Section 320 · Special persons
Section 320 of the Income-tax Act, 2025 — Assessment in Case of Discontinued Business or Profession
By CA Rajat Agrawal
Updated 05 Jul 2026
Chapter XVII
📜 What the law says — Section 320, Income-tax Act 2025
320. (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 profes-
sion, 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 in-
come is to be assessed in respect of any tax chargeable under any other provisions
of this Act, within such period, not being less t
In plain language
What Section 320 actually deals with
A quick clarification first: although this page is filed under a "trusts & charitable" tag, Section 320 of the Income-tax Act, 2025 has nothing to do with trusts or charitable institutions. It is a machinery/assessment provision that deals with what happens to your tax when you shut down (discontinue) a business or profession part-way through a tax year. It is the re-drafted successor to Section 176 of the Income-tax Act, 1961.
Normally, income is taxed on a full-year basis and assessed only after the tax year ends. Section 320 gives the Assessing Officer (AO) a special power to accelerate the assessment — to tax the profits earned from the first day of the tax year up to the date of closure in that same year, rather than waiting for the year to run its course.
Who it applies to
- Any person — individual, HUF, firm/LLP, company or AOP — who discontinues a business or profession during a tax year.
- It covers a complete shutdown of the activity, not a mere sale of one asset or a temporary lull.
- Special sub-rules apply where a profession ceases due to retirement or death of the professional (e.g., a solo CA, doctor or lawyer).
Key conditions and rules (subsection by subsection)
- 320(1) — Accelerated assessment: Overriding the normal charging rule in Section 4, the AO may, at his discretion, tax the income from the start of the tax year to the date of discontinuance in that same tax year.
- 320(2) — Correct year's rates: Each completed tax year (or part-year) inside that period is taxed at the rates in force for that year, and separate assessments are made for each.
- 320(3) — 15-day notice: The person must notify the AO within 15 days of discontinuing the business or profession.
- 320(4) & (5) — Post-closure receipts: Any sum received after discontinuance that would have been taxable had it been received earlier is deemed income in the year of receipt — this catches recovered debts, delayed professional fees, etc.
- 320(6) & (7): The AO may serve a notice (on the person, on a former partner of a firm, or on the principal officer of a company) similar to a return/assessment notice under Section 268, with a minimum 7-day compliance window.
- 320(8): Tax under this section is in addition to any other tax chargeable under the Act.
How it interacts with related sections
- Section 4 (charge of tax) — Section 320(1) opens with a non-obstante ("irrespective of Section 4"), letting the AO break the usual annual charging cycle.
- Section 268 (notice for return/assessment) — the assessment notice under 320 borrows the requirements of a Section 268 notice.
- Section 321 (discontinuance of business by a firm / succession) — a companion provision for changes in firm constitution and succession.
- The 15-day notice default can attract penalty under the Act's general penalty machinery, so it should not be ignored.
Practical implications for taxpayers
- It is a discretionary tool for the department — most ordinary closures are still assessed in the normal cycle. The AO uses 320 mainly where there is a risk of revenue leakage (e.g., the person may leave India or wind up assets).
- File the 15-day notice the moment you close shop — it is cheap protection against penalty and disputes.
- Keep books ready: post-closure recoveries remain taxable in the year you actually receive them, even years later.
- Discontinuance is not the same as sale of business assets — capital-gains and block-of-asset rules run separately.
💡 Example
Worked example 1 — Accelerated assessment. Rakesh runs a proprietary trading business. On 30 September 2026 (six months into tax year 2026-27) he permanently shuts it down and plans to move abroad. His profit for 1 April 2026 to 30 September 2026 is ₹18,00,000. Using Section 320(1), the AO can assess this ₹18,00,000 in TY 2026-27 itself at the slab rates in force for 2026-27, instead of waiting until the year ends. Rakesh must also give the AO written notice of discontinuance by 15 October 2026 (within 15 days).
Worked example 2 — Post-discontinuance receipt. Dr. Meena, a physiotherapist, retires and closes her clinic on 31 December 2026. In August 2027 she recovers ₹2,50,000 of old patient fees that were outstanding at closure. Under Section 320(4)/(5), because this fee would have been professional income had she received it while practising, it is deemed her income for the year of receipt (TY 2027-28) and taxed accordingly — even though the clinic no longer exists.
A relatable story. Amit closed his small printing firm in mid-2026 and assumed "business over, tax over." He never filed the 15-day notice. A year later a client cleared a ₹1,20,000 pending invoice. Amit ignored it, thinking a closed business can't be taxed. When the AO issued a Section 320 notice, Amit learned two things the hard way: the recovered ₹1,20,000 was taxable in the year he received it, and skipping the discontinuance notice had exposed him to a penalty. A simple notice and one extra return entry would have saved him the trouble.
| Sub-section | What it covers | Key point for the taxpayer |
|---|
| 320(1) | Accelerated assessment on discontinuance | AO may tax current-year profit up to closure date in the same year (overrides Sec. 4) |
| 320(2) | Rate & separate assessment | Each year/part-year taxed at that year's rates; separate assessments |
| 320(3) | Notice of discontinuance | Must inform AO within 15 days of closure |
| 320(4) & (5) | Post-closure receipts (business / profession, incl. retirement or death) | Taxed as income in the year of receipt |
| 320(6) & (7) | Assessment notice machinery | Notice like Sec. 268; minimum 7-day response window |
| 320(8) | Additional charge | This tax is in addition to other tax under the Act |
Related sections
Section 321 — Assessment on discontinuance / succession of a firm Section 268 — Notice requiring return of income Section 4 — Charge of income-tax Section 313 — Liability in case of a discontinued business (recovery) Section 176 (1961) — Old-law equivalent of discontinued business
Frequently asked questions
Is Section 320 about trusts or charitable institutions?
No. Despite any 'trusts' tag, Section 320 deals purely with the assessment of a business or profession that is discontinued during a tax year. Charitable and religious trusts are governed by separate provisions of the 2025 Act.
What is the old Income-tax Act, 1961 equivalent of Section 320?
Section 320 of the 2025 Act corresponds to Section 176 of the Income-tax Act, 1961, which dealt with 'discontinued business'. The substance is largely carried forward, with re-drafted and re-numbered cross-references.
Do I have to inform the tax office when I close my business?
Yes. Section 320(3) requires you to give the Assessing Officer notice of discontinuance within 15 days. Failing to do so can expose you to penalty under the Act's general penalty provisions, so file it promptly.
I received an old unpaid bill after shutting my business — is it taxable?
Yes. Under Section 320(4)/(5), any sum received after discontinuance that would have been taxable had you received it while operating is deemed your income in the year of receipt and taxed then.
Does Section 320 automatically apply to every business closure?
No. The accelerated assessment in 320(1) is discretionary — the AO 'may' invoke it, typically where revenue is at risk. Many routine closures are still handled in the normal annual assessment cycle.
At what rate is the income taxed under Section 320?
Section 320(2) taxes the income of each completed year or part-year at the rates in force for that respective year, with a separate assessment for each such period.
Is the tax under Section 320 extra, over and above my normal tax?
Section 320(8) clarifies that the tax charged under this section is in addition to any other tax chargeable under the Act — it is a mechanism to bring the right income to tax, not a substitute for other liabilities.
C
CA Rajat Agrawal
Chartered Accountant, EaseValue · Reviewed 05 Jul 2026
This explainer is prepared and reviewed by EaseValue's tax team, based on the text of the Income-tax Act, 2025 (as amended by the Finance Act, 2026).
Disclaimer: This page explains the law in general terms for education and is not professional advice. The Income-tax Act, 2025 takes effect from 1 April 2026; provisions, thresholds and interpretations may change. Please confirm your specific position with our team before acting.
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