Shyamal Banerjee/Mint
Shyamal Banerjee/Mint

Tax procedures add pain to the death of a taxpayer

Our tax procedures make things worse by creating even more difficulties in the process

Coping with the death of a near and beloved one is a painful process. A person in that state of mind certainly does not want to have other complications at that point of time. Unfortunately, our tax laws do not seem to take a sympathetic approach and simplify the process of taxation in such cases. Our tax procedures make things worse by creating even more difficulties in the process.

When a taxpayer dies, he can no longer be subjected to tax, as he is no longer in existence. In the year of death, his income has to be split into two parts—the period from 1 April to the date of death, and the period from the date of death to 31 March. For the period up to the date of death, the return has to be filed by the legal representatives of the taxpayer, and for the period from the date of death, the return has to be filed by the administrators and executors of the estate of the taxpayer. The legal representatives would include not only the legal heirs, but also the administrators and executors. Where there is a Will, the executors of the Will would be the executors of the estate. In the absence of a Will, the administrators, who may be either appointed by the court or as may be decided among the legal heirs, who are actually administering the estate by realising and distributing the assets, would be regarded as the administrators for this purpose.

Courts have held that it is the legal representative who is filing the return up to the date of death, and that assessment, therefore, has to be made in the name of the legal representative, stating his capacity as legal representative of the deceased. Further, all the legal representatives are required to be brought on record.

The difficulty arises when one tries to put these legal provisions into practice. In practice, normally the same Permanent Account Number (PAN) of the deceased person is used by the legal representatives. If one tries to e-file the return in the capacity of a legal representative, one is informed that a registered copy of the Will or copy of probate or letters of administration are required to be furnished in order that the legal representative is able to file the return. As is well known, in a majority of the cases, the Will is not registered, since registration is not mandatory. Besides, once the person who has prepared the Will is no more, the Will certainly cannot be registered. Further, the process of filing and obtaining a probate or letters of administration through the high court takes at least a year. In effect, therefore, the legal representatives are unable to file the return of income in time.

In the case of executors and administrators, they have to apply for a separate PAN, with the date of death of the deceased being the date of coming into existence of their capacity as executors and administrators. Along with the PAN application, they are also required to furnish either a copy of the registered Will, or a copy of probate or letters of administration issued by the high court. Here also, this requirement means that the executors and administrators cannot apply for a PAN at least for a year.

In the interim, tax is deducted at source under the old PAN of the deceased. There is no provision for automatic transfer of tax credit of TDS from the PAN of the deceased to the PAN of the executors and administrators. However, the law requires tax credit to be given in the year in which the relevant income is offered to tax. Therefore, tax credit can only be claimed by the executors and administrators, but they are unable to do so. Further, they also are not able to file the return of income in time, resulting in unnecessary interest liability.

The Modi government seems to be keen to do away with unnecessary and complicated procedures, which make life difficult for the common man. This is evident from its doing away with the requirement of obtaining a gazetted officer’s signatures for various documents. There are many procedures in tax laws which are crying out for an overhaul, to make life simpler for taxpayers.

This is one of the procedural areas under tax laws that is in sore need of simplification. One simple way to do this is to provide that the income tax return can be filed under the same PAN by the legal representative, who will sign the verification stating his capacity. Further, filing copies of the death certificate and the Will or a simple declaration by the legal heirs or executors and administrators should suffice for both signing of the return as well as for applying for a new PAN.

Further, in such cases, there should be a procedure for an automatic transfer of the TDS from the date of death to the new PAN of the executors on their making an application to do so, or perhaps even on allotment of the new PAN to them. Alternatively, they should be granted credit, whether tax is deducted under the old PAN of the deceased, or under the new PAN of the executors and administrators.

Can one perhaps hope for streamlining of these procedures?

Gautam Nayak is a chartered accountant.

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