Taxation of Legal Representatives and Legal Heirs
Introduction
Upon the death of an individual, his legal representative becomes liable to pay any outstanding tax dues of the deceased. Any income generated from the deceased’s estate after the date of death is taxable in the hands of the executor, administrator, or legal heirs, depending on the circumstances.
Meaning of Legal Representative
- Defined underSection 2(29)of the Income-tax Act, referring to Section 2(11) of the Code of Civil Procedure, 1908.
- Includes persons managing the deceased’s estate, such as executors, administrators, or legal heirs.
Tax on Income of Deceased Person
- Till the Date of Death:The deceased’s income is taxed in their name, and the legal representative must file the return on behalf of the deceased person and pay tax accordingly.
- After the Date of Death:
- If the deceaseddied intestate(without a will), income from the estate is taxed in the hands of the legal heirs and shall be disclosed in his personal income-tax return.
- If anexecutor is appointed, income is taxable in the executor’s hands underSection 168 until the estate is fully distributed.
- If there isno executor but an administrator, income is taxed in the administrator’s hands until distribution.
Apportionment of Income
Income from the estate of the deceased person shall be apportioned between the period ending on the date of the death and starting from the date of death on a time basis. Income which does not accrue from day-to-day shall be apportioned on some other reasonable basis. In case a dividend has been declared after the date of death of the deceased, the whole of the dividend shall be taxable in the hands of the legal heirs, or executors, or administrator, as the case may be.
Assessment Procedure
- If the deceased passed away before filing a return, the legal representative must file it.
- If the deceased passed away after filing return of income but the assessment proceedings has not begun, in that situation the Assessing Officer shall bring the name of the legal representative on record to initiate the assessment proceedings against him.
- If the assessment was initiated but not completed, proceedings continue in the legal representative’s name.
- If tax was assessed but unpaid, the legal representative is liable to the extent of the deceased’s estate.
- If the deceased passed away, and has been issued notice u/s142(1)or section 148 and the deceased has not filed return in response to the respective section, then in that situation it is the duty of the legal representative to furnish a return and the assessment proceedings shall be continued in his name as legal representative.
Proceedings Against Legal Representative
- Any proceeding which could have been taken against the deceased if he had not died may be taken against the legal representative.
Carry Forward and Set-Off of Losses
- If a successor inherits a business, he can carry forward the predecessor’s losses. However, the total period of carry forward cannot exceed 8 assessment years immediately succeeding the assessment year for which the loss was first computed.
Reporting in Income Tax Return
- Income earned by the deceased before death is reported in the deceased’s return.
- Inherited assets do not attract capital gains tax but selling them later does.
- Income earned from inherited property after the date of death shall be considered as legal heir’s own income. It shall be reported in legal heir’s personal return;
- Refund claims should include details of a joint bank account or require verification by the Assessing Officer.
Surrender of PAN
- The deceased’s PAN should be surrendered after filing the final tax return and clearing all dues.