As per the Income Tax Act of 1961 (“IT Act”), individuals with taxable income that exceeds the basic exemption limit are required to file an Income Tax Return (ITR). This limit is determined before applying any deductions under Chapter VIA of the IT Act or other deductions under relevant sections such as 54, 54F, and 54EC.
The basic exemption limits differ by age group:
- INR 5 lakh for resident super senior citizens (aged 80 years and above),
- INR 3 lakh for resident senior citizens (aged 60 years and above), and
- INR 2.5 lakh for all other individuals under the old tax regime.
Under the new tax regime for the Financial Year 2022-23, the basic exemption limit is uniform at INR 2.5 lakh for all individuals, regardless of age.
There are specific circumstances under which individuals must file an ITR, even if their taxable income does not exceed the basic exemption limit. These circumstances include:
- Expenses exceeding INR 1 lakh on electricity consumption in the financial year,
- Expenses exceeding INR 2 lakh on foreign travel for themselves or any other person during the financial year, or
- Depositing a total amount exceeding INR 1 crore in one or more current accounts held with a bank or cooperative bank during the financial year.
Filing ITR for the Deceased
When an individual passes away during the financial year, the obligation to file their ITR for the period up to the date of death falls on the legal heir. For the remainder of the financial year, the estate’s executor assumes responsibility for filing the ITR until the estate’s assets are distributed to the legal heir(s).
For example, if Mr. X passes away on October 31, 2022, leaving behind a daughter, Ms. Z, the Income Tax return for the Financial Year 2022-23 (Assessment Year 2023-24) would be filed as follows:
- Ms. Z, as the legal heir of Mr. X, would file the ITR for the income period from April 1, 2022, to October 31, 2022.
- The executor would file the ITR for any income earned after October 31, 2022, until the estate is fully distributed. The executor’s responsibility to file the return continues until the legal transfers are completed, after which the legal heir will take on the responsibility.
The legal heir must file tax returns and settle any tax liabilities associated with the deceased’s estate, including assets inherited. Additionally, the legal heir inherits all liabilities of the deceased and may face ongoing proceedings against them. However, their liability is limited to the assets they inherit.
Understanding a Deceased Person’s Income
All income acquired or received from the start of the financial year until the deceased’s passing is considered their income. After their death, income generated by the estate is taxed separately until asset distribution occurs according to a Will or applicable personal law if there is no Will. Post-distribution, tax on income earned from inherited assets is the responsibility of the respective legatee or heir.
Consequences of Not Filing ITR
Failure by the legal heir to file the ITR of a deceased individual by the deadline (July 31, 2023, for FY 2022-23, assuming no business income) can lead to severe consequences. This may include tax liabilities, interest, penalties under Section 270A (amounting to 50% of any tax avoided by not filing), and even prosecution under Section 276CC, among other repercussions.
Required Documents for Filing Deceased’s ITR
To register as a legal heir on the income tax e-filing portal, the following documents must be uploaded:
- Copy of the deceased’s PAN.
- Copy of the legal heir’s PAN.
- Copy of the death certificate.
- Any one of the following as proof of the legal heir:
- Legal heir certificate issued by a court or local authority.
- Surviving family member certificate issued by local authorities.
- Family pension certificate from the government.
- Registered Will.
- A letter from the bank or financial institution confirming details of the deceased’s account.
- Copy of any order in the deceased’s name (mandatory if registering for filing an appeal).
- Copy of any notice/order received from the IT Department regarding compliance on behalf of the deceased.
- Copy of an indemnity letter ensuring tax claims will be covered by the legal heir.
Implications if legal heir does not file ITR
In case of failure by a legal heir to file the ITR of a deceased person before the deadline (July 31, 2023 for FY 2022-23 assuming that the deceased does not have business income, which is subject to tax audit) could lead to severe consequences for non-compliance.
This may involve apart from the tax, liability for interest and penalties under Section 270A, which amounts to 50% of the tax that the taxpayer might have avoided by not filing the ITR, as well as the possibility of prosecution under Section 276CC, among other potential repercussions.
Process of Filing ITR by the Legal Heir
In order to file the ITR of the deceased in the capacity of a legal heir, the first step is to register oneself as a legal representative of the deceased person on the income tax e-filing Portal.
Following are the steps to register as a legal heir on the new e-filing portal 2.0:
1. Log on to “e-Filing” Portal https://www.incometax.gov.in/iec/foportal/.
2. Go to “Authorized Partners” and Click on “Register as Representative Assessee”.
3. Click on the “Let’s Get Started” to create a “New Request”.
4. Click on “Create New Request”.
5. A dialogue box would appear stating “Category of Assessee who you want to represent”. Select the option “Deceased (Legal Heir)” from the drop-down.
6. Fill in the details such as PAN, Date of Birth, etc. of the deceased as required.
7. Attach the necessary documents as aforementioned such as PAN of the deceased, death certificate, copy of the legal heir proof, etc (maximum file size allowed is 5MB for each document).
8. Click on “Continue” and “Verify the Request”.
9. To verify the request, enter the OTP received on your mobile no. and email ID of the legal heir registered on e-filing portal.
10. Click “Submit Request”. Requests submitted successfully will be processed by the I-T Department within 7 days. Click on View Request to view the request.
11. After approval of request by Income tax department representative assessee, legal heir will be notified on email and SMS. The legal heir can login to the e-filing portal with its own credentials and after login, in the profile section switch to representative assessee (as legal heir).
The “reason for registration” of the legal heir as a representative assessee should be mandatorily provided. The legal heir may choose amongst one of the following reasons:
- Filing of an appeal against an order passed in the name of the deceased.
- Submit service request such as refund re-issue/rectification etc. of proceedings concluded in the name of deceased.
- Filing of return of income or form of period in which deceased was alive through condonation request.
- A notice/order received from the I-T Department in the name of the applicant for compliance on behalf of a deceased.
- Others.
After registering as a legal heir, a request will be submitted for approval to the e-filing admin. The e-filing admin will then verify the authenticity of the request details and may either approve or reject it. Once a decision is made, an email and SMS notification will be sent to the legal heir who made the request.
If the request gets rejected, the notification will include a valid reason for the rejection, such as providing incorrect information or documents. In such cases, the taxpayer should take the necessary steps to rectify the issues leading to the rejection.
The time taken to receive the approval or rejection notification depends on the jurisdictional Assessing officer’s verification process and typically takes around 7 days.
Once registered as a legal heir, the ITR can be filled out in the standard procedure similar to that of a living individual filing their own return. The legal heir can verify the return by signing the ITR Acknowledgement, and a copy of it can be sent to the Central Processing Centre (Bengaluru).
Alternatively, the legal heir has the option to e-verify the return by generating an OTP using their own details, such as their registered mobile number. When filling out the ITR, the Aadhaar details of the deceased can be provided at the beginning where Aadhaar details are required.
Additionally, the ITR includes a specific provision asking for the “Aadhaar Number of the representative,” where the legal representative’s Aadhaar details can be provided in the ITR.
In case of a deceased person, it is crucial for the legal heir/s, executor and the legatee/s (inheriting the assets) to take cognizance of the assets and liabilities of the deceased, ascertain the income, review past filings and ensure tax filing compliance.
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