Tax Obligations Of Deceased: What Legal Heirs Need To Know

In a recent ruling, the Bombay High Court has said that proceedings initiated in the name of a deceased person are not valid. They must be directed against legal heirs under Section 159 of the Income Tax Act. 

Tax proceedings cannot be initiated in the name of a deceased. Nevertheless, their tax liability does not evaporate but is transferred to their legal representatives or heirs. Section 159 of the Income Tax Act, 1961, states that any outstanding tax issues, including assessment or refund, are to be dealt with by the legal heir. The liability of the heir is not determined by their personal wealth but by the inherited assets. The liability of the heir is not really dependent on personal wealth but on inherited assets. 

If tax proceedings were pending at the time of the individual's death, the Income Tax Department cannot proceed against the deceased themselves. Instead, notices and tax demands need to be issued in the name of the legal heir, who needs to file returns, settle dues, and reply to tax notices. The heir needs to report the death to tax authorities by filing the required documents such as the death certificate and legal heir proof.

If a notice of tax payment is issued inadvertently in the name of the deceased, the heir must ask for a correction. If not taken heed of, the notice becomes invalid. In case the heir fails to answer genuine tax notifications, they are liable to pay penalties, but not more than the worth of the inherited assets.

Any unreported or untaxed income of the deceased could be subject to further investigation, which a legal heir must remember. For a simpler procedure, they could enroll as a legal heir on the Income Tax e-filing portal. This helps maintain compliance and protects inherited property while facilitating tax settlement easily.