Income
Tax rules require the legal representative to pay tax and file ITR in
case property is inherited from the deceased. This article discusses in
detail the various tax compliances arising after the death of a person.
Benjamin Franklin had said that “there are only two things which are
certain in life: death and taxes.” But in this world, even death cannot
save a person from paying taxes. It’s really hard to lose someone. If
this truth was not bitter enough, paying taxes and filing income tax
return added insult to injury.
After the death of a person, the legal heirs have to go through legal
compliances like inheritance of deceased property, the filing of
income-tax return on behalf of deceased, so on and so forth. If the
deceased person had some capital assets they are devolved on the legal
heirs. However, income from such capital assets or any other income
earned by the deceased person during the year has to be reported in the
income-tax return being filed by the legal heirs on behalf of the
deceased person.
This article enumerates all tax compliances which may arise after the death of a person.
1. Payment of tax on behalf of a deceased person
As per section 159 of the Income-tax Act, 1961, in case of death of an
assessee, his legal representative is deemed as an assessee who shall be
liable to pay any sum which the deceased assessee would have been
liable to pay had he not died. However, the liability of the legal heir
to pay the Income-tax shall be limited to the value of assets inherited.
2. Computation of income of the deceased
Income earned on account of a deceased person during the year has to be
bifurcated into two parts – Income earned before the date of death and
income earned after the date of death. A legal heir has to file a return
on behalf of the deceased person for the income earned till the date of
his death and Income earned thereafter from the inherited asset shall
be considered as legal heir’s own income.
Income earned during the period of April 1 to the date of death shall be
considered as deceased person’s own income. However, the legal heir has
to file the income-tax return on behalf of the deceased person and pay
tax accordingly.
Income earned after the date of death till the end of the financial year
shall be considered as income of legal heir and shall be disclosed in
his personal income-tax return.
3. Filing of income-tax return by the legal heir
In order to file Income Tax return on behalf of the deceased person, a
person has to first register himself as a legal heir on e-filing website
www.incometaxindiaefiling.gov.in in following steps:
Step 1: Go to https://incometaxindiaefiling.gov.in and login into the account of legal heir
Step 2: From the main menu go to My Account> Add/Register as Representative
Step 3: On the landing page, you need to select the relevant options from the drop-down boxes, which are as under:
# Request Type: ‘New Request’
# Add/Register as Representative: ‘Register yourself on behalf of another person’
# Category to Register: ‘Legal Heir’
Step 4: Click on ‘Proceed’ and on the landing page fill up the following information:
# Name of Deceased Person
# PAN of Deceased Person
# Date of Death
# Upload the scanned copy of PAN card of both deceased and legal heir, a
copy of death certificate and a copy of legal heir certificate or
Registered Will or Family Pension certificate or letter issued by the
bank confirming the nominee to the bank account.
All these documents are to be uploaded in a zipped folder. The maximum size of the zipped folder shall not exceed 1MB.
Step 5: Click on Submit. After submission, you will get an Acknowledgement from the Dept. with a transaction ID
After completing the above process, the department shall verify the
request and once it is approved, the legal heir will be able to use all
services for the deceased through his own E-Filing account.
After successful registration, the legal heir has to file the return on
behalf of the deceased. The legal heir needs to log in to E-filing
portal using his own credentials to upload the ITR of the deceased
person. At the time of the filing of the ITR legal heir will be given
an option to choose the PAN of the deceased through a drop-down list for
uploading his ITR. It is to be noted that in income-tax return, the
name of the assessee should be mentioned as <<Late Name of
Deceased Assessee through Name of Legal Heir>>. Further, the legal
heir should add his PAN in the verification part of the ITR Form.
4. Carry forward and Set off of Deceased Person’s Business loss
When an individual succeeds in the business of his predecessor by
inheritance, the successor is entitled to carry forward the loss
incurred by the predecessor. However, the total period of carrying
forward cannot exceed 8 assessment years immediately succeeding the
assessment year for which the loss was first computed.
5. Tax on inherited property
Inheritance-tax was abolished in the year 1986. Therefore, legal heirs
are not required to pay any inheritance tax on the inherited property.
Though there is no inheritance tax, yet there are certain Income-tax
provisions which one should know to understand the taxability of gifts
or inherited property.
When any money or property is received by a person without consideration
or for inadequate consideration, it is considered as residuary income
of the recipient. However, this provision does not apply to any sum of
money or any property received under a will or by way of inheritance.
Hence, the legal heir shall not be liable to pay any income-tax on
inherited money or property.
Further, any transfer of a capital asset under a gift or will or an
irrevocable trust is not regarded as transfer for capital gain tax
purposes. Hence, transfer of capital asset under inheritance will not be
chargeable to tax in hands of deceased as well.
Though no tax implication shall arise either in hands of a legal heir or
deceased at the time of inheritance, yet capital gain tax liability
arises in hands of a legal heir in case of subsequent sale of the
inherited property. In such case, the actual cost of acquisition of the
inherited property to the deceased person shall be considered as the
cost of acquisition to the legal heir. While determining the period of
holding of inherited assets, the period of holding of the deceased
person shall also to be taken into consideration.
6. Reporting in Income-tax return
The Income-tax return being filed on behalf of the deceased person
should be prepared in accordance with the following key points:
# Only income earned from April 1 of the financial year till the date of death shall be reported as income of a deceased person.
# Transfer of property of the deceased person to the legal heir by way
of inheritance shall not be reported in the Income-tax return of the
deceased person, because this transaction is not regarded as transfer
for the capital gain purpose.
# Money or property received by legal heirs by way of inheritance shall
not be reported in income-tax return because Section 56(2)(x) does not
apply to money or property received by way of inheritance.
# Income earned from an 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.
# If the total income of legal heir, including the income of deceased
person after his death, exceeds Rs. 50 lakhs, the user shall be required
to provide details of all Assets and Liabilities held by him at the end
of the financial year in Schedule AL. These details shall include all
assets and liabilities including the assets acquired by way of
inheritance.
# Sale of inherited property by legal heir shall be chargeable to tax as
capital gain in hands of a legal heir and, accordingly is required to
be reported under Schedule Capital Gains in ITR Forms.
If any refund of a tax has to be claimed in the Income-tax return of the
deceased person, it is advisable to fill-up the details of the joint
bank account as a convenient measure to receive the refund amount. If
there is no joint account and legal heir fills-up the details of his
bank account, then CPC shall ask the deceased person’s juridical
Assessing Officer to verify the details of the legal heir. After
verification, the CPC shall issue a refund in the name of the legal
heir.
7. Surrender of the PAN Card
It is advisable to surrender the PAN Card of the deceased person after
submission of his last income-tax return and payment of tax dues or
receipt of a refund if any.
(By Naveen Wadhwa, DGM, and Dipen Mittal, Manager, Taxmann.com)
Source : https://www.financialexpress.com/
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