Taxation Aspects of Income of Deceased Person

One of the most important but misperceived issues in the income tax law in India is the taxation of the income of a deceased. Although the Income Tax Act, 1961, does not absolve a person of the duty on the date of death, the act makes sure that all the income earned till the date of death is duly charged and taxed accordingly. The article covers the full description of the calculation of income tax of a deceased person, the filing of the tax, the determination of the liability, and the legal provision of the Indian law in a comprehensive and search engine optimised way.

Taxation upon the Death of an Individual

At the death of an individual, the tax on the income does not stop with the death of the person. The executor or legal representative of the deceased person’s estate is responsible for filing the income tax return (ITR) on behalf of the individual and clearing all dues.

In Section 159 of the Income Tax Act of 1961, a legal heir is considered the assessee of the deceased’s income. This clause takes care of the fact that any income that the deceased made to date of death is subject to taxes.

This law will prevent tax evasion and ensure equitable handling of matters related to estates and inheritance.

Legal Basis: Section 159 of the Income Tax Act, 1961

Section 159 has provided the process of taxing the income of a deceased person. The section states that:

1. The deceased’s legal representative will be charged with paying tax on the income of the deceased as though the deceased were still alive.
2. The legal representative should submit the ITR and pay all the outstanding tax.
3. The legal representative is not limited only to the value of the estate of the deceased, though the legal representative is liable.

This will help secure personal properties of the legal heir, and the payment of taxes is done only based on the property of the deceased.

Types of Income Considered For Taxation

The income tax of a deceased is split into two components, according to the period of accrual:

1. Income Earned Before Death

Every revenue that was gained by the deceased between April 1 in the financial year and the day of death is taxable in the hands of the deceased. This includes:

1. Before death, salary, pension or business income.
2. The capital gains are realised in the sale of assets.
3. Before death, rental income, interest or dividend income.

The legal heir makes the ITR of this period under the same PAN of the deceased.

2. Income Earned after Death (Estate Income)

The amount of any income of the deceased between his death and the inheritance of property is regarded as income of the heir or executor of the deceased.

Assuming the estate is still yielding income, the executor or the administrator will have to submit the returns under Section 168 of the Act until the estate is distributed among the heirs.

ITR of a Deceased Person in a Step-by-Step Process

The procedure of filing the income tax return of a deceased is well clear:

Step 1: It is Necessary to Register as a Legal Heir on the Income Tax Portal

Go to the Income Tax official portal, i.e., https://www.incometax.gov.in and create an account by filling in the following:

1. The death certificate of the deceased.
2. PAN card of the deceased and the legal heir.
3. Legal heir certificate or succession proof (i.e., will, court order or deed of family settlement).

Access to the deceased’s profile is then approved by the Income Tax Department upon verification.

Step 2: Calculate Income and Tax Liability

Determine income until the death date and determine the amount of total taxable income. Claimable deductions under Chapter VI-A (Sections 80C to 80U) can be made.

Step 3: File the Return

Log in as a legal heir and submit the ITR with the deceased’s PAN. In the verification part, mention your name as a Legal Heir of [Name of Deceased].

Step 4: Pay Outstanding Dues

In case of any outstanding taxes, they are required to pay the taxes and thereafter file the return.

Step 5: Respond to Notices

The legal heir should respond to any communication or scrutiny notice by the department until the assessment is done.

Deceased Person tax Slabs and Deductions

The same rates of income tax slab applicable to individuals are also applicable to the deceased person. These consist of some standard exemptions and deductions that include:

1. Section 80C (Investment in LIC, PPF, ELSS, etc.)
2. The health premium is covered under Section 80D.
3. Section 24(b) (Interest on home loan)

In the event that the deceased was a senior citizen or super senior citizen, the tax slabs that will be applicable in that category will be used.

Filing the Return of Income of Estate of a Deceased Person

Under Section 168, should the property of the deceased still receive income (such as rent on property, a dividend payment or business profits), the executor must prepare returns until full distribution is made of the estate.

The tax that the executor is liable for is independent and persists as long as the estate is active.

Conclusion

The taxation of the deceased person guarantees the continuity and compliance of taxation in India. The Income Tax Act ensures that the exchequer does not lose out by allocating the liability to the legal heirs or executors.

Legal heirs must know what they need to do: register until the dues are paid and settled to prevent penalties or legal issues. Heirs will be able to discharge their duties effectively and protect their legal rights with adequate documentation and in a timely filing.

Simply put, although death terminates life, it does not terminate tax liability. Still, it merely makes it liable to those who inherit the estate to be sure that all the income earned is duly recorded under the Income Tax Act, 1961.