Consequence of failure to file deceased's ITR: Penalties, interest, jail

However, a legal heir's liability is capped at the value of the inherited estate

“The Sixth Sense” immortalised the phrase “I see dead people”. It appears even the tax authorities share this eerie ability. If an individual has taxable income, his income tax return (ITR) must be filed regardless of his demise.

Says Ankit Jain, partner at Ved Jain & Associates: “The representative or legal heir must file the return for the income earned by the deceased until the date of death if the income was taxable.”

Register as legal heir

First, one must first register as a legal heir on the Income Tax (I-T) e-Filing website. This involves submitting documents such as the death certificate and legal heir certificate. Says Jain: “Once the documents are submitted, the I-T Department reviews the application. If the verification is successful, approval is granted. Given that there can be delays in approval, the process should not be left to the last minute.”

File the ITR

Next, the legal heir can file the ITR in the same manner as the deceased individual would have, except that the heir must select the option of filing as a legal representative. The appropriate tax liability should be calculated and paid.

Ramifications of non-compliance

The legal heir bears the obligation of meeting the tax liability. However, the legal heir is not personally responsible for settling these dues. Maneet Pal Singh, a partner at IP Pasricha & Co, clarifies, “The legal heir’s liability is limited to the extent that the inherited property can cover the outstanding taxes.”

Failure to submit the deceased’s ITR by the deadline can lead to several consequences. Says Naveen Wadhwa, deputy general manager, Taxmann: “Consequences include loss of exemptions and deductions and potential imposition of interest, penalties, and fines. If the return is not filed by the due date, the assessee will be liable to pay interest under Section 234A for the delay.” Moreover, late filing fees under Section 234F will apply, ranging from ~1,000-5,000, depending on the deceased’s income.

Non-compliance can also result in legal complications and disputes with the tax authorities. Says Tabrez Malawat, partner at The Guild: “In cases of non-compliance or deliberate evasion, the legal heir may face prosecution under Section 276CC of the I-T law. This section outlines the penalties for such failures based on the potential amount of tax evaded. If the tax evasion amount exceeds ~25 lakh, the person can be sentenced to rigorous imprisonment of six months to seven years, besides a fine.” In other cases, the imprisonment term can range from three months to two years, along with a fine.

Club continuing income appropriately

The deceased person’s Personal Account Number (PAN) should be surrendered only after completing tasks such as closing bank accounts, transferring assets, settling pending taxes, and filing the ITR. Says Singh: “The legal representative should write a letter to the assessing officer, providing details of the deceased person, such as name, PAN, date of birth, reasons for surrender, and a copy of the death certificate.”

The legal heir or executor bears the responsibility for errors in filing the ITR. Says Wadhwa: “Ensure that all data is gathered accurately before submitting the deceased person’s return.” If mistakes or omissions are discovered in the original return, it can be revised until December 31 of the relevant assessment year.

Segregate continuing income, such as interest, rent, dividends from shares, and gains from investments, which continue even after death. Says Vivek Jalan, partner at Tax Connect Advisory: “The deceased’s income up to the date of death needs to be included in his ITR. Subsequently, this income should be clubbed in the ITR of the legal heir.”

Finally, remember that two separate ITRs must be filed for the year of death. Says Suresh Surana, founder of RSM India: “One ITR should be filed by the legal heir for the deceased person’s income from the beginning of the financial year until the date of death. Additionally, the executor should file a second ITR for the income earned by the estate of the deceased from the date of death until the distribution of assets to the legal heir.”

Stepwise guide to filing deceased’s ITR

• Calculate income: Determine the income earned by deceased from the start of the financial year until the date of death
• Open an ITR account: The legal heir must create an ITR account and register as a legal representative on the tax portal using his own login details
• Register as legal heir: Submit deceased’s documents, including PAN, death certificate and legal heir proof for approval
• File the return: After registration and approval, proceed with filing the ITR for the deceased
• Verification and submission: Complete the ITR and verification steps, then submit the return electronically

Source: The Guild