Do I need to file ITR for deceased family member ?

A complete and comprehensive step-by-step guide on how to file an Income tax return for a deceased person.

As cynical as it may sound, did you know Income tax returns for a person even after he/she passed away have to be filed? But who needs to file it and how? What is the procedure? Is there any penalty if it is not filed? If yes, who bears the liability of paying the income tax and other fees? Questions are many but do you have the answers yet? Let’s find them out in today's blog post

1. The Legal heir/representative

Section 159(1) of the Income Tax Act, 1961 says when a person dies, his/her legal heir/representative is required to file the income tax return on the Income tax website on the deceased behalf and pay any tax liability arising out of it. Here, the legal representative is considered the same as the deceased person would have been treated in his lifetime.

Documents needed for the legal representative:

1. Legal Heir Certificate by Court/Local Revenue Authority
2. Registered Will
3. Death Certificate
4. PAN of the deceased
5. Self-attested PAN copy of the legal heir

2. The Tenure

The most frequent question that gets asked for how long do we need to file income tax for a deceased person? Till the date of the death

The income of a deceased person that needs to be filed by its legal representative/heir is up to the date of the death. Any further income that may arise in the name of the deceased person or from the asset he was owning shall be inherited by its legal heirs and shall be considered as the legal heirs' income.

3. How to register as a legal representative on the income Tax site

1. Visit the Income Tax Department e-filing portal. Use your user ID and password to log in.
2. Once logged in, go to “Authorise Partner” > ”Register as Representative”
3. Click on “Create New Request”
4. Select category of assessee who you want to represent : “Deceased (Legal Heir)”
5. Upload the required documents
6. Click on the “Proceed” and “Verify the request” button
7. Click on “Submit request” to submit the application

4. The Approval process and way forward

The e-filing administrator verifies and approves the request based on documentation and information. Once approved, the legal heir gains access to the deceased account. If rejected, the legal heir gets notified to rectify the mistake or provide additional information that may have required by the administrator.

5. How to file income tax as a legal representative

1. Login to your income tax account
2. Choose “legal Heir” in the profile section
3. Proceed to file income tax by selecting the correct Assessment year
4. Fill out the ITR form as if the deceased person would have filled out for the income that arising till the date of death
5. Enter legal heir information and submit the ITR
6. E-Verify the return

6. Two returns to be filed, not one !!

That’s right. When you are filing the return for a deceased person then you need to file two returns and not one.

One is as a legal representative of the deceased person from the beginning of the financial year till the date of the death.

Second, for your income including incomes from sources/assets inherited by you from the deceased.

It is important to note that any income generated after the date of the death cannot be considered as income of the deceased anymore and shall be taxable in the hands of those who inherited them.

7. Tax liability in the hand of a legal heir is limited to assets inherited

The Act says the legal heir is liable to pay the tax liabilities of the deceased person. However, such liability is limited only to the extent of the value of assets inherited by the legal heir from the deceased.

For example: Mr. X inherits an estate from his deceased father Mr. Y amounting to Rs. 10,0,000. On the other hand, the tax liability of Mr. Y comes to Rs. 12,00,000. In that case, Mr. X is liable to pay only Rs. 10,00,000.

Apart from Tax liabilities, any other penalty, fee or charges are also limited to the total value inherited by the legal heir.

8. In case the deceased is a minor

In the case when the deceased is a minor individual having taxable income in their name, the guardian of the minor becomes a legal representative for filing a return. Since the minor is incapable of entering into any contract, the guardian needs to register himself/herself as the legal representative and provide all the required documents along with proof of guardianship.

9. What if there is a Will

In the case of a will being made, the legal heir files the ITR of the deceased person for the period up to the date of death. From the date of the death, till the Will is fully executed and all the estate is completely distributed as per the Will, the responsibility of filing the Income tax and discharging off the liabilities falls in the hands of the executor. The executor needs to register himself/herself as the legal representative on the income tax website similar to the legal heir and file the ITR on behalf of the departed for the period after the date of death.

Similar treatment needs to be done in the case of a Private trust where the trustee becomes the legal representative of the assets of the deceased.

Other Important facts to know

10. Is the amount inherited by a legal heir taxable? NO

11. Things to do after Filing Return

Make sure not to leave loose ends.

After filing the tax return, the PAN card of the deceased person needs to be surrendered to the Jurisdiction officer of the Income Tax along with a copy of the death certificate.

12. A death certificate is a proof of death issued by the Registrar that ensures the death is recorded in the official record now.

13. A legal heir certificate is a legal document that establishes the rightful owners of a deceased person’s assets or estate. It can be claimed from the Municipality/corporation by applying.

14. A Will is a legal document that states the wishes of a person regarding the distribution of their estate and any other wishes after his death. The registration of a Will, though not compulsory by the Law, is always advisable. A registered Will helps not only add protection to the Will but at many institutions, a registered Will is asked for to authenticate the transactions.

15. What can the legal heir do on behalf of the deceased person

• Uploading Tax Returns
• Submitting ITR Online
• Responding to Defective Return Notices
• Submitting Forms Online
• Rectification Requests and Status Updates
• Reissuing Refunds
• Requesting Intimation
• Responding to Outstanding Demands
• Resolving Tax Credit Mismatches
• Managing Chartered Accountant (CA) List
• Managing e-Return Intermediary (ERI) List
• Submitting Helpdesk Requests
• Viewing Worklist
• Viewing Form 26AS

16. For the purpose of Assessment, Reassessment, re-computation, the legal representative is deemed to be the assessee. Any action that could have been taken against the deceased shall also be taken against the legal representative.

17. Transfer of Capital assets under Inheritance

Since transfer under inheritance is not considered as "transfer" under section 47 of the Income Tax Act, such inheritance of assets shall not be considered as Capital gain. Going ahead, if the legal heir sells off the inherited properties, then capital gain shall be levied in the hand of the legal heir.

18. If there is an income tax refund exists to be received by the deceased assessee, it is important to keep the bank account of the deceased person active to receive the refund amount.

Hope this article helps in having a detailed understanding of what to do when one of the dearest family members passes away and you are the second in command to take care of affars. As Benjamin Franklin says, "Nothing is permanent except death and taxes", it is important to be careful and aware of the statutory requirements that arises after a person.

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