Tax Implications for a Deceased Person

While this document covers 'Tax Implications for a Deceased Person', refer Filing Income Tax Return for the Deceased Person.

This document covers

1. Who is Legal Representative?
2. Calculation of the Deceased Person's Income
3. Filing of Income Tax Return of Deceased person
4. Surrender of PAN of deceased person
5. Taxability of Assets transferred to Legal Representative
6. Sale of property or other assets by Legal Representative

1. Who is Legal Representative?

• The term "legal representative" refers to a person who represents the estate (property) of a deceased person and encompasses anyone who interferes with the estate.
• It is not necessary that the legal representative should be beneficial owner of the estate.
• It is sufficient that the estate (property) passes on to him.

2. Calculation of the Deceased Person's Income

• The income of the deceased person needs to be computed from the start of financial year to the date of death.
• The income from date of death of deceased person to the end of financial year is taxable in the hands of legal representative.

3. Filing of Income Tax Return of Deceased person

• It is the responsibility of the legal representative to file the income tax return of the deceased person.
• The due date for filing Income Tax Return is July 31st every year if it is Non Audited and October 31st every year for Audited case. Check the latest dates from Income Tax Calendar

4. Surrender of PAN of deceased person

PAN of the deceased person must be surrendered only after doing the following activities

1. Close bank accounts
2. Transfer the Assets
3. Pay the pending taxes
4. File the income tax returns

The Legal representative should write a letter to Assessing officer mentioning the details of deceased person like name, PAN, Date of birth, reasons of surrender and copy of death certificate.

5. Taxability of Assets transferred to Legal Representative

• There is NO TAX on the value of assets transferred to legal heirs after the demise of the individual.
• Rental Income received on the properties transferred to legal heirs is taxable in their hands under the head House Property
• Interest Income received on the Bank balance or Fixed deposits transferred to legal heirs is taxable in their hands under the “Income from Other Sources”.

6. Tax implications on Sale of property or other assets by Legal Representative (Legal heir)

• Transfer of Capital asset from deceased person to Legal heir will be treated as inheritance and there is no tax on the transfer
• If the Legal heir sells the property which he inherited, capital gain will be arising in the year of sale and the legal heir is required to pay the taxes on the capital gain and file the income tax return in the year of selling the property.
• While calculating capital gain of the property, the original cost to the deceased will be treated as cost to the legal heir.
• The period of holding of capital asset to the legal heir is calculated from the date of purchase of asset by the original owner. The legal heir can compute the indexation from the date of purchase or 01 st April 2001 whichever is beneficial.