up to the date of succession, the successor for the tax year after it.
- If the predecessor cannot be found, the successor is assessed on the succession period and the year before.
- Proceedings made or initiated on the predecessor during pendency are deemed made or initiated on the successor.
- Sums not recoverable from the predecessor become payable by the successor, who can recover them from the predecessor.
- After a reorganisation order, the successor files a modified return within six months from the end of the month of the order.
- The Assessing Officer modifies a completed assessment or decides a pending one on the order and the modified return.
Read next
- Section 315: assessment after partition of a Hindu undivided family
- Sections 320 to 322: discontinued business, dissolved association and company in liquidation
- Sections 327 to 330: change in constitution, succession and dissolution of firms
- Chapter XVII: special provisions relating to certain persons
Disclaimer: Based on the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026, as consulted on 2 October 2026. It explains the words of the Act only; the Income-tax Rules, 2026, notifications, circulars, later amendments and the way the tax authorities and courts apply these provisions should be checked. This article is general information, not legal advice; check the official text before acting.