Heir must file tax return on behalf of deceased

Failure to do so within the year of demise can lead to penalty

In India, even after a person passes away, his obligation to pay income tax does not cease. If, in the year of his demise, he had sufficient income to fall in the tax net, then his income-tax return must be filed and tax must be paid on his behalf. According to Section 159 of the Income-tax (I-T) Act, it becomes the responsibility of the deceased person's legal representative to pay his tax dues.

After a person's death, his heir needs to check whether he wrote a Will or died intestate (without writing one). Says Naveen Wadhwa, deputy general manager, Taxmann: “If a person dies intestate, the estate left behind by him devolves on his legal heirs according to the personal law governing the deceased. But if he made a Will and appointed an executor, then the income from the deceased person’s estate is taxed in the hands of the executor.”

Get registered as legal heir

To file income-tax return, the legal representative or executor needs to get registered on the e-filing portal (see box: How to register as legal heir). Once the request is made, the department verifies it. An email and an SMS are sent to the person who raised the request informing him about the approval. The legal heir can then e-file the income-tax return on behalf of the deceased.

File two returns

A key point that legal heirs must know is that the income-tax return on the deceased’s behalf has to be filed twice. Suppose that a person died on August 17, 2020. One return has to be filed for the income earned from the

start of the financial year (April 1, 2020) to the date of death (August 17, 2020). The second income-tax return has to be filed for income earned by the deceased from the date of his death (August 17, 2020) till the end of the financial year (March 31, 2021). According to Gopal Bohra, partner, NA Shah Associates, “The first incometax return will be filed in the name of the deceased by his legal heir. The second will be filed in the name of the estate by the executor.” Bohra says that if the legal heir or executor fails to pay the applicable taxes, the Income-tax Department can initiate proceedings against the former to recover the dues.

Beware of penalty

According to Section 159 of the

I-T Act, the legal heir is responsible for the payment of taxes, and also any interest or penalty that may arise if he fails to do so. Says Kapil Rana, founder and chairman, Hostbooks Limited: “Each legal heir will be personally liable for any tax payable by him in his capacity as a legal heir.”

First of all, a legal heir should obtain the death certificate. This is the first document that has to be submitted to the authorities. Then he needs to obtain a legal heir certificate or surviving member’s certificate.

The income earned by the deceased after his/her death is taxable in the hands of the legal heirs. If the total income of the legal heir, including the deceased person’s income from the date of his death exceeds ~50 lakh, then the legal heir also needs to provide the details of all the assets and liabilities held by him at the end of the financial year in Schedule AL.

Claiming refund

If any refund of tax has to be claimed in the income-tax return of the deceased person, fill up the details of the joint bank account to receive the refund amount. Says Wadhwa: “If there is no joint account and the legal heir fills up the details of his bank account, then the Centralised Processing Centre (CPC) will ask the deceased person’s juridical Assessing Officer to verify the details of the legal heir. After verification, the CPC will issue the refund in the name of the legal heir.”

Inheriting digital property

In India, unlike in other jurisdictions such as the United States, there is no specific legislation regulating the bequest of digital assets. Says Aditya Chopra, managing partner, Victoriam Legalis, Advocates and Solicitors: “Since succession laws include both movable and immovable properties of the deceased, and there is no categorical exclusion of intangible properties, one can say that digital assets can also be bequeathed like other movable and immovable assets.”

Each social media platform may, however, have its own policies which the legal heir will have to comply with. The legal heir should write to the concerned authorities of each social media platform to retrieve sensitive information, if any, of the deceased.

Due to the absence of a concrete law governing cryptocurrencies, there is uncertainty regarding the inheritance mechanism or legal heir’s liability vis-a-vis these digital assets. Says Sameer Jain, managing partner, PSL Advocates and Solicitors: “Cryptocurrencies are privatised virtual currencies. They are regulated at the discretion of the private entity itself.” He adds that the terms and conditions that the deceased had originally agreed upon will continue to be binding on the legal heir as well, as if the deceased was permitted to transfer the digital currencies to the heir.