Income Tax Returns: What Should Legal Heirs Do To File ITR On Behalf Of The Deceased?

When a taxpayer passes away, the duty of income tax filing falls onto their legal heir who must address tax obligations and ensure compliance with federal and state regulations. “It's crucial to ensure timely compliance with tax laws to avoid potential penalties and legal complications,” says Vikas Dahiya, Director at ALL India ITR. From registration, and accurate form selection to income computation of the deceased taxpayer for the financial year in which they passed away - there are various critical steps a legal heir must ensure to file an error-free income tax return.

Also Read: Schedule AL: Here are Points To Remember When Filling This Schedule in ITR

Now, let’s understand in detail how legal heirs should file ITR on behalf of the deceased:

Where To Begin

Registration: Registration as a legal heir is mandatory for the e-filing of returns on behalf of the deceased person. “Legal heir needs to register themselves on the Income Tax Portal in the capacity of the representative assessee. For that, they need to enter their personal Income Tax login credentials and then go to the Authorised Partners’ Tab,” informs CA Ashish Niraj, Partner, A S N & Company, Chartered Accountants.

“The PAN of both the deceased person and legal heir should be registered in the e-filing portal. However, if the deceased person's PAN is not registered, then the legal heir can register on behalf of the deceased,” says Manikandan S, Tax Expert, Cleartax.

Step-by-step registration guide for legal heirs:

- Visit the income tax department e-filing portal. Log in to the e-filing portal using your user ID and password.

- Go to ‘Authorized Partners’ and 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 the reason for registration

- Upload the required documents

- Click on the ‘Proceed’ and ‘Verify the Request’ button

- Lastly, ‘Submit Request’ after which you will get the acknowledgement from the department

Remember: The legal heir should mandatorily provide the ‘Reason for Registration’ as a representative assessee. Source: ClearTax

Be ready with the copies of following documents to register as a legal heir:-

• PAN Card of the deceased

• Death Certificate

• Legal heir proof as per the norms

• Letter of Indemnity (optional)

The order passed in the name of the deceased (this is mandatory only if the reason for registration is ‘Filing of an appeal against an order passed in the name of deceased’, says CA Ashish Niraj)

Which ITR forms should legal heirs use when filing an ITR on behalf of a deceased individual?

Generally, the ITR form used should correspond to the form the deceased would have filed if they were alive and filing their taxes. “For instance, if the deceased had income from salaries or other sources, Form ITR-1 or ITR-2 might be suitable, depending on the complexity of their financial situation. Conversely, if the deceased had business income, capital gains, foreign assets, or income from other sources, forms such as ITR-3, ITR-5, or ITR-6 could be more applicable,” informs ALL India ITR, a tech-based ITR filing custom application.

Under what circumstances is it mandatory for a legal heir to file an ITR on behalf of the deceased?

Vikas Dahiya, Director at ALL India ITR informs, “As per Section 159 of the Income Tax Act, 1961, the legal representative of a deceased person shall be deemed to be an assessee and liable to pay any tax payable by the deceased for the income earned up to the date of death.”

Further CA Ashish Niraj comments, “If the deceased had any Taxable Income in any Financial Year till the date of his death, his legal heir will be required to file his ITR and discharge his tax liability. Here maximum tax liability that he is required to pay is his share of assets received as a legal heir.”

Income Computation & Deductions

As per ALL India ITR, this is how the legal heir should compute the income of the deceased taxpayer:

- All sources of income earned by the deceased up to the date of death must be accounted for, including salaries, business profits, rental income, interest, dividends, and capital gains.

- Any income earned after the date of death, such as interest on deposits or dividends on investments, should also be included.

- Deductions and exemptions applicable to the deceased for the relevant financial year must be taken into account to arrive at the taxable income figure.

“If you don’t know the exact income of the deceased, then you should refer to bank statements, investments, and other relevant documents necessary for income tax calculation,” informs Manikandan S, Tax Expert, Cleartax. He further states that any income earned after the date of death from the assets inherited from the deceased is taxable in the hands of the legal heir. “The legal heir should include this income inherited from the deceased in his own income while filing his/her own income tax return.”

In addition to this, remember that property taxes can be claimed in the ITR of the deceased if he paid for them or of the legal heir if they paid them. A standard deduction of 30 per cent is allowed for both on the rental income.

Additional Considerations

How should the ITR be filed if there are multiple legal heirs?

Vikas Dahiya, Director at ALL India ITR claims, “In case of multiple legal heirs, each legal heir

needs to register separately on the e-filing portal using their login credentials. A joint declaration needs to be submitted specifying the legal heir who will be filing the return on behalf of the deceased.”

“Otherwise all legal heirs who got assets of the deceased will be liable for penalty proceedings,” states CA Ashish Niraj.

So what should multiple legal heirs do?

All India ITR says, “Legal heirs should collectively gather all necessary financial documents and information about the deceased's income and deductions for the relevant tax year. Subsequently, they should decide on a designated representative or tax professional responsible for preparing and filing the ITR on behalf of the deceased's estate.”

The designated representative will need to ensure that all legal heirs are provided with copies of the filed return and any relevant tax documents for their records. “Legal heirs need to maintain open communication throughout the process to address any questions or concerns that may arise, ensuring compliance with tax laws and regulations while minimizing the risk of errors or discrepancies,” Dahiya (All India ITR) states.

Would there be any penalty on legal heirs if they fail to do so?

Yes, if the legal heirs fail to file ITR on behalf of the deceased individual they will be liable for potential penalties and consequences. “However, their liability will be limited to assets received by them as legal heir,” says CA Ashish Niraj.

The exact penalties may vary depending on the specific circumstances and the tax laws of the jurisdiction involved. “Common penalties may include late filing penalties, interest charges on any unpaid taxes, and even potential legal actions or audits by tax authorities,” informs Vikas Dahiya, Director at ALL India ITR.

The Income Tax Act also outlines the following potential consequences:

Section 234A of the Income-tax Act, 1961: This section empowers the Income Tax Department to levy interest for late filing of ITRs.

Section 271A of the Income-tax Act, 1961: Under certain circumstances, this section allows the department to impose a penalty for non-filing of ITRs.