TAXATION IN RESPECT OF A DECEASED ASSESSEE

With the outburst of COVID 19 and especially during its second wave, a lot of deaths were reported and is still coming on to be 2000 deaths in a day. In such a scenario, the taxation aspect of the taxpayers who lost their lives, due to this pandemic, becomes crucial.

TYPE OF ASSESSES UNDER INCOME TAX ACT, 1961

As per Income Tax Act 1961, an assessee is a person who is liable to pay tax or any sum of money under any provision of the Income Tax Act, 1961.  Thus, assessee involves everyone person who is liable to assess their income, or the profit and loss, earned or incurred during a financial year. The following types of assesses has been provided under the Income Tax Act –

1. NORMAL ASSESSEE

It is a person, liable to pay taxes on the income earned by them during a particular financial year. It is provided that every person, earning any income during any previous financial years, shall be liable to pay taxes on such income to the government in the relevant assessment year.

2. REPRESENTATIVE ASSESSEE

They are the persons, liable to pay taxes on the income earned or losses incurred by any third person. The role of representatives comes, where the person liable to pay taxes, is a non-resident, minor, or a person of unsound mind. Since, these people won’t be able to file their returns, their representative do the same for them.

3. DEEMED ASSESSEE

It is a person, to whom the responsibility to pay taxes are assigned, and the same is done by any legal authority. The following persons can be termed as a Deemed assesses –

• The legal heir of a deceased person who expired without registering a will.
• The executor or a legal heir of the property of a deceased person who expired after naming such executor in their will.
• Guardian of a lunatic, minor, or a person of unsound mind.
• The agent of a non-resident person, earning some income in India.

4. ASSESSEE-IN-DEFAULT

A person is said to be an assessee-in-default, where such person fails to comply with the provisions of income tax act, and involve non-payment of taxes to the government or non-filing of their annual tax return.

INCOME OF DECEASED

It is provided that the income that accrues or received by a person. From the beginning of a financial, and till his/her death, shall be termed as the Income of a deceased person. Apart from this, where any asset is held by such a deceased person before their death and any income accrues from such asset, the be taxed in the hands of the immediate legal heirs of such deceased person. It is to be noted, a deceased person shall be entitled to claim the eligible deductions and exemptions for the whole financial year, however, the income subject to tax, would only be computed till the date of death. Also, the return for that financial year will also be filed in respect of income earned till the date of death.

INCOME ACCRUING AFTER DEATH

In respect of income earned after the death of the person, which is commonly from the estate/property owned by the deceased person before his/her death, shall be taxed in the hands of the legal heir of the said property. In case any will is executed by such deceased person, before their death, the amount of income accruing from such property, will then be taxed in the hands of the executors in whose name the will was made.

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LEGAL REPRESENTATIVES

As per section 159 of the Income Tax Act, 1961, in case a person dies, his/her legal representative would be liable to pay an amount, which the said deceased person would be liable to pay, in case he had not died.

The following provisions, for assessment, reassessment or re-computation under section 147 in relation to the income of the deceased, be followed –

1. After the death of a person, any proceeding pending against the deceased, shall be transferred as against the legal representative and the same shall continue against the legal representative from the stage at which it was pending before the death of the deceased.
2. Also, any proceeding which would be freshly initiated against the, shall now be executed against their legal representatives.
3. All the provision, which the deceased was liable to comply with, shall now be complied by their legal representatives.

A LEGAL REPRESENTATIVE AS DEEMED ASSESSEE

As per section 159(3) of the Income Tax Act 1961, the legal representative shall be termed as a deemed assessee, and their liability will be limited to the extent the estate of the deceased, is capable of paying. However, where the legal representative disposes of the assets of the estate or creates any charge on them, the liability shall be extended to the personal assets of the representative as well.

EXECUTORS

As per section 168 of the Income Tax Act, 1961, where a deceased person executes a will, in the name of other person, the said other person shall be termed as an executor, and any income arising from the estate of the deceased person shall be taxed in the hands of the executor itself.

The executor would be liable to disclose the income from the estate of the deceased separately from his personal income, and thus, would require a separate PAN for filing the return of the executor.

The executor will be liable to pay tax u/s 168, till the date of completion of distribution of the estate as per the will of the deceased. In case, the estate is partially distributed in a particular year, then the income in relation to the part of assets already distributed shall be excluded from the income of the estate, to be included in the income of the legatee.

It is to be noted, that the above adjustment of income of deceased, shall be applicable in case of a testamentary succession, i.e., where the deceased executed a will. However, in cases of intestate succession, the income of the deceased, be taxed in the hands of their legal heirs known as the “tenants-in common”.

IMPLICATION OF CAPITAL GAINS TAX

Under the Income Tax Act, it is provided that in case of transfer of a capital asset, made in the form of a gift or a will, shall not be regarded as “transfer” and the same shall not be liable to capital gains tax under Section 47 of the Income Tax Act, 1961.

On the part of the recipient, who receives the income or property, being inherited, shall be considered as a capital receipt. As such transfers is not considered as transfer for applying capital gain, the same is exempt from tax.

ASSESSMENT PROCEEDINGS

1. In case an assessee dies during the proceeding of any Income-tax assessment, the said proceeding shall be continued against the legal representative of the said deceased, and the same shall continue from the stage at which it was pending before the death of the deceased. Also, any further proceedings, which would have subsisted against the deceased person, can be initiated against the legal representatives.

CARRY FORWARD AND SET OFF OF LOSSES

As per section 78(2) of the Income Tax Act, 1961where any person carries any business or profession which he succeeded from another person provided the same is not inherited, then such a person shall not be entitled to set-off or carry forward losses, incurred by the predecessor of the business, as against the profits earned by him from the business after succession. However, in case the business is inherited, the legal heir is entitled to carry forward the loss incurred by the predecessor.

LEGAL HEIR TO REGISTER AS REPRESENTATIVE ASSESSEE

As per the provisions of Income Tax Act 1961, the legal heir of the deceased person would be required to register as a ‘Representative Assessee’.

The following documents be submitted for registering as a Representative Assessee –

• Copy of the PAN card issued in the name of the Deceased person.
• Copy of the PAN card of the person termed as legal heir of the deceased.
• Copy of Death Certificate of the deceased person.
• Legal Heir Certificate dule issued by the Local Authority or Surviving member certificate issued by the Local Authority or Pension Order issued by Central/State Government or Registered will
• Date of Death duly verified by the death certificate.
• Full name of the deceased person along with ID proof.

PROCEDURE FOR REGISTRATION

1. The person would be required to visit the e-Filing portal and login into the portal using the login credentials.
2. After this, click on the ‘My Account’ and then select “Register as Legal Heir”.
3. Under this website, provide the required details and upload zip file containing the following documents –

• • Copy of the PAN card issued in the name of the Deceased person.
  • Copy of the PAN card of the person termed as legal heir of the deceased.
  • Copy of Death Certificate of the deceased person.
  • Legal Heir Certificate dule issued by the Local Authority or Surviving member certificate issued by the Local Authority or Pension Order issued by Central/State Government or Registered will
  • Date of Death duly verified by the death certificate.
  • Full name of the deceased person along with ID proof.

4. After successful uploading of documents, submit the form.
5. After submission, the form will be forwarded to the e-Filing Administrator.
6. The E-Filing Administrator will then review and will approve/reject the request.
7. The final decision is communicated to the person through a confirmation e-mail sent on the registered e-mail ID.
8. Once the request is approved, the legal heir’s profile will be updated, and the same will contain two representations i.e., one of himself and other as a representative of the deceased.
9. Also, the ITR Form of the deceased person will be available to be uploaded via Legal Heir login.
10. The Legal Heir will then be required to add his/her PAN in the verification part of the ITR Form, validate and generate an xml file of the return.

COMPUTATION OF INCOME OF DECEASED

The return of the deceased person shall be filed in the same way, the return is filed by any other assessee. The income of the deceased be computed from the beginning of the financial year until the date of death. Also, the proceeds from the investments or inherited assets of the deceased shall be taxed in the hands of a legal heir and the same be provided in their ITR. The supporting documents in the form of proof of investment, form 16, Form 26AS etc. and the bank statements of the deceased shall also be provided, while filing the return.

OTHER KEY POINTS

• The legal heir shall be allowed to pay the tax under the income tax slab applicable on the deceased person, and also be allowed to claim deductions and rebate under Income tax.
• Where the total income of the legal heir after including the income of deceased person, exceeds Rs 50 lakhs, the legal heir would be required to provide detailed information related to all the Assets and Liabilities held by him at the end of the relevant financial year.
• Any amount received by sale of property of the deceased, shall be taxed as capital gain in hands of the legal heir and the same be reported under capital gains while filing their ITR. To calculate the amount of capital gain arising out of the sale of inherited property, the actual cost of acquisition shall be taken at the cost at which the property was acquired by the deceased person. And also, while determining holding period of the asset, the period for which the inherited assets was held by the deceased, shall also be included.
• It is to be noted that carry forward and set off of losses is allowed in case of inherited business. But carry forward and set off of unabsorbed depreciation is not allowed.
• In case, the ITR of deceased is subject to any refund, the said amount be directly credited to the bank account registered by the legal heir.
• In case of any F.D in the joint name of deceased and legal heir, with the deceased as the primary holder, TDS deducted on the interest, be claimed by the secondary holder.
• Madras HC allows petitioner’s (deceased assessee’s spouse) writ, quashes re-assessment notice issued u/s 148 in the name of deceased-assessee, holds that petitioner cannot be compelled to participate in the proceedings and respond to Sec. 148 notice; In response to Sec. 148 notice issued in the name of assessee (within prescribed time-limit), petitioner intimated about assessee’s death and the subsequent notice was issued by Revenue beyond the limitation period.[TS-315-HC-2018(MAD)]

CANCELLATION OF PAN

Where any taxpayer dies, the PAN issued in their name be cancelled immediately. The legal heir or relative of the deceased person shall apply to the Income Tax Department for cancellation of PAN. And after successful filing of the return and paying the outstanding tax, the Assessment Officer, on application of cancellation, shall cancel the PAN of the assessee.

It is therefore concluded, that the legal heir of the deceased person shall get the full access to the property and income of the deceased.

It is advised that the legal heir, after complying with ITR filing and payment of taxes, shall apply for cancellation of the PAN card of the deceased person.

In case there exist any refund, the account registered with the IT department shall not be closed, till the amount of refunds gets credited. For the purpose of refund, it is advised, that the legal heir shall update an account where the deceased person and the legal heir are joint owners.