Did you know that income tax returns for a deceased person still need to be filed? Yes, even after someone passes away, their income tax return must be completed as if they were alive. But who takes care of this, and what happens to their tax liabilities and refunds? Here’s what you need to know:
Who files a deceased person’s ITR?
The responsibility falls on the legal heir or representative. They must file the return on behalf of the deceased for the income earned up until the date of death. To do this, the legal heir needs to register on the income tax website.
Who is a legal heir?
A legal heir is someone who inherits the assets of the deceased. To be recognised as a legal heir, you can use any of the following documents:
1. Legal heirship certificate from a court: Issued by a court of law.
2. Legal heirship certificate from local revenue authority: Provided by local revenue officials to family members.
3. Registered Will: The deceased person’s will, registered with the appropriate authority.
4. Family pension certificate: Issued by the State or Central government.
5. Surviving family members certificate: Provided by local revenue authorities, such as the Municipality or Nagarpalika. This document is often in a regional language and must be translated into English or Hindi and notarised.
How to register as legal heir
Firstly, the legal heir must register themselves on the income tax department’s e-filing portal. This registration is crucial for filing returns on behalf of the deceased. Both the PAN of the deceased and the legal heir should be registered. If the deceased’s PAN is not registered, the legal heir can do it on their behalf. Here’s how:
1. Log in: Go to the income tax department e-filing portal and log in using your user ID and password.
2. Register as representative: Navigate to ‘Authorised Partners’ > ‘Register as Representative’ and click ‘Let’s Get Started’.
3. Create request: Click on ‘Create New Request’.
4. Enter details: Select the category, enter PAN details, the date of death, and the reason for registration.
5. Upload documents: Upload the necessary documents.
6. Proceed and verify: Click on ‘Proceed’ and then ‘Verify the Request’.
7. Submit request: Finally, click on ‘Submit Request’ to receive an acknowledgment from the department.
After registration, the request goes to the e-filing administrator for verification. They will approve or reject the request. Once approved, you can access the deceased taxpayer’s income tax e-filing account and file their ITR. If the request is rejected, you will need to take further steps to resolve the issue and get it approved.
Documents required for filing ITR of the deceased
According to Jasmine Damkewala, Senior Partner at Circle of Counsels and Advocate-on-Record at the Supreme Court of India, the following documents are necessary:
Death certificate.
PAN card of the deceased.
Self-attested PAN card copy of the legal heir.
Legal heir certificate (as described above).
Any relevant court orders in the name of the deceased.
Now, let’s get to the part where you have to file ITR:
As a legal heir, you have to file the return on behalf of the deceased for the income earned until the date of death. Akshat Rastogi explains, “Calculate the income of the deceased from the start of the year till the date of death, and thereby the tax payable on it in the same manner as if the deceased is alive. If you don’t know the exact income, then you should refer to bank statements, investments, and other relevant documents necessary for income tax calculation.”
Any income earned after the date of death from the assets inherited from the deceased is taxable in the hands of the legal heir. This income should be included in the legal heir’s own income while filing their tax return.
Example:
Let’s understand this with an example. Roma’s husband passed away at the age of 57 on September 30, 2023. He worked at an IT firm and earned Rs 85,000 per month. Here’s how to calculate his tax liability:
Income from Salary (April 1, 2023 to September 30, 2023):
Monthly salary: Rs 85,000
Total income: Rs 5,10,000
Allowances to the extent exempt under section 10:
House Rent Allowance (HRA): Rs 8,333 per month
Total HRA exemption for the period: Rs 49,998 (HRA up to Rs 1,00,000 can be claimed per year)
Salary after allowances:
Salary after deducting HRA: Rs 4,60,002
Deductions under section 16:
Standard Deduction under Section 16(IA): Rs 50,000
Income chargeable under the head “Salaries”:
Net salary after standard deduction: Rs 4,10,002
Deductions under Chapter VI-A
Section 80C (PF, Pension, LIC, Mutual Fund etc) – actual or up to 150,000: Rs 30,000
Section 80D – health insurance premium: Rs 10,000
Total deductions: Rs 40,000
Net taxable income: Rs 3,70,002
Tax calculation for Financial Year 2023-24
For individuals below 60 years, the tax slabs for FY 2023-24 (old tax regime) are:
Income up to Rs 2,50,000: No tax
Income from Rs 2,50,001 to Rs 5,00,000: 5%
Income from Rs 5,00,001 to Rs 10,00,000: 20%
Since the total income is Rs 3,70,000, let’s calculate the tax:
Income up to Rs 2,50,000: No tax
Income from Rs 2,50,001 to Rs 5,00,000: Rs 2,50,000 * 5% = Rs 2,500
Income above Rs 5,00,000: Rs 10,000 * 20% = Rs 3,500
Total tax liability: Rs 2,500 + Rs 3,500 = Rs 6,000
Additionally, there is a 4% Health and Education Cess on the tax amount: Rs 240
Net tax liability: Rs 6,000 + Rs 240 = Rs 6,240
Rebate under Section 87A: Rs 6,240
Tax liability: Nil
In 2013-14, a rebate under Section 87A was introduced to help reduce the income tax liability for eligible taxpayers. As of FY 2023-24, the rebate under Section 87A offers a tax reduction of up to Rs 12,500 for individuals with a taxable income up to Rs 5,00,000 under the old regime.
So, in this case, Roma does not have to pay any tax liability. If she had to, she could have done so through the income tax e-filing portal using net banking or by visiting an authorised bank branch.
Legal heir’s tax responsibilities
According to Section 159 of the Income Tax Act, 1961, “When a person dies, his legal representative shall be liable to pay any sum which the deceased would have been liable to pay if he had not died, in the like manner and to the same extent as the deceased,” explains Rastogi.
“Income earned after the date of death (if intestate) till the end of the financial year from the inherited asset shall be considered as legal heir’s income and he would be liable to pay tax on this income,” he adds.
In the case of CIT v/s Madhukant M. Mehta (2001), the Supreme Court ruled that a legal heir is responsible for the tax liabilities of a deceased individual from the estate they inherit. Jasmine Damkewala, Senior Partner at Circle of Counsels and Advocate-on-Record at the Supreme Court of India, explains, “The legal heir must file the deceased’s Income Tax Return (ITR) for the period up to their death, including all applicable income and claiming eligible deductions. After death, any income generated from the deceased’s estate is taxable in the hands of the legal heir or the estate itself.”
Claiming deductions in ITR
“As the legal heir, Roma can claim any deductions or exemptions that her husband was eligible for before his death. These may include deductions under Section 80C, 80D, etc.,” says Damkewala.
The legal heir must file the ITR in the name of the deceased and use Form ITR-1, ITR-2, or ITR-3, depending on the income sources.
Standard deduction: Claim for a standard deduction of Rs 50,000 against the deceased’s salary income can be taken
Section 80C deductions: Claim for a deductions up to Rs 1.5 lakh for various investments and expenses made by the deceased taken be taken.
Section 80D deductions: Medical insurance premiums can be claimed up to Rs 25,000 for premiums paid for self, spouse, and children. If the insured is a senior citizen, the deduction limit increases to Rs 50,000.
Section 80DDB: Expenses incurred for the medical treatment of specified diseases can be claimed up to Rs 40,000, and if the patient is a senior citizen, the limit increases to Rs 1 lakh.
What about income earned after death
Income earned by the deceased up to the date of death should be included in their ITR, which is filed by the legal heir. Roma may need to obtain a separate PAN for her husband’s estate and file income tax returns accordingly. However, income earned after his death from the deceased’s assets (such as rental income, interest, etc.) will be taxed in the hands of the legal heir(s) who inherit the assets.
Damkewala explains, “Roma would need to include this income in her own ITR, be it any earnings from these assets which now belong to Roma legally or to any other legal heir, be it rental income from properties or interest earned on investments—will be considered as the said Legal Heir’s taxable income. It’s now their responsibility to report this income accurately and pay taxes on it as per Indian tax laws.”
Penalty for late filing of ITR for the deceased
“Penalties are the same as filing under normal circumstances,” says Rastogi. The due date for filing income tax returns for individuals for FY 2023-24 is July 31, 2024. Failing to meet this deadline can result in penalties. Late filing penalties include a fixed penalty of Rs 5,000 if the return is filed after the due date. Additionally, taxpayers with a tax liability exceeding Rs 10,000 may face an additional 1% interest per month on the outstanding tax amount.
