LI Network
Published on: 21 July 2023 at 19:00 IST
The Sixth Sense” popularized the phrase “I see dead people,” but it seems that tax authorities also possess this eerie ability. When an individual has taxable income, their income tax return must be filed even after their demise.
According to Ankit Jain, a partner at Ved Jain & Associates, the legal heir or representative is responsible for filing the return for the income earned by the deceased until the date of death if the income was taxable.
Registering as a Legal Heir:
To initiate the process, the legal heir must register as such on the Income Tax (I-T) e-filing website. This involves submitting documents such as the death certificate and legal heir certificate. The application is then reviewed by the I-T Department, and upon successful verification, approval is granted. Due to potential delays in approval, this process should not be left until the last minute.
Filing the ITR:
Once approved as the legal heir, filing the ITR follows the same procedure as the deceased individual would have done. However, the heir must select the option of filing as a legal representative. The appropriate tax liability should be calculated and paid.
Ramifications of Non-Compliance:
While the legal heir is obligated to meet the tax liability, they are not personally responsible for settling the dues. Maneet Pal Singh, a partner at I.P. Pasricha & Co., clarifies that the legal heir’s liability is limited to the extent that the inherited property can cover the outstanding taxes.
Non-compliance, i.e., failure to submit the deceased’s ITR by the deadline, can lead to several consequences. Naveen Wadhwa, deputy general manager at Taxmann, points out that these consequences include loss of exemptions and deductions, potential imposition of interest, penalties, and fines. Interest under Section 234A may be charged for the delay in filing, and late filing fees under Section 234F may apply, depending on the deceased’s income.
Legal implications may also arise, with potential prosecution under Section 2760C of the I-T law in cases of non-compliance or deliberate evasion. The severity of penalties depends on the amount of tax evaded.
Handling Continuing Income:
Continuing income, such as interest, rent, dividends, and investment gains, should be appropriately segregated. The deceased’s income until the date of death must be included in their ITR, and subsequently, this income should be clubbed in the ITR of the legal heir.
Surrendering PAN:
The deceased person’s Personal Account Number (PAN) should only be surrendered after completing tasks like closing bank accounts, transferring assets, settling pending taxes, and filing the ITR. The legal representative must write a letter to the assessing officer, providing relevant details and a copy of the death certificate.
Correct and Timely Filing:
The legal heir or executor bears the responsibility of ensuring accuracy in filing the deceased person’s ITR. Any errors or omissions can be rectified through a revised return until December 31 of the relevant assessment year.
Dual ITRs:
For the year of death, two separate ITRs must be filed. One ITR should cover the deceased person’s income from the beginning of the financial year until the date of death, filed by the legal heir. The second ITR should be filed by the executor for the income earned by the estate of the deceased from the date of death until the distribution of assets to the legal heir.
Handling the tax affairs of a deceased individual requires prompt action and accuracy on the part of the legal heir to fulfill their obligations and avoid potential complications with the tax authorities.
