Sections 320-322 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 closes, an association dissolves or a company is wound up, the Act keeps the tax claim alive. Section 320 allows the income of a discontinued business to be taxed up to the date of closure and requires notice of the discontinuance within fifteen days. Section 321 assesses a dissolved association as if nothing had happened. Section 322 puts duties and personal liability on the liquidator of a company. This article reads the three sections as per the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026.
On discontinuance of a business or profession, the Assessing Officer may, at his discretion, charge the income from the first day of that tax year up to the date of discontinuance in that year, and the person must give notice within fifteen days. A dissolved or discontinued association of persons is assessed as if no dissolution had occurred, and its members are jointly and severally liable. A liquidator must give notice within thirty days of appointment and may be personally liable if he distributes assets in breach of the section.
Section 320: discontinued business
Sub-section (1): discretion to assess up to the date of closure
Irrespective of section 4, where any 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 date of discontinuance may, at the discretion of the Assessing Officer, be charged to tax in that tax year. Section 4 is the charging section; see our article on section 4.
Sub-sections (2) and (3): rates, separate assessments, notice
- (2) The total income of each completed tax year, or part of a tax year, in that period is chargeable at the rate or rates in force in that tax year, and separate assessments are made for each.
- (3) Any person discontinuing a business or profession gives the Assessing Officer notice of the discontinuance within fifteen days of it.
Sub-sections (4) and (5): sums received after discontinuance
| Sub-section | Rule |
|---|---|
| (4) | Where a business is discontinued in any year, any sum received after the discontinuance is deemed to be the income of the recipient and charged to tax in the year of receipt, if the sum would have been included in the total income of the person who carried on the business had it been received before discontinuance |
| (5) | Where a 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 is deemed to be the income of the recipient and charged to tax in the year of receipt, if the sum would have been included in the total income of that person had it been received before discontinuance |
The recipient may be the former proprietor or a different person, such as an heir; in either case, the sum is the recipient's income of the year of receipt.
Sub-sections (6) to (8): notice and procedure
- (6) Where an assessment is made under section 320, 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 at the time of discontinuance, or, in the case of a company, on the principal officer, a notice containing all or any of the requirements of a notice under section 268(1), and the Act applies as if it were a notice under section 268(1).
- (7) Irrespective of section 268 or 280, where sub-section (1) applies the Assessing Officer may issue any notice under section 268 or 280 requiring a return for any tax chargeable under any other provision, within a period of not less than seven days.
- (8) The tax chargeable under section 320 is in addition to the tax, if any, chargeable under any other provision.
For the inquiry before assessment, see our article on sections 268 and 272. If you are closing a business and want to plan the final return, our legal dispute resolution team can help with any notice that follows.
Section 321: association dissolved or business discontinued
| Sub-section | Rule |
|---|---|
| (1) | Where any business or profession carried on by an association of persons has been discontinued, or an association of persons is dissolved, the Assessing Officer assesses the total income of the association as if no such discontinuance or dissolution had taken place, and all provisions of the Act, including those on penalty and any other sum, apply so far as may be |
| (2) | Without limiting sub-section (1), if the Assessing Officer, Joint Commissioner (Appeals) or Commissioner (Appeals), in any proceeding in respect of the association, is satisfied that it was guilty of any act specified in Chapter XXI, he may impose or direct the imposition of a penalty as per that Chapter |
| (3) | Every person who was, at the time of discontinuance or dissolution, a member of the association, and the legal representative of any such person who is deceased, is jointly and severally liable for the tax, penalty or other sum payable |
| (4) | If the discontinuance or dissolution takes place after proceedings for a tax year have commenced, the proceedings may be continued against the persons in sub-section (3) from the stage at which they stood |
| (5) | Nothing in section 321 affects section 302(4) (the limit of a legal representative's liability to the estate) |
Our article on sections 302 and 312 explains section 302(4). The matching rule for firms is in section 330; see our article on sections 327 to 330.
Section 322: company in liquidation
Sub-section (1): notice of appointment
Every person who (a) is the liquidator of a company being wound up, whether under the orders of a court or otherwise, or (b) has been appointed receiver of any assets of a company (referred to as the "liquidator") gives notice of his appointment to the Assessing Officer entitled to assess the company's income within thirty days after becoming liquidator.
Sub-section (2): the Assessing Officer notifies an amount
After such inquiries or calling for such information as he deems fit, the Assessing Officer notifies to the liquidator, within three months from the date he receives notice of the appointment, the amount which in his opinion would be sufficient to provide for any tax which is then, or is likely thereafter to become, payable by the company.
Sub-sections (3) and (4): restrictions on parting with assets
| Sub-section | Rule |
|---|---|
| (3)(a) | The liquidator shall not, without the leave of the Principal Chief Commissioner, Chief Commissioner, Principal Commissioner or Commissioner, part with any of the assets of the company or properties in his hands until he has been notified under sub-section (2) |
| (3)(b) | On being notified, he sets aside an amount equal to the amount notified and, until he does so, shall not part with any of the assets |
| (4) | Sub-section (3) does not stop him from parting with assets for (a) payment of tax payable by the company; (b) payments to secured creditors whose debts have priority over debts due to Government on the date of liquidation; or (c) meeting costs and expenses of winding up which, in the opinion of the Principal Chief Commissioner, Chief Commissioner, Principal Commissioner or Commissioner, are reasonable |
Sub-sections (5) to (8): liability
- (5) If the liquidator fails to give the notice under sub-section (1), fails to set aside the amount as required by sub-section (3), or parts with assets in contravention of that sub-section, he is personally liable for the tax which the company would be liable to pay.
- (6) If the amount of tax payable by the company is notified under sub-section (2), the liquidator's personal liability under sub-section (5) is to the extent of that amount.
- (7) Where there is more than one liquidator, the obligations and liabilities attach to all of them jointly and severally.
- (8) Section 322 has effect irrespective of anything contrary in any other law in force, except the provisions of the Insolvency and Bankruptcy Code, 2016 (31 of 2016). Check that Code for how it applies.
A worked example
Names, dates and amounts are assumed.
Section 320. Mrs. Rekha Pillai closes her catering business on 31 July. She must give notice of the discontinuance to the Assessing Officer within fifteen days, that is, by 15 August. The Assessing Officer may charge the income from 1 April to 31 July to tax in that tax year. In October she receives Rs. 75,000 from a customer for supplies made before closure. It would have been in the business's total income had it been received before discontinuance, so under sub-section (4) it is her income of the year of receipt.
Section 321. The Harmony Welfare Association, an association of persons, is dissolved in March. The Assessing Officer assesses its total income as if it had not been dissolved. Each person who was a member at the time of dissolution, and the legal representative of a deceased member, is jointly and severally liable for the tax, penalty or other sum.
Section 322. Mr. Sunil Bhat is appointed liquidator of Maple Exports Ltd on 1 June. He gives notice of appointment within thirty days, by 1 July. The Assessing Officer notifies, by 1 September (three months from receipt of the notice, assuming it is received on 1 June), an amount of Rs. 12,00,000 as sufficient to provide for tax. Mr. Bhat sets aside Rs. 12,00,000 before distributing the company's assets. If he distributes assets before setting it aside, he is personally liable for the tax the company would have to pay, and if the amount was notified, to the extent of the notified Rs. 12,00,000.
Need help with a closure or winding up?
Closing a business, dissolving an association or winding up a company does not close the tax file. If you are the proprietor, a member or a liquidator, our team can help you give the right notices, plan the final returns and respond if a notice follows. See our legal dispute resolution service.
Key takeaways
- Section 320 allows the Assessing Officer to charge income up to the date of discontinuance in the year of closure; notice of discontinuance is due within fifteen days.
- Sums received after discontinuance are the recipient's income of the year of receipt, if they would have been in the business's total income.
- Section 321 assesses a dissolved association as if it had not been dissolved; members at the time, and legal representatives of deceased members, are jointly and severally liable.
- A liquidator or receiver gives notice within thirty days; the Assessing Officer notifies an amount within three months.
- The liquidator must not part with assets without leave until notified, and must set aside the notified amount.
- Failure makes the liquidator personally liable, up to the notified amount where one has been notified.
Read next
- Sections 323 and 331: liability of directors of private companies and partners of an LLP
- Sections 327 to 330: change in constitution, succession and dissolution of firms
- Sections 317 to 319: persons leaving India and other early assessments
- 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.