Tax notice after death: Legal heir process explained

The tax department requires specific documentation for legal heir registration. As reported by Tax2win, the required documents include the deceased person's PAN, death certificate, and proof of legal heirship. CA Abhishek Soni, CEO and Co-founder of Tax2win, emphasized that "it is not simply a matter of any family member claiming the refund. The person needs to establish that they are legally entitled to represent the deceased's estate and register themselves on the e-filing portal accordingly." According to Mint, Tarun Garg from Deloitte India noted that acceptable legal-heir proof can include a legal heirship certificate issued by a court or local revenue authority, a surviving-member certificate, a registered will or a family pension certificate. The registration process requires documents including the death certificate and PAN details of both the deceased taxpayer and the legal representative. The registration request has to be approved by the assessing officer or the Centralised Processing Centre. Rohit Garg from Shardul Amarchand Mangaldas & Co. emphasized that ignoring the notice could result in the department proceeding with a best-judgement assessment and creating a tax demand, with the possibility of a penalty.

When receiving a tax notice in a deceased taxpayer's name, legal heirs should not ignore the notice but establish their representative status immediately. As per Mint, legal heirs should formally inform the assessing officer about the taxpayer's death and submit the death certificate. The heir should also raise an objection on jurisdictional grounds if proceedings have been initiated against a deceased individual. If not already done, the heir should register as the legal heir or representative assessee on the income-tax e-filing portal using their own login credentials. Once approved, the heir can switch to the representative assessee role from the profile section. Tarun Garg from Deloitte India pointed out that the deceased taxpayer's login cannot be used to respond to a notice after legal heir registration is approved. The legal heir can use their own login credentials to make the registration request and once approved, they can switch to the representative assessee role.

Once registered, legal heirs can submit refund reissue requests through the Income Tax e-filing portal. According to the tax department guidelines, the process involves logging in using registered legal heir credentials, selecting Refund Reissue under Services, entering the deceased taxpayer's PAN, selecting the relevant Assessment Year, and choosing a validated bank account for credit. Rohit Garg from Shardul Amarchand Mangaldas & Co. noted that once registered, the legal heir can request the refund due to the deceased taxpayer to be issued to their validated bank account. Tarun Garg similarly pointed out that a legal heir may also need to deal with refunds, outstanding tax demands, TDS mismatches or pending returns of the deceased taxpayer. For TDS mismatches, a rectification application can be filed with the required reconciliation, and a grievance can also be raised on the e-filing portal.

The legal representative has specific filing responsibilities for the deceased taxpayer's income. According to The Economic Times, the legal representative must file a return for income earned by the deceased before death, covering the period beginning on the first day of the financial year and ending on the date of death. If the deceased had failed to file a return for an earlier assessment year, the legal representative may also have to file that pending return. Importantly, income earned after the person's death should not be included in the deceased person's return. Before filing returns, the legal representative should carefully review the deceased person's financial records including Form 26AS, the Annual Information Statement (AIS), Taxpayer Information Summary (TIS), bank statements and capital gains details. A fresh income tax notice cannot validly be issued in the name of a person who has already died, and if such a notice is received, the legal representative can challenge it instead of simply responding to it. For pending ITRs, the legal heir can track the return after registration and a pending final return should be filed by the heir under the deceased taxpayer's PAN where required.

After death, tax affairs continue for the deceased person's estate with specific limitations on personal liability. According to The Economic Times, tax dues do not automatically become the personal debt of the legal heir, with liability generally linked to the estate left behind by the deceased. The representative's personal liability is normally limited to the value of the deceased's estate available to meet the tax liability. However, legal heirs need to be careful about handling inherited assets while tax proceedings are pending. They should avoid distributing, transferring, selling or mortgaging estate assets prematurely, as wrong handling can result in personal liability. Tarun Garg from Deloitte India pointed out that there is an important exception - if the legal heir disposes of the deceased's estate without settling outstanding tax liabilities, the heir may become personally liable. The liability cannot exceed the value of the assets that were wrongly handled. The key point is that death does not bring pending income tax obligations to an automatic end, as the legal representative may have to complete the deceased taxpayer's pending compliance, but the tax liability is generally met from the estate left behind.