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Filing tax return for a deceased person

It is a misconception that person’s tax liabilities end with his life. Filing an income tax return (ITR) is mandatory if your income is taxable. But, it’s not only the living who are required to pay their taxes. ITR for deceased person also needs to be filed in case where a person dies and had taxable income. It is common that after the death of the taxpayer, family members often concentrate only on the debts, investments, savings accounts, insurance and transfer of estates of the deceased and ignore the taxation aspect.

On the death of the assesse, the income from his / her assets and the tax liability is transferred to his / her legal heirs. So, it becomes liability of legal heirs / representative to file the return on his behalf and such heirs can pay taxes in their representative capacity. The return needs to be filed for the income earned by person passed away during that financial year up to the time of his/her death.

Procedure of filing ITR as representative of deceased assessee
Get the legal heir certificate: To register as legal heir, any of the following documents are accepted as legal heir certificates:

  • Legal heir certificate issued by a court.
  • Legal heir certificate issued by local revenue authorities.
  • Surviving family member certificate issued by local revenue authorities.
  • The registered WILL.
  • The family pension certificate, issued by State/Central Govt.

Register on income tax website as legal heir: According to section 159 of Income Tax Act 1961, the legal heir or representative is deemed the assessee. Registration as a legal heir is must for e-filing of return on behalf of deceased person. Legal heir needs to register online by submitting his details with the details of deceased. He is required to upload legal heir certificate along with other documents like copy of Death Certificate, copy of the PAN Card of the deceased, self-attested PAN copy of the Legal heir.

Computation of income of the deceased: The total earnings of the deceased during the year have to be bifurcated into two parts – Income earned while he was alive and income earned after the date of his death. Income earned during the period of April 1 to the date of death shall be considered as deceased person’s own and legal heir is supposed to file return for this income in name of deceased assessee. Income earned after the date of death till the end of the financial from the inherited asset shall be considered as legal heir’s income and he would be liable to pay tax on this income.

Filing ITR of the decease: After successful registration, the legal heir has to file the return on behalf of the deceased for income earned from the 1st April of the financial year till the date of death. The legal heir needs to log in to E-filing portal for online filing of the tax return using his own. Then the legal representative should furnish the details of the deceased like his name, PAN, date of birth, Date of death etc. Also, he need to provide the scanned copy his PAN, the death certificate, PAN copy of deceased.

Key points to consider while filing ITR of a deceased assessee

  • The ITR of the deceased should be filed in the same format and time as for all other tax payers.
  • The tax must be payable on income earned from starting of the financial year (April 1) till the date of death.
  • The legal representative gets the benefits of all the rebates and deductions that the deceased would have been eligible for.
  • Any proceeding taken against the deceased before his death shall be deemed to have been taken against the legal representative and may be continued against the legal representative from the stage at which it stood on the date of the death of the deceased;
  • Property of the deceased person inherited to his legal heir shall not be reported in the Income-tax return of the deceased person, because this transaction is not carried out as transfer for the capital gain purpose.
  • 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 money or property received by way of inheritance.
  • Income earned after the date of death, from any inherited property shall be considered as legal heir’s own income and is to be reported in his tax returns.
  • 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 scheduled capital gains in ITR forms.

Extent of liability of a legal representative: The liability of the legal heir would be limited to the extent of assets of the deceased which are or might come into his possession.  The money to recompense the taxes does not go out of the legal heir’s pocket.

Claiming refund on behalf of deceased assessee: Where there is any refund of a tax has to be claimed in the Income-tax return a deceased assessee, the refund can be received by the legal heir just like he/she can file ITR on behalf of the deceased assessee. Usually, the refund is directly credited to the bank account. If the deceased tax payer holds a joint account with the legal heir, then it becomes convenient to receive the amount. In case of absence of a joint account, the account can be operated by the nominee who is appointed by the deceased. In the absence of a nominee, the legal heir can operate the account.

Tax compliances that legal representative need to be adhere to while filing his own ITR
Carry forward and Set off of Deceased Person’s Business loss: When a legal heir takes over in the business of his predecessor by inheritance, he is entitled to carry forward the loss incurred by the previous owner. However, the total period of carrying forward cannot exceed 8 assessment years immediately succeeding the assessment year for which the loss was first computed.

Tax on inherited property: The tax on inheritance, called ‘Estate Duty’ was abolished in 1985 and so, there is no tax on inheritance in India. Transfer of capital asset under inheritance will is not taxable in hands of deceased as well.

Though no tax shall arise either in hands of a legal heir or deceased at the time of inheritance, yet capital gain tax liability arises in hands of a legal heir in case of subsequent sale of the inherited property. 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.

Surrender of the PAN card: Legal heir is advisable to surrender the PAN card of the person who is no more, after submission of his last income-tax return and payment of tax dues or receipt of a refund if any.

We cannot compensate for the loss of your loved ones, but can definitely help you in the complex process of filing his / her tax returns .For further assistance click here.