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Bearing the tax burden and taking responsibility for filing ITR of deceased

Certain things are unavoidable in our lives and these include death and taxes. Death does not relieve even the deceased from the liability of taxes. This complex situation raises questions about who shall bear the tax burden and responsibility for tax filings after the death of a person. The Income-tax Act, 1961, has dedicated sections that deal with such a scenario. It is to be noted that the obligation to file income tax return (ITR) for the deceased arises if the latter’s income exceeds the minimum exemption limit of ?2.5 lakh in a financial year.

There could be two situations i.e., a case of intestate death (where there is no valid will) or a testate death (valid will and possibly multiple beneficiaries). In case of an intestate death, the liability for filing an ITR and taxes shall be of the legal heirs (immediate surviving family members) for the period starting from the 1 April of the financial year to the date of the death. However, in the case of a testate death, the executors of the will shall bear the tax incidence (which is recoverable from the estate) from the date of death till the date of distribution of the estate. Moreover, for the period up to the death, the legal representative shall be responsible for the payment of taxes. The definition of a legal representative is borrowed from the Code of Civil Procedure, 1908, which defines it as a person who in law, represents the estate of a deceased person and officially handles estate of the deceased. In case of multiple legal heirs, one of them can be authorized to comply with the tax formalities and act as a legal representative.

There are several responsibilities of a legal representative/executor such as computing the income of the deceased by referring to bank statements, investments, annual information statement (AIS), Form 26AS and taxpayer information statement as available on the income tax portal once he/she is authorized by the tax authorities.

The authorization process can be initiated by simply registering the individual as a representative assessee using their own income-tax e-filing portal under the ‘Authorized Partners’ tab and uploading mandatory documents (such as PAN card, copy of death certificate, etc). Thereafter, the tax authorities will verify, accept or reject the request and accordingly, ITR can be filed from the legal heir’s income-tax login account.

This does not relieve such a legal representative from their own personal tax obligations and thus a separate return has to be filed by them for their own income tax account. The due date for filing the ITR shall remain the same for the deceased person (i.e., 31 July of the assessment year). For example, for the FY 2022-23 (i.e., 1 April 2022 till 31 March 2023), the due date of filing of ITR shall be 31 July 2023. Further, in case the deceased had business income requiring an audit, the legal representative will need to get the accounts audited as well.

Another important aspect is to deliberate on the extent of liability of the legal representatives of the deceased person. This includes making the payment for the tax, penalty, fine, or interest that the deceased person would have been liable to pay.

Non-compliance with the tax provisions such as non-filing of the ITR before the due date shall attract a late fee of ?5,000 ( ?1,000 if the total income is less than ?5 lakh). Furthermore, the legal representative is also liable to pay the penalty or fines as applicable. However, the legal heir or heirs are only responsible for paying the taxes or penalties to the extent of the money that has been inherited by them. It is to be noted that penalty proceedings for default by the deceased can also be initiated against the legal representative.

The liability of such a legal representative shall be limited to the value of the assets inherited from the deceased. In case of multiple legal heirs, they shall be liable for their respective shares and it shall be limited to the share of the estate they will be inheriting.

Besides, if there is any income earned after the date of death from the assets inherited from the deceased person, it will be taxable in the hands of the legal representative. Moreover, any pending assessment which was initiated against the deceased prior to death shall now be continued against the legal representatives.

Summing up, the legal representative shall be responsible on behalf of the deceased person and will have to abide by all the compliances under the Indian tax laws.

About the Author - Amit Maheshwari is tax partner at AKM Global. Chetna Chaudhary, manager-tax at AKM Global, contributed to this article

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