Section 330 Income Tax Act 2025: What Happens When a Firm Is Dissolved?
A dissolved partnership firm does not escape income-tax assessment merely because it has ceased to exist. Section 330 explains how the firm may be assessed, when penalties may be imposed and who can be held responsible for outstanding dues.
Can income tax be assessed after a firm is dissolved?
Yes. Section 330, headed Firm dissolved or business discontinued, requires the Assessing Officer to assess the firm's total income as though the dissolution or discontinuance had not occurred. It also provides for penalties, liability of persons who were partners at the relevant time and continuation of proceedings already started.
Section 330 explained, subsection by subsection
Section 330(1): Assessment despite dissolution or discontinuance
Where a firm is dissolved, or a business or profession carried on by it is discontinued, the Assessing Officer must make an assessment of the total income of the firm as if the dissolution or discontinuance had not taken place. The Act's provisions, including those concerning penalties and other sums chargeable under it, apply to that assessment so far as applicable.
Section 330(2): Penalty for contraventions
If the Assessing Officer, Joint Commissioner (Appeals) or Commissioner (Appeals), during proceedings concerning such a firm, is satisfied that the firm committed an act specified in Chapter XXI, the authority may impose, or direct the imposition of, a penalty in accordance with that Chapter. Dissolution does not itself prevent penalty action.
Section 330(3): Joint and several liability of partners
Every person who was a partner at the time of dissolution or discontinuance, and the legal representative of any such person who has died, is jointly and severally liable for the tax, penalty or other sum payable. The applicable provisions of the Act extend to assessment and imposition of those amounts. The position of a deceased partner's legal representative must also be read with the applicable statutory rules governing representative liability.
Section 330(4): Continuation of pending proceedings
Where dissolution or discontinuance occurs after proceedings relating to a tax year have begun, those proceedings may continue against the persons described in subsection (3), starting from the stage reached at the date of dissolution or discontinuance. A fresh start is not mandated merely because the firm has dissolved.
Section 330(5): Section 302(4) preserved
Section 330 expressly states that its provisions do not affect section 302(4). Accordingly, the rules in that provision must be considered independently where relevant; section 330 does not override them.
Relevant statutory definitions and expressions
A firm has the meaning assigned under section 4 of the Indian Partnership Act, 1932, and includes a limited liability partnership as defined under section 2(1)(n) of the Limited Liability Partnership Act, 2008. The special provision for LLP partners in liquidation appears separately in section 331.
The expression includes reassessment and recomputation.
Refers to the specified income-tax authorities vested with the relevant jurisdiction or directed to exercise the powers and functions of an Assessing Officer.
Has the meaning assigned by section 2(11) of the Code of Civil Procedure, 1908.
In the context of section 330(3), the persons identified by the statute are liable together and individually for the sums payable, subject to applicable legal limitations.
Practical illustration
Suppose a partnership firm discontinues business in September 2026 while an income-tax proceeding for the relevant tax year is pending. The Assessing Officer can continue that proceeding from its existing stage against the persons covered by section 330(3), determine the firm's income and apply the relevant provisions concerning tax and penalties. The fact that the partners have dissolved the firm does not by itself close the tax proceeding.
How does Section 330 differ from Section 329?
Section 329 concerns partners' joint and several liability for amounts payable by a firm. Section 330 specifically deals with dissolution or discontinuance, including the power to assess the former firm, impose penalties and continue pending proceedings.
Frequently asked questions
Does dissolution cancel a firm's outstanding income-tax demand?
No. Section 330 preserves assessment and liability notwithstanding dissolution or discontinuance.
Can a penalty be imposed after a firm closes?
Yes, where the statutory conditions for a penalty under Chapter XXI are satisfied and the relevant authority exercises its powers under section 330(2).
Who is liable for the dissolved firm's tax?
Section 330(3) makes persons who were partners at dissolution or discontinuance, and the legal representatives of deceased such persons, jointly and severally liable as specified there.
Must pending proceedings begin again after dissolution?
No. Under section 330(4), qualifying proceedings may continue from the stage they had reached.
Official law and related provisions
The statutory basis is section 330 of the Income-tax Act, 2025, in the consolidated text amended by the Finance Act, 2026. Read it alongside sections 302(4), 329 and 331, as applicable.
Updated: 12 November 2026. General legal information; the applicable facts and statutory provisions should be checked for individual matters.