Deceased's tax dues: Heir's liability capped at value of inheritance

Taxpayers cannot escape their tax dues even in death. If a deceased individual’s total taxable income exceeds the basic exemption limit, then filing income tax return (ITR) on their behalf becomes mandatory under Section 139(1) of the Income-Tax (I-T) Act.

The I-T Act lays down the procedure for filing returns on behalf of a deceased person. “According to the Act, the legal heirs of a deceased person, who has a taxable income, must file the ITR on their behalf on earnings up to the date of demise,” says Alay Razvi, partner, Accord Juris.

Get registered

To register, the representative must go to the I-T Department e-filing portal and provide the key details and documents: the deceased’s and legal heir’s PAN cards, a certificate of heirship, and the deceased’s pension certificate (if available). 

The tax authorities approve the request after reviewing these documents, ensuring legal requirements are met.

“This is typically a quick process. Once you update your details as a legal heir, the portal will update the records immediately. Once registered, you can file the ITR for the income earned by the deceased,” says Kunal Savani, partner, Cyril Amarchand Mangaldas.

If the request is rejected, a valid reason will be provided, such as incorrect information or documents. “The legal heir should then rectify the issue,” says Manikandan S., tax expert, Cleartax. The PAN of both the deceased person and the legal heir should be registered in the e-filing portal. “If the deceased person’s PAN is not registered, then the legal heir can register on behalf of the deceased,” says Manikandan.

Legal heir’s tax liability

The legal heir is responsible for paying the deceased’s tax dues. “The liability of the legal heir is limited to the extent to which the assets he inherited are capable of meeting the liability,” says Pallav Pradyumn Narang, partner, CNK. 

Suppose that A inherits a sum of Rs 1 lakh from Z. There is an outstanding tax liability of Rs 1.25 lakh on Z. In that case, A will only be liable to pay Rs 1 lakh to the tax department.

Not filing an ITR or paying the tax dues on the deceased’s behalf can lead to penal consequences. 

If the tax dues are not paid, interest under sections 234A, 234B, and 234C can be levied. “Upon further failure, the I-T Department can attach the property of the legal heir,” says Razvi. The legal heir is also liable for any error in the deceased’s ITR. 

Heir’s other responsibilities

The legal heir must inform the I-T Department of the person’s death. “Not intimating the I-T Department amounts to concealment of facts. Non-intimation or non-payment of taxes can amount to heavy penalties,” says Razvi.

Pay the outstanding tax dues on time. “Ensure timely filing, accurate documentation, correct income reporting, and consult a tax professional to manage the complexities. Clear and prompt communication with the I-T Department is also crucial to address any notices or queries,” says Amit Bansal, partner-direct tax, Singhania & Co. 

Keep all necessary documents, such as the death certificate and legal heir certificate, handy in case they are required for verification. “Check the latest guidelines on the e-filing portal for any updates to the process or documentation requirements. Ensure that all income until the date of death is accurately calculated and reported,” says Narang. 

Registering as legal heir

> Go to the income tax department e-filing portal; log in using your user ID and password

> Go to ‘Authorised Partners’, then ‘Register as Representative’ and click on ‘Let’s Get Started’

> Click on ‘Create New Request’

> Select the category, enter the PAN details, date of death, and reason for registration

> Upload the required documents

> Click on ‘Proceed’ and ‘Verify the Request’

> Click on ‘Submit Request’ to receive acknowledgement from the department

Note: The legal heir must provide the ‘Reason for Registration’ as a representative assessee

Source: Cleartax