Taxability in Case of Death – How to File Income Tax Return of a Deceased Assessee?

Income earned before the date of the death:

Payment of taxes and filing of ITR:

The legal representatives or legal heirs are liable for payment of taxes, interest, etc., which were due from the deceased person upto the date of the death. They need to file the return of the deceased person for the period starting from the April 1st of the financial year upto the date of the death.

In order to file income-tax return on behalf of the deceased person, a person has to first register himself as a legal heir on e-filing website.

Assessment proceedings:

Where an assessee has died during the course of the Income-tax proceedings, such proceedings may be continued against the legal representative from the same stage at which it stood on the date of the death of the deceased person.

Further, any assessment proceedings which could have been initiated if the assessee had survived may be taken against the legal representatives.

Carry forward and Set off of Deceased Person’s loss:

In case the deceased person had some losses which are lying unadjusted or unutilised, such losses are allowed to be set off against his/her liability which is taxable in the hands of the legal representatives.

Similarly, when an individual succeeds in the business of his predecessor by inheritance, the successor is entitled to carry forward the loss incurred by the predecessor. 

However, the total period of carry forward cannot exceed 8 assessment years immediately succeeding the assessment year for which the loss was first computed.

Income earned after the date of death:

While determining the taxability of the Income earned from the estate of the deceased person after the date of his/her death, it has to be determined whether the death was testate or intestate. In case of testate death income after the date of the death shall be taxable in the hands of the legal heirs. 

In case of Intestate death such income shall be taxable in the hands of the Executors from the date of death till the date of the distribution. After such distribution is made income shall be taxable in the hands of the legal representative.

Status of the Executor:

In case only one executor has been appointed, he will be treated as an individual. However if more than one executors have been appointed then income will be taxable by treating them as an Association of Persons.

Further, the residential status of the executor shall be decided according to the residential status of the deceased person during the year in which his death took place.

The executor has the rights to recover or to retain the amount utilised for payment of liability of the deceased person. 

Tax on inherited property:

When any money or property is received by a person without consideration or for inadequate consideration, it is considered as residuary income of recipient. However, this provision does not apply to any sum of money or any property received under a will or by way of inheritance. Hence, legal heir shall not be liable to pay any income-tax on inherited money or property.

Further, any transfer of a capital asset under a gift or will or an irrevocable trust is not regarded as transfer for capital gain tax purposes. Hence, transfer of capital asset under inheritance will not be chargeable to tax in hands of deceased person as well.

Also Read:

• 5 major changes in ITR forms  for individuals

• New ITR Forms Applicable for AY 2019-20

• Key changes in new ITR forms with respect to deductions & exemptions available under income tax act