Deceased’s Tax Obligations: Limit on Heir’s Liability to Inherited Assets
Even in death, taxpayers are obligated to settle their tax dues. If the total taxable income of a deceased individual exceeds the basic exemption limit, filing an income tax return (ITR) on their behalf becomes mandatory under Section 139(1) of the Income-Tax (I-T) Act.
The I-T Act outlines the procedure for filing returns on behalf of a deceased person. According to the Act, the legal heirs of a deceased person with taxable income must file the ITR on their behalf for earnings up to the date of demise, as explained by Alay Razvi, partner at Accord Juris.
Registration Process
To register, the representative must visit the I-T Department e-filing portal and provide essential details and documents, including the deceased’s and legal heir’s PAN cards, a certificate of heirship, and the deceased’s pension certificate (if available).
Once these documents are submitted, the tax authorities review them to ensure compliance with legal requirements. Kunal Savani, partner at Cyril Amarchand Mangaldas, states that the registration process is typically swift. Upon updating the details as a legal heir, the portal immediately reflects the changes. Once registered, the legal heir can proceed to file the ITR for the income earned by the deceased.
If the registration request is rejected, the tax expert Manikandan S. from Cleartax advises rectifying any issues leading to the rejection. Both the PAN of the deceased person and the legal heir should be registered in the e-filing portal. If the deceased person’s PAN is not registered, the legal heir can undertake the registration on behalf of the deceased, according to Manikandan.
The legal heir is held accountable for settling the deceased’s tax dues. Pallav Pradyumn Narang, partner at CNK, explains that the liability of the legal heir is limited to the extent of the assets inherited, capable of meeting the liability. For example, if A inherits Rs 1 lakh from Z with an outstanding tax liability of Rs 1.25 lakh, A’s liability is limited to paying Rs 1 lakh to the tax department.
Failure to file an ITR or pay the tax dues on behalf of the deceased can lead to penal consequences. If the tax dues remain unpaid, the I-T Department can levy interest under sections 234A, 234B, and 234C. Razvi emphasizes that continued failure may result in the I-T Department attaching the property of the legal heir. The legal heir is also responsible for any errors in the deceased’s ITR.
It is crucial for the legal heir to inform the I-T Department of the deceased person’s passing. Failure to do so amounts to concealing facts, which can lead to heavy penalties, according to Razvi.
Read more: Tax Query: How to calculate tax on inherited property?
Paying the outstanding tax dues on time is essential. Amit Bansal, partner-direct tax at Singhania & Co., stresses the importance of timely filing, accurate documentation, correct income reporting, and seeking advice from a tax professional to address complexities. He also highlights the significance of clear and prompt communication with the I-T Department to handle any notices or queries. It’s advisable to keep all necessary documents, such as the death certificate and legal heir certificate, readily available in case they are needed for verification. Narang advises staying updated with the latest guidelines on the e-filing portal and ensuring accurate calculation and reporting of all income until the date of death.
Registering as a Legal Heir
- Go to the income tax department e-filing portal and log in using your user ID and password.
- Navigate to ‘Authorised Partners’, then ‘Register as Representative’, and click on ‘Let’s Get Started’.
- Click on ‘Create New Request’.
- Select the category, enter the PAN details, date of death, and reason for registration.
- Upload the required documents.
- Click on ‘Proceed’ and ‘Verify the Request’.
- Click on ‘Submit Request’ to receive acknowledgment from the department.
Note: The legal heir must provide the ‘Reason for Registration’ as a representative assessee.
Source: Cleartax
Read more: How to file Income Tax Return of a Deceased Person