Sections 323 and 331 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.
Where a private company, or a limited liability partnership (LLP), cannot pay its tax, the Act can make the people behind it answerable. Section 323 makes every person who was a director of a private company during the relevant tax year jointly and severally liable for tax that cannot be recovered from it. Section 331 does the same for partners of an LLP. In both cases the individual has a defence: proving that the non-recovery cannot be attributed to gross neglect, misfeasance or breach of duty on his part. This article reads the two sections as per the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026.
Where tax due from a private company (or a company for a year in which it was a private company) cannot be recovered, every person who was a director at any time during that tax year is jointly and severally liable, unless he proves the non-recovery cannot be attributed to gross neglect, misfeasance or breach of duty on his part. Section 331 applies the same rule to the partners of an LLP. "Tax due" includes penalty, interest, fees and other sums payable.
Section 323: directors of a private company
Sub-section (1): when liability arises
Irrespective of anything in the Companies Act, 2013 (18 of 2013), where any tax due from:
- (a) a private company in respect of any income of any tax year; or
- (b) any other company in respect of any income of any tax year during which that other company was a private company,
cannot be recovered, then every person who was a director of the private company at any time during the relevant tax year is jointly and severally liable for the payment of the tax, unless he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company.
The Act refers to the Companies Act, 2013; read that law for the meaning of "private company" and "director". This article explains nothing from it.
What the sub-section turns on
| Element | What the text says |
|---|---|
| Trigger | Tax due from a private company (or a company for a year in which it was a private company) cannot be recovered |
| Who | Every person who was a director at any time during the relevant tax year |
| Liability | Joint and several |
| Defence | The director proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company |
| Overrides | The Companies Act, 2013 |
Three points follow from the wording:
- The test is directorship during the tax year to which the tax relates, not at the date of recovery. A director who left before the demand can still be liable for a year in which he served; a director appointed after the year is not within the section for that year.
- The word "unless he proves" puts the burden on the director. It is for him to show that the non-recovery cannot be attributed to gross neglect, misfeasance or breach of duty.
- Clause (b) covers a company that is now public but was a private company in the year the income arose.
Sub-section (2): meaning of "tax due"
For section 323, "tax due" includes penalty, interest, fees or any other sum payable under the Act. So the exposure is not limited to the tax itself.
If you are a director of a private company with unpaid tax, our legal consultation team can help you assess the position.
Section 331: partners of a limited liability partnership
Irrespective of anything in the Limited Liability Partnership Act, 2008 (6 of 2009), where any tax including penalty, interest, fee or any other sum payable under the Act is due and cannot be recovered from:
- (a) the LLP in respect of any income of any tax year; or
- (b) any other person in respect of any income of any tax year during which that other person was an LLP,
then every person who was a partner of the LLP at any time during the relevant tax year is jointly and severally liable for the payment of the tax due, unless he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the LLP.
The Act refers to the Limited Liability Partnership Act, 2008; read that law for the meaning of the terms. The copy consulted gives the year of that Act as "(6 of 2009)", as printed.
Side by side
| Feature | Section 323 | Section 331 |
|---|---|---|
| Entity | Private company (or company for a year in which it was private) | Limited liability partnership (or other person for a year in which it was an LLP) |
| Persons liable | Directors at any time during the relevant tax year | Partners at any time during the relevant tax year |
| Trigger | Tax due cannot be recovered | Tax, including penalty, interest, fee or other sum, cannot be recovered |
| Defence | Proof that non-recovery cannot be attributed to gross neglect, misfeasance or breach of duty | Same |
| Override | Companies Act, 2013 | Limited Liability Partnership Act, 2008 |
For the position of an ordinary partnership firm and its partners, see section 329, covered in our article on sections 327 to 330. For liquidation of a company, see our article on sections 320 to 322.
Why the defence matters
Neither section says the liability is automatic. The words "unless he proves" give a route out, but only on a specific footing: that the non-recovery cannot be attributed to gross neglect, misfeasance or breach of duty on the individual's part. The Act does not define those three terms in these sections, and gives no list of what counts as proof. A director or partner who wishes to rely on the defence should assemble records of his role, the decisions taken and what he did when the tax fell due, and should do so early.
A worked example
Names and amounts are assumed.
Section 323. Fenwick Retail Pvt Ltd, a private company, has tax due of Rs. 9,00,000 for a tax year, with penalty and interest of Rs. 1,50,000 on top. The Assessing Officer cannot recover the amount from the company. Three people were directors at some time during that tax year: Ms. Kavita Rao (the whole year), Mr. Sandeep Jha (resigned in the first month), and Mr. Anil Gupta (appointed in the last month).
- "Tax due" includes penalty and interest, so the amount is Rs. 9,00,000 + Rs. 1,50,000 = Rs. 10,50,000 (sub-section (2)).
- All three were directors at some time during the relevant tax year, so each is jointly and severally liable for Rs. 10,50,000 (sub-section (1)).
- Mr. Jha shows that he resigned in the first month, took no part in the matters that led to the non-recovery, and that the non-recovery cannot be attributed to gross neglect, misfeasance or breach of duty on his part. If the Assessing Officer accepts this, he is not liable. Ms. Rao and Mr. Gupta stay liable unless they too discharge the burden.
Section 331. Arka Advisory LLP cannot pay tax of Rs. 6,00,000 (including penalty and interest). Each person who was a partner at any time during the relevant tax year is jointly and severally liable for Rs. 6,00,000, unless he proves the non-recovery cannot be attributed to gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the LLP.
Need help with director or partner liability?
If a company or LLP has unpaid tax and you served in it during the relevant year, the question is not only what the entity owes but what you can show about your own role. Our team can help you review the facts and prepare your response. See our legal consultation service.
Key takeaways
- Directors of a private company in the relevant tax year are jointly and severally liable for tax that cannot be recovered from the company.
- The same applies to partners of an LLP under section 331.
- The test is the role held at any time during the relevant tax year.
- "Tax due" includes penalty, interest, fees and any other sum payable.
- The burden is on the individual to prove that the non-recovery cannot be attributed to gross neglect, misfeasance or breach of duty on his part.
- The provisions apply irrespective of the Companies Act, 2013 and the Limited Liability Partnership Act, 2008 respectively.
Read next
- Sections 320 to 322: discontinued business, dissolved association and company in liquidation
- Sections 324 to 326: charge of tax and assessment of firms
- Section 332: registration of a non-profit organisation
- 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.