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20. The Income Tax File of a Deceased Person will Continue - When & How ?

Normally when a person dies, his legal heirs or executors distribute the assets left by the deceased on the date of death. It may happen on many occasions that due to some reason or the other, complete distribution of the assets left by the deceased does not take place. In such circumstances, the undistributed assets will continue to belong to estate of the deceased person till distribution among the legal heirs is completed.

Income arising out of such assets will be taxed at the prevalent rate in the hands of the executor in his capacity as executor and such income shall not be included in the income of the executor or legal heir(s). The outlined idea has been clearly enumerated in Section 168 of the Income Tax Act, 1961 which deals with the assessment of executors. Thus, if the deceased on the date of his death had bank balance, loans and advances to the tune of ` 10 lakh and after one year from the date of his death the executor had distributed a sum of ` 2 lakh only amongst the legal heirs, the income arising out of the balance assets of ` 8 lakh belonging to the deceased will be taxed under the Income Tax file of the deceased for which I.T Return will have to be filed by the executor, and the Income tax file will continue such time as the complete distribution of the estate of the deceased takes place and when the amount in respect of the estate of the deceased is distributed to the beneficiaries of the estate according to the Will, or as per law. The tax payers must, therefore, if they want to take full advantage of this tax planning scheme, keep in mind that even when a person is dead, his income tax file will continue so long as the entire estate is not distributed to the beneficiaries. It is also open to the executor to arrange his affairs so that he distributes a part of the assets of the deceased to the beneficiaries and retains a part thereof. On such undistributed assets, the income of the deceased and the executor of the deceased is to be taxed. Such type of income cannot be included in the executer’s income tax file. Thus, the income arising from the undistributed assets of the deceased cannot be added in the income tax file of the executor, or in the income tax files of the beneficiaries if the estate of the deceased. It is only when the estate is fully administered that the income arising therefrom is separately assessed in the hands of the beneficiaries. Thus, in terms of Section 168 of the Income Tax Act, 1961, separate assessment shall be made on the total income of each previous year in respect of the estate of the deceased which has not yet been distributed. Hence, even when a person is dead there can be separate Income Tax file running in the name of the deceased till complete administration takes place. In many cases such files continue for even 10-15 years by proper tax planning. Similarly, after the death of the deceased, in respect of the assets which are not distributed to the beneficiaries but sold after the death of the deceased, the capital gains arising out of the sale transaction would be assessed in the file of the deceased through the executor. Likewise, in respect of wealth-tax arising out of the assets left by the deceased which remain undistributed the wealth-tax assessment has to be made in the file of the deceased through the executor and tax would be payable separately on the undistributed assets of the deceased under the wealth-tax file of the deceased.

Accordingly, under the above scheme, Income Tax and Wealth-tax files of dead persons can continue till such time the estate is fully administered. By proper tax planning, therefore one can continue to run the Income Tax and Wealth-tax files for years to come even after the persons concerned are dead.


In view of the foregoing discussion relating to the continuance of the Income Tax file of a deceased person will be assessed as an individual through the executor. The one very important aspect which requires consideration to enable the tax-payer to plan with reference to the continuance of the file of a deceased person is that there must be a Will in operation. It is only when a Will is there that the executor can come to the conclusion whether the administration of the estate has been completed or not.
 
 

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