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Direct Tax Laws and International Taxation · E-commerce Transaction and Liability in Special Cases

Liability in Special Cases: Deceased, Firms, Companies and Others

Updated 11 October 2026 · Fact-checked

Special-case liability rules decide who pays tax when a taxpayer dies or a firm or AOP is dissolved. A legal representative steps into the deceased's shoes, limited to the estate (section 302). For a dissolved firm or AOP, assessment goes on as if nothing had happened, and partners or members are jointly and severally liable (sections 330, 321).

Understand Liability in Special Cases: Deceased, Firms, Companies and Others

Tax liability does not vanish when a taxpayer dies or a business stops. The Act has special sections that keep the tax claim alive and name the person who must meet it.

Deceased person. Under section 302, the legal representative must pay any sum the deceased would have owed, in the same manner and to the same extent. Proceedings begun against the deceased are treated as taken against the representative and continue from the stage they had reached. Proceedings that could have been started against the deceased can be started against the representative. The representative is deemed to be an assessee.

The liability is limited to what the estate of the deceased can pay (section 302(4)). There is one exception. If the representative creates a charge on, disposes of or parts with estate assets while the tax is unpaid, he becomes personally liable for that tax, limited to the value of the asset so dealt with (section 302(5) and (6)).

Dissolved firm or discontinued business. Under section 330, the Assessing Officer assesses the firm's total income as if no dissolution or discontinuance had taken place. All provisions, including penalty, apply. Every person who was a partner at the time of dissolution, and the legal representative of a deceased partner, is jointly and severally liable for the tax, penalty or other sum. Proceedings begun before dissolution can continue from the stage reached. Section 330(5) says this does not affect section 302(4), so a deceased partner's representative still enjoys the estate limit.

Association of persons (AOP). Section 321 is a mirror of section 330 for an AOP that is dissolved or whose business is discontinued. Members take the place of partners.

Two related firm rules are often tested with these. Under section 329, anyone who was a partner during the tax year is jointly and severally liable with the firm for that year's tax. Under section 325, a firm is assessed as a firm only if the partnership is evidenced by an instrument and the partners' individual shares are specified in it.

Key rules to remember

Legal representative (section 302(1))
Liability of representative = sum the deceased would have paid, in like manner and to the same extent
The representative is deemed to be an assessee (section 302(3)).
Limit on representative's liability (section 302(4))
Liability ≤ value of the estate able to meet it
Subject to the personal liability rule in section 302(5) and (6).
Personal liability (section 302(5) and (6))
Personal liability = tax unpaid, capped at the value of the asset charged, disposed of or parted with
Applies only if the representative deals with estate assets while tax is undischarged.
Firm dissolved (section 330)
Assess the firm as if no dissolution had taken place; partners at the time of dissolution are jointly and severally liable
Legal representative of a deceased partner is also jointly and severally liable.
AOP dissolved (section 321)
Same as section 330, with members of the AOP in place of partners
Section 302(4) is preserved for deceased members.
Partners during the year (section 329)
Every person who was a partner during the tax year is jointly and severally liable with the firm for that year's tax, penalty or other sum
Applies to the firm's liability for the tax year, even without dissolution.
Assessment as a firm (section 325(1))
Firm assessed as a firm if partnership is evidenced by an instrument AND individual shares are specified in it
Both conditions are needed. A certified copy goes with the return of the first year.

How to solve Liability in Special Cases: Deceased, Firms, Companies and Others questions

Use the same sequence for any question on special-case liability. It keeps you from mixing up who pays and how much.

  1. 1Identify the event: death, dissolution of a firm, dissolution of an AOP, or discontinuance of business.
  2. 2Name the section: section 302 for a deceased person, section 330 for a firm, section 321 for an AOP, section 329 for partners during the year.
  3. 3State how the assessment is made: for a firm or AOP, as if no dissolution or discontinuance took place; for a deceased, proceedings continue against the legal representative.
  4. 4Name who is liable: legal representative, or partners/members at the time of dissolution, jointly and severally.
  5. 5Apply the limit: for a legal representative, the estate value under section 302(4); check whether any asset was charged or disposed of while tax was unpaid.
  6. 6If assets were disposed of, compute personal liability as the lower of the unpaid tax and the value of the asset dealt with.
  7. 7Check whether proceedings had already begun; if yes, they continue from the stage reached.
  8. 8Write the conclusion with the amount and the person who pays.

Quickest way: Who pays, and up to what limit

When to use it: Use for MCQs and short case questions where you must name the liable person and the cap.

  1. Death of an assessee: legal representative, capped at the estate (section 302).
  2. Representative sold or charged estate assets with tax unpaid: personally liable, capped at the asset value.
  3. Firm or AOP dissolved: assessment as if nothing happened; partners or members at dissolution pay jointly and severally (sections 330, 321).
  4. Partner of the firm during the year: jointly and severally liable for that year's tax (section 329).
  5. Proceedings already started: they continue from the same stage.

Common mistakes in Liability in Special Cases: Deceased, Firms, Companies and Others

  • Saying the legal representative pays from his own pocket without limit.

    Students remember that the representative is an assessee and forget the cap.

    Fix: State that liability is limited to the extent the estate can meet it, unless he disposes of estate assets while tax is unpaid.

  • Ignoring personal liability when the representative distributes estate assets before paying tax.

    Students stop at the estate limit rule.

    Fix: Apply section 302(5) and (6): personal liability, limited to the value of the asset charged, disposed of or parted with.

  • Treating a dissolved firm as not assessable.

    Students assume tax ends with the business.

    Fix: Write that the Assessing Officer assesses the firm as if no dissolution had taken place (section 330(1)).

  • Making only the partners at the date of assessment liable.

    Confusion between current and past partners.

    Fix: For dissolution, it is the persons who were partners at the time of dissolution; for section 329, those who were partners during the tax year.

  • Treating partner liability as proportionate to profit share.

    Students link liability to the partnership deed.

    Fix: The Act says jointly and severally liable, so the department may recover the whole amount from any one of them.

  • Using old section numbers from the Income-tax Act, 1961.

    Students studied the earlier Act first.

    Fix: Use the Income-tax Act, 2025 numbers: 302, 321, 325, 329 and 330, and the term tax year.

Worked examples

Example 1

Mr. Rajan Iyer died on 10 June 2026. Tax of ₹3,00,000 is payable on his income for an earlier year. His son Karthik is the legal representative and the estate is worth ₹8,00,000. Karthik has not disposed of any estate asset. How much is he liable to pay?

Show the solution
  1. Under section 302(1), the legal representative is liable to pay what the deceased would have paid.
  2. Under section 302(4), his liability is limited to the extent the estate can meet it.
  3. The tax of ₹3,00,000 is less than the estate of ₹8,00,000, so the estate can fully meet it.
  4. No asset was charged or disposed of, so section 302(5) does not apply.

Answer: Karthik is liable for the full ₹3,00,000, payable out of the estate.

Example 2

Mr. Sen died leaving an estate. His representative, Mr. Das, sold estate property worth ₹2,00,000 while tax of ₹5,00,000 on the deceased's income was unpaid. The remaining estate is ₹1,50,000. Discuss the liability of Mr. Das.

Show the solution
  1. Under section 302(1) and (4), Mr. Das is liable for the ₹5,00,000, limited to what the estate can meet.
  2. He disposed of an estate asset while the tax was undischarged, so section 302(5) applies and he is personally liable for that tax.
  3. Under section 302(6), this personal liability is limited to the value of the asset disposed of, which is ₹2,00,000.
  4. So the tax can be recovered from the remaining estate of ₹1,50,000 and, in addition, personally from Mr. Das up to ₹2,00,000.

Answer: Mr. Das is liable from the estate (₹1,50,000) and personally up to ₹2,00,000, the value of the asset he sold. The department cannot recover more than the tax payable of ₹5,00,000.

Exam tips

  • Quote the section number with the rule. Examiners reward 302, 321, 325, 329 and 330 when used correctly.
  • In case questions, check the date of death or dissolution against the stage of proceedings. Say proceedings continue from that stage.
  • Always write both limbs for a legal representative: the estate cap and the personal liability exception.
  • Use the words jointly and severally for firm and AOP cases, and explain that the department can recover the whole sum from any one of them.
  • For MCQs, watch for answers that say the liability ends on dissolution or death. These are almost always wrong.

Practice questions from E-commerce Transaction and Liability in Special Cases

Liability in Special Cases: Deceased, Firms, Companies and Others: frequently asked questions

Is the legal representative liable for the deceased's tax beyond the estate?

Generally no. Section 302(4) limits liability to what the estate can meet. The exception is where the representative creates a charge on, or disposes of, estate assets while tax is unpaid. Then he is personally liable up to the value of that asset.

Can the department continue proceedings after the assessee dies?

Yes. Proceedings taken against the deceased are deemed taken against the legal representative and continue from the stage reached. Proceedings that could have been taken against the deceased may also be started against the representative.

What happens to tax when a firm is dissolved?

The Assessing Officer assesses the firm as if no dissolution had taken place (section 330). Persons who were partners at the time of dissolution, and legal representatives of deceased partners, are jointly and severally liable.

What is the difference between section 329 and section 330?

Section 329 makes partners during the tax year jointly and severally liable with the firm for that year's tax. Section 330 deals with a firm that is dissolved or whose business is discontinued, and makes partners at that time liable.