Introduction: In this article we are going to discuss the tax implications in case of a deceased Assessee (intestate or without a will). According to Section 159 of the Income Tax Act, 1961 “When a person dies, his legal representative shall be liable to pay any sum which the deceased would have been liable to pay if he had not died, in the like manner and to the same extent as the deceased.” The legal heirs are liable for payment of taxes (including interest and penalty) which were due from the deceased person up to the date of the death. Legal heirs need to file the return of the deceased person for the period beginning from the financial year I.e., From April 1st up to the date of the death. Income earned after the date of death (if intestate) till the end of financial year from the inherited asset shall be considered as legal heir’s income and he would be liable to pay tax on this income. The legal heir is responsible for paying taxes liable on the Income tax return of the deceased. However, he is not personally liable for the taxes due. The liability of the legal heir is limited to the extent to which the assets he inherited are capable of meeting the tax liability. A person has to first register himself as a legal heir on the Income tax portal.

HOW TO REGISTER AS LEGAL HEIR ON INCOME TAX PORTAL?

  • Visit e-Filing portal and enter your login credentials (legal heir’s login details).
  • Under the ‘My Account’ tab, click the option ‘Add/ Register as Representative’.
  • Select request type as ‘New Request’, the select ‘Register Yourself on behalf of another person’ under the drop down ‘Add/ Register as Representative’ and category to resister as ‘Legal Heir’. Click on Submit button.
  • After this you need to provide details of the deceased (his PAN, DOB and name). Along with it scanned documents of Copy of the Death Certificate, Copy of PAN card of the deceased, Copy of PAN card of the Legal Heir and Legal Heir Certificate* issued by local authority.
  • Once all these documents are submitted, a request will be sent to the Income Tax Authorities. They will send the acceptance and rejection of the application after closely reviewing these documents.
  • After the request is approved the legal heir’s profile shall contain 2 representations: one is self and other as a representative of the deceased.

    * Legal Heir / Succession Certificate can be obtained through the District Civil Court of your area.

The legal heir can go ahead with the filing of income tax return of the deceased by selecting he option of filing return as representative of the deceased and proceed with ITR filing in the same manner as would have been done if the deceased person would have survived.

COMPUTATION OF INCOME OF DECEASED:

The process of filing the income tax returns of a deceased shall be filed in the same manner as it would have been had he survived. Computation of the income of the deceased shall be done from the beginning of the financial year until the date of death. Any other proceeds from the investments or inherited assets of the deceased will become taxable in the hands of a legal heir and he will have to include that income in his ITR. Investment proofs, form 16, Form 26AS etc. bank statements of the deceased shall be taken into consideration for income tax calculation. A legal heir will be required to pay tax for the income earned through an asset after the person’s demise while filing his returns.

OTHER POINTS TO BE KEPT IN MIND:

  • The legal heir shall be eligible for the income tax slab, deductions and rebate that the deceased would have been granted under Income tax.
  • Money or property received by legal heirs by way of inheritance shall not be reported in income-tax return because Section 56(2)(x) does not apply to inheritance.
  • If the total income of a legal heir, including the income of deceased person from the date of death, exceeds INR 50 lakhs, the heir shall be required to provide details of all Assets and Liabilities held by him at the end of the financial year in Schedule AL. These details shall include all assets and liabilities including the assets acquired by way of inheritance.
  • Proceeds from the sale of property by legal heir he received by the way of inheritance shall be taxable as capital gain in hands of a legal heir and is required to be reported under capital gains in ITR forms. For calculation of capital gain on proceeds from sale of inherited property, the actual cost of acquisition is taken as the same at which the property was acquired by the previous owner. While determining the period of holding of, the period of holding of inherited assets by the deceased shall also to be taken into consideration.
  • Where the business of assessee has been succeeded by way of inheritance, the succeeded assessee shall be allowed to carry forward and set off the losses of such business.
  • Provided, it shall be kept in mind that such exception is available only for losses and NOT for unabsorbed depreciation., Husband ⇒ Wife or a Father ⇒ Son
    A father/husband dies and his son/wife succeeds to his business. The brought forward losses of father/husband will be carried forward by the son/wife for the balance number of years for which the father/husband could have carried forward. Case Law: CIT v. Madhukant M. Mehta (2001) 247 ITR 805(Supreme Court).
  • The refund is directly credited to the bank account mentioned while registering as legal heir. If the deceased tax payer holds a joint account with the legal heir, then it becomes convenient to receive the amount. I
  • If there is joint F.D and the deceased is the primary holder then TDS deducted can be claimed by the secondary holder in their respective returns as per Rule 37BA R/w Section-199 which covers 4 cases in which the tax credit for TDS is given to other persons not to the Deductee.

CONCLUSION: It is advisable for the legal heir to surrender the PAN card of the deceased person after submission of his last income-tax return and payment of tax dues or receipt of a refund if any. If any refunds are due on the name of the lost one then you are not supposed to close down the bank accounts of the same person. Especially if that person whose name is mentioned as the primary person in the books of income tax. Indeed, if there is a common account with the legal heir then it should not be closed rapidly because of simple documentation along with the procedural concern.

For any queries, the author can be reached at [email protected]

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3 Comments

  1. Chandni says:

    hello, can you guide as to what procedure to be followed for filing the return of the deceased after the due date. I want to file return of AY 19-20 and it has a refund

  2. GANDHI MOHAN BHARATI says:

    Two main issues are faced –
    1. Tracing PAN Card of deceased.
    2. Getting the Legal Heir Certificate.

    Suggestions –
    1. Dispense with copy of PAN Card.
    2. A notarised document about being a legal heir and willingness to face consequences of wrong declaration.

    I, personally, suffered to trace the PAN Card of my deceased wife.

    Will someone take up the issue with CBDT?

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