Taxation Aspects of Income of Deceased Person

Death of an assessee will not discharge his liability to pay tax on the income which was earned by him during the financial year. And there is requirement of proper tax planning in case of succession also.

Who is a Legal Heir?

Legal heir can be understood as the person who represents the assets of the deceased person. This legal heir can also be understood as legal representative. Section 159 of Income Tax Act, encompasses the liability of legal representative of a deceased person.
For registering as a legal heir, the following documents shall be accepted as legal heir certificate:

The certificate of the legal heir which has been issued by the court of law
The certificate of legal heir which has been issued by the Local Revenue Authorities
The certificate of the family members of the deceased person who are surviving issued by the local revenue authorities
The deceased persons registered will
The family pension certificate issued by the State or Central government and the most common certificate available is the certificate of surviving family members issued by the local revenue authorities (Municipality orNagarpalika). And this certificate is usually issued in the regional or the local language, due to which the legal heir is required to translate it into English or Hindi and shall also get it duly notarised.

Registering as Legal Heir

Legal heir should get themselves registered in website of Income Tax as legal heir. This is mandatory for e-filing the return. The PAN of the deceased person and the legal heir should be registered with the e-filing portal of Income Tax. And if the PAN of deceased person is not registered on Income Tax, then the legal heir can register the same on his behalf. The steps for registering the legal heir are as follows:

Go to Income Tax e-filing portal, ‘incometaxindiaefiling.gov.in’.
Login to e-filing portal using the credentials of the legal heir.

iii. Go to the, ‘My Account’ and register as Representative.

Select request type as – ‘New Request’.
Select the Add or Register as representative, “Register yourself on behalf of another person”.
Select the category to register as Estate of deceased.

vii. Fill the details pertaining to Details of Estate of Deceased:

PAN of estate of Deceased
Name of the Estate of Deceased
Date of Registration of the Estate of Deceased Person in question.

viii. Fill the details pertaining to Details of the Deceased:

PAN of the Deceased
Date of Death of Deceased
Surname of the Deceased
Middle Name of the Deceased
First Name of the Deceased

Along with this the following documents shall also be filed:

Copy of Death Certificate.
Deceased persons PAN Card copy
PAN card copies which is self-attested and also a Copy of the Legal heir
Legal Heir Certificate.

Approval Process of Registration

Once the above stipulated process has been done with, the request of the legal heir shall be submitted with the e-filing administrator. And the e-filing administrator will verify the request and either reject or approve the same. Once this has been approved, the legal heir can use all the services for the deceased and the filing as legal heir.

Filing of ITR as Legal Heir

Once the request is being approved by the administrator the legal heir can file the ITR on behalf of the deceased and following is the process which should be taken up by legal heir:
Download the ITR Form based on the applicability of the same to the deceased, fill the ITR Form and generate the XML File.

Go to Income tax website, ‘incometaxindiaefilling.gov.in’.
Login to e-filing portal using credentials of the Legal heir.
Go to e-file option and upload the return.
Fill the following details and select the XML File of ITR which has been prepared.
Select the PAN of the deceased.
Select the ITR Form Name to upload, i.e., ITR 1, 2, or such other form as maybe applicable.
Select Assessment Year for which the ITR is being filed.
Upload the XML File
Legal heir can digitally sign the ITR of deceased using his Digital Signature Certificate (DSC) and click submit.

Calculating the Income of the Deceased

The legal heir should file the ITR on behalf of the deceased person and in this the income which is earned by such person till the date of his death shall be included. The income earned by such deceased person from the starting of the date of the year until the date of death and the tax payable on the same shall be computed in a manner in which it would have been computed if such deceased person was alive.
For getting clarity with regard to the earning of the deceased assessee, the bank statements, and such other relevant documents belonging to him shall be verified or checked.
But it shall be noted that, any income which was earned after the death of the assessee from the assets inherited by the legal heir shall be taxable in his hands. So, he shall include this income in his own taxable income while filing the ITR.

Tax Liability of the Legal Heir

The legal heir holds the responsibility to pay the taxes on the taxable income of the deceased person as declared in the ITR. But he shall not be held personally liable for the same and shall be limited to the extent to which the assets he inherited are capable of meeting the liability.
Say, Mr. An inherited INR 5 Lakhs from his mother on her death. But during the year the tax liability of mother was INR 6 Lakhs. Then the liability of Mr. A to pay his mother’s tax shall be limited to INR 5 Lakhs only.

Tax Liability in case of Penalty or Demand

The legal heir of a deceased person or assessee shall be held liable not just for the payment of taxes but also for the payment of the fine, penalty or interest or such other amounts which shall be levied on the deceased person if he was alive. So, any penalty proceedings for default committed by deceased person shall be initiated in the name of the legal heir but the liability of legal heir shall be limited to the extent of assets he has inherited from the deceased.