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CMA Final · Direct Tax Laws and International Taxation

E-commerce Transaction and Liability in Special Cases for CMA Final

This chapter covers how tax is deducted on e-commerce payments, how digital businesses of non-residents are taxed, and who pays tax for a non-resident, a deceased person, a firm, company, AOP, HUF, trust or minor. Solve each question by finding the person, the income and the provision that fixes liability.

What this chapter covers

This chapter has two halves. The first half is about digital and cross-border business: TDS on payments made through an e-commerce platform, and the equalisation levy and other rules for taxing the digital economy. The second half is about who is liable to pay tax when the taxpayer is not a simple resident individual: non-residents and their agents, deceased persons, firms, companies, AOPs, HUFs, trusts, partitions and minors.

In both halves the exam asks one core question: who is the right person to tax or deduct tax from, and on what income? You need to read the facts, name the person, and then apply the rule. The chapter links to residential status, TDS and TCS, and assessment procedure elsewhere in the paper. It also links to international taxation, because non-resident liability depends on treaty relief and anti-avoidance rules.

Under the Income-tax Act, 2025 (tax year 2026-27), section numbers differ from the 1961 Act. Learn the rules by their meaning first, then attach the section numbers from your updated material. Two provisions worth knowing well from the official text are section 174 (transfer of income to non-residents) and section 159 (treaty relief).

This chapter is short in rules but heavy in application. Case-based questions in the written section often test liability: who is the representative assessee, how is a deceased person's income assessed, or is the transferor taxed on income that went abroad. The compulsory objective section can also pick one-line rules from any topic here. The rules are fairly fixed, so careful study turns into reliable marks, and the same logic helps in other papers' case answers.

E-commerce Transaction and Liability in Special Cases: topics in the order to study them

  1. 1TDS on E-commerce TransactionsIt builds on TDS basics you already know and is the easiest to apply, so start here for quick confidence.
  2. 2Equalisation Levy and Taxation of Digital EconomyIt extends the digital theme and shows why India taxes non-resident digital businesses; check what is currently in force before you memorise any rate.
  3. 3Liability in Case of Non-Residents and AgentsIt brings in who answers for a non-resident's tax, and links to section 174 and treaty relief under section 159.
  4. 4Liability in Special Cases: Deceased, Firms, Companies and OthersOnce you understand representative liability, the rules for legal heirs, firms and companies are easier to follow.
  5. 5Special Cases: AOP, HUF, Trusts, Partition and MinorsThese have the most conditions and exceptions, so study them last, when your base is strong.

How to prepare E-commerce Transaction and Liability in Special Cases

Treat this chapter as a set of who-pays rules. Learn each rule with its condition, then practise short case facts.

  1. Read the Income-tax Act, 2025 provisions for each topic and note the new section numbers beside the concept names.
  2. For each topic, write one line: the person, the trigger, and the consequence. Keep these on one page.
  3. Read section 174 slowly. Note the three parts: transfer, power to enjoy income, and the exception. The person must show the exception to the satisfaction of the Assessing Officer. Either neither the transfer nor any associated operation had tax avoidance as a purpose, or the transfer and all associated operations were bona fide commercial transactions and were not designed for the purpose of avoiding liability to taxation.
  4. Read section 159 and note that, where an agreement exists, the provisions of the Act apply to the extent they are more beneficial to the assessee. Also note when the residence certificate is required, and the carve-out for Chapter XI, which applies even if not beneficial.
  5. Do two or three case questions per topic. Write the answer in this order: person, rule, working, conclusion.
  6. Revise the equalisation levy from the latest study material and amendments, since this area has changed over time.
  7. Finish with objective questions on conditions and exceptions, such as who can be taxed as representative and when liability is limited.

Common mistakes in E-commerce Transaction and Liability in Special Cases

  • Using Income-tax Act, 1961 section numbers in answers.

    Fix: Use the Income-tax Act, 2025 and tax year terms. Prefer the rule in words if you are unsure of the new number.

  • Quoting old equalisation levy rates or applicability without checking.

    Fix: Confirm the current position from the latest study material and state the rule only as far as you are sure.

  • Applying section 174 without the exception.

    Fix: Always close with sub-section (5): can the person show, to the Assessing Officer's satisfaction, that there was no tax-avoidance purpose, or that the transactions were bona fide commercial and not designed to avoid tax?

  • Thinking a treaty always overrides the Act.

    Fix: State that the Act's provisions apply to the extent more beneficial to the assessee, that Chapter XI applies regardless, and that a non-resident needs a residence certificate.

  • Confusing who is assessed with who pays.

    Fix: Write both: whose income it is, and who is answerable for the tax.

  • Skipping exceptions in minor, HUF and partition rules.

    Fix: Make a two-column list of rule and exception for each special case, and revise it daily in the last week.

Last-day revision: E-commerce Transaction and Liability in Special Cases

  • First identify the person liable, then the income, then the provision.
  • E-commerce TDS applies on payments by the operator to e-commerce participants; check the current rate and threshold in your material.
  • The equalisation levy is separate from income tax; confirm which levies are still in force before answering.
  • Section 174: a person who gets power to enjoy a non-resident's income through a transfer can be taxed on that income.
  • Section 174(5): the person must show, to the satisfaction of the Assessing Officer, either that neither the transfer nor any associated operation had tax avoidance as a purpose, or that the transfer and all associated operations were bona fide commercial transactions and were not designed for the purpose of avoiding liability to taxation.
  • Under section 174, a body corporate incorporated outside India is treated as non-resident.
  • Section 174(4): income already taxed as deemed income is not taxed again when later received.
  • Section 159: where an agreement exists, the Act's provisions apply to the extent they are more beneficial to the assessee; Chapter XI applies even if not beneficial (section 159(6)).
  • A non-resident needs a residence certificate from his country to claim treaty relief under section 159.
  • For a deceased person, the legal representative answers for tax, to the extent of the estate.
  • Firm, company, AOP, HUF and trust each have their own rules on who is assessed and at what rate; keep a comparison list.
  • Minor's income is generally clubbed with the parent's, subject to exceptions; confirm each exception in your material.

E-commerce Transaction and Liability in Special Cases practice questions

E-commerce Transaction and Liability in Special Cases in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

E-commerce Transaction and Liability in Special Cases: frequently asked questions

Which law applies to this chapter for the June 2027 term?

The Income-tax Act, 2025 applies, with tax year 2026-27 and the new section numbers. Do not answer using the 1961 Act numbering.

Is section 174 about anti-avoidance?

Yes. It applies when a transfer leads to income becoming payable to a non-resident and a person gets power to enjoy it. That income is deemed to be his. It does not apply if he shows, to the satisfaction of the Assessing Officer, that neither the transfer nor any associated operation had tax avoidance as a purpose, or that the transfer and all associated operations were bona fide commercial transactions and were not designed to avoid tax.

Do I get treaty relief automatically as a non-resident?

No. Under section 159, you must obtain a residence certificate from the government of your country or territory and provide the other prescribed documents and information. Where an agreement applies, the provisions of the Act apply to the extent they are more beneficial to you, except that Chapter XI applies even if not beneficial.

How should I revise the equalisation levy?

Study it from the latest material, because it has been amended over time. Focus on the idea behind it, who it applied to, and what is currently in force, and avoid quoting old rates from memory.