Sections 327-330 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.
Partnership firms change: partners leave, new ones join, shares are revised, one firm takes over another, or the firm is dissolved. Sections 327 to 330 say how the Act handles each. Section 327 assesses a firm as constituted at the time of assessment. Section 328 makes separate assessments on a predecessor and a successor firm. Section 329 makes partners jointly and severally liable with the firm. Section 330 assesses a dissolved or discontinued firm as if nothing had happened. This article reads the four sections as per the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026.
If a firm's constitution changes, the assessment is made on the firm as constituted at the time of making the assessment. When one firm succeeds another, there are separate assessments on predecessor and successor as per section 313. Every person who was a partner during the tax year, and a deceased partner's legal representative, is jointly and severally liable with the firm. A dissolved or discontinued firm is assessed as if it had not been dissolved, and partners at that time are jointly and severally liable.
Section 327: change in constitution of a firm
Sub-section (1): the firm as constituted at assessment
Where at the time of making an assessment under section 270 or 271 it is found that a change has occurred in the constitution of a firm, the assessment is made on the firm as constituted at the time of making the assessment. See our article on section 270 for the assessment itself.
Sub-section (2): what is a change in constitution
There is a change in the constitution of the firm:
| Clause | Case |
|---|---|
| (a) | If one or more of the partners cease to be partners, or one or more new partners are admitted, subject to the condition that at least one person who was a partner before the change continues as a partner after it |
| (b) | Where all the partners continue with a change in their respective shares, or in the shares of some of them |
Sub-section (3): death of a partner
Sub-section (2)(a) does not apply to a case where the firm is dissolved on the death of any of its partners.
Taken together, a retirement or admission is a change in constitution only if at least one old partner stays; if every old partner is gone, the firm is not the same firm, and section 328 on succession is the one to examine. A change in shares alone is a change in constitution under clause (b). The certified instrument that goes with the return when the constitution or shares change is dealt with in our article on sections 324 to 326. For help with a firm whose partners have changed, our income tax return filing team can prepare the returns.
Section 328: succession of one firm by another
Where a firm carrying on a business or profession is succeeded by another firm, except in a case covered by section 327, separate assessments are made on the predecessor firm and the successor firm as per the provisions of section 313. Section 313 splits the tax year at the date of succession and carries forward recovery in some cases; see our article on sections 313 and 314.
So there are two routes for a changing firm:
| Route | When | Assessment |
|---|---|---|
| Section 327 | A change in constitution within the meaning of sub-section (2) | One assessment, on the firm as constituted at the time of making the assessment |
| Section 328 (with section 313) | One firm succeeded by another firm, not a case covered by section 327 | Separate assessments on predecessor and successor |
Section 329: joint and several liability of partners
Every person who was, during the tax year, a partner of a firm, and the legal representative of any such person who is deceased, is jointly and severally liable along with the firm for the amount of tax, penalty or other sum payable by the firm for the tax year. All the provisions of the Act apply, so far as may be, to the assessment of that tax or imposition or levy of that penalty or other sum.
Two points to notice:
- The test is partnership during the tax year, not at the time of assessment. A partner who retired after the year is still within the section for that year.
- The legal representative of a deceased partner is liable too. How far that liability extends is governed by section 302(4); see our article on sections 302 and 312.
Section 330: firm dissolved or business discontinued
| Sub-section | Rule |
|---|---|
| (1) | Where a firm is dissolved or any business or profession carried on by it has been discontinued, the Assessing Officer assesses the total income of the firm as if no such dissolution or discontinuance had taken place, and all provisions of the Act, including those on penalty and any other sum chargeable, 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 firm, 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 dissolution or discontinuance, a partner of the firm, 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 dissolution or discontinuance 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) | Section 330 does not affect section 302(4) |
The same structure applies to an association of persons under section 321; see our article on sections 320 to 322. For the liability of partners of a limited liability partnership, see sections 323 and 331.
How sections 329 and 330 differ
| Point | Section 329 | Section 330 |
|---|---|---|
| Who is liable | Anyone who was a partner during the tax year, and a deceased partner's legal representative | Anyone who was a partner at the time of dissolution or discontinuance, and a deceased partner's legal representative |
| When it applies | In respect of tax, penalty or other sum payable by the firm for the tax year | Where the firm is dissolved or the business or profession is discontinued |
| Assessment | As provided in the Act | As if there had been no dissolution or discontinuance |
A worked example
Names, dates and amounts are assumed.
Section 327. Shah & Co. has three partners: Mr. Shah, Mr. Doshi and Ms. Iyer. Before the assessment is made, Ms. Iyer retires and Mr. Kumar is admitted. Mr. Shah and Mr. Doshi, who were partners before the change, continue. Under sub-section (2)(a) this is a change in constitution, because at least one earlier partner remains. The assessment is made on the firm as constituted at the time of making the assessment (sub-section (1)).
Section 328. Instead, all three partners retire and a new firm, Kumar & Associates, takes over the business. This is succession of one firm by another, not a case covered by section 327. Separate assessments are made on Shah & Co. and Kumar & Associates as per section 313.
Section 329. Shah & Co. is assessed with tax and penalty of Rs. 5,00,000 for a tax year in which Mr. Shah, Mr. Doshi and Ms. Iyer were partners. Each, and the legal representative of any who has died, is jointly and severally liable with the firm for the Rs. 5,00,000, including Ms. Iyer who retired afterwards.
Section 330. Shah & Co. is dissolved in March. The Assessing Officer assesses the firm's total income as if there had been no dissolution. Every person who was a partner on the date of dissolution is jointly and severally liable for the tax, penalty or other sum. If an assessment had already started for an earlier year, it may be continued against them from the stage it had reached.
Need help when a firm's partners change?
A new partner, a retirement or a dissolution changes who answers for the firm's tax and how the return is made. If your firm is changing, or you are a former partner facing an old demand, our team can help you plan the filings and understand your liability. See our income tax return filing service.
Key takeaways
- A change in constitution is assessed on the firm as constituted at the time of making the assessment.
- A retirement or admission is a change in constitution only if at least one earlier partner continues; a change in shares alone also counts.
- Where one firm succeeds another, separate assessments are made on predecessor and successor as per section 313.
- Every person who was a partner during the tax year, and the legal representative of a deceased one, is jointly and severally liable with the firm.
- A dissolved or discontinued firm is assessed as if no dissolution had taken place; partners at that time are jointly and severally liable.
- Section 302(4) is unaffected by section 330.
Read next
- Sections 324 to 326: charge of tax and assessment of firms
- Sections 313 and 314: succession to business
- Sections 320 to 322: discontinued business and dissolved associations
- 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.