Taxation of Executors
Introduction
An executor is a person appointed by a testator to administer the estate of a deceased individual and distribute it among beneficiaries. The income from the estate is taxable in the hands of the executor until the estate is fully distributed.
Who is an Executor?
- An executor is appointed by the testator or, in the absence of such appointment, by a court.
- An executor represents the testator, whereas a trustee represents the beneficiaries.
- The term “executor” includes an administrator or any other person managing the estate of the deceased.
Assessment of Executors
- The executor is assessed separately from their personal income.
- The estate’s income is taxed in the hands of the executor until full distribution to the beneficiaries.
How Assessment is Made
- In the Year of Death:
o Two assessments occur: one for the deceased’s income up to the date of death (filed by the legal representative on behalf of the deceased) and another for the estate’s income from the date of death onwards which shall be taxable in the hands of the executor until the estate is fully distributed
- If the Deceased Died Intestate (Without a Will):
o The estate passes to legal heirs, and income earned from the estate is taxed in their hands.
- If the Deceased Left a Will:
o With an Executor: The executor is responsible for tax payment until full distribution.
o Without an Executor: An administrator is appointed to manage the estate and is liable for tax.
Taxable Entity of Executor
- A single executor is taxed as an individual.
- Multiple executors are taxed as an Association of Persons (AOP).
Residential Status of Executor
- The residential status of the executor is the same as that of the deceased in the previous year in which death takes place.
Computation of Total Income
- Any income distributed to a beneficiary during the year is excluded from the executor’s taxable income and taxed in the hands of the beneficiary.
- Expenses related to obtaining probate or executing the will are not deductible.
Right of the Executor
- As perSections 162and 169, the executor can recover tax paid on behalf of the estate from the estate itself.