Tax notice after death: What must legal heirs do?

Upon a person's demise, their income tax responsibilities do not automatically vanish. If the deceased had earned income above the basic exemption limit and failed to file an income tax return (ITR), or if there are ongoing tax proceedings or outstanding dues, it falls upon their legal heirs to address these. Determining legal heirs can be complicated due to familial disagreements or other factors.

In such instances, the local income tax assessing officer (AO) must be informed. If there are no legal heirs, then the individual who inherits the deceased's assets is accountable for the deceased's income tax obligations.

What occurs if the Income Tax Department issues a notice post the taxpayer's passing? Can the legal heir be held accountable for the deceased's tax liabilities? Here's the regulatory perspective. Can the Income Tax Department issue a notice to a deceased taxpayer? Once the Income Tax Department becomes aware of a taxpayer's death, it cannot legitimately issue a new notice in the deceased's name.

Nevertheless, any ongoing proceedings against the deceased prior to their demise can be carried forward against their legal representative.

There's no legal requirement for the legal heir to inform the tax authority about the taxpayer's death. However, the legal heir should register as the deceased taxpayer’s legal representative on the income-tax e-filing portal. If the tax department subsequently issues a notice in the deceased's name, there may be grounds to contest its validity.

When a taxpayer dies without filing an ITR, the tax liability does not cease with their death. Under Section 302 of the Income-tax Act, 2025, this liability transfers to the legal representative, typically the executor or administrator of the estate, or in their absence, the heir. This representative must file the return for the period from the beginning of the relevant financial year until the date of death (the 'date-of-death return').

If the individual passes away before filing the return for the previous year, the legal representative must file that outstanding return as well.

The legal heir must register on the e-filing portal as the Legal Heir (Authorized Representative) and upload the death certificate, the deceased's PAN, and proof of the legal heir's status. Approval by the local AO/CPC is required before the legal heir can e-verify or file on behalf of the deceased. The legal heir should reconcile Form 26AS/AIS/TIS, bank statements, and capital gains data before filing, as post-death income (like accrued interest) belongs to the estate/beneficiaries and should not be included in the deceased's return.

The legal representative is responsible for settling the deceased's outstanding tax liability, but only using assets from the deceased's estate, up to the value of those assets. Legal heirs should not distribute or transfer the deceased's assets without first addressing outstanding tax liabilities. Upon receiving an income tax notice for a deceased taxpayer, the legal heir should first register as the legal representative on the income tax e-filing portal using the death certificate, PAN details, and proof of their status.

Subsequently, they should review the notice, its nature, and the deadline for response. If the notice was issued after the taxpayer's death in their name, they may have grounds to challenge its validity. However, if the notice was validly issued during the taxpayer's lifetime or if the department sends a fresh notice to the legal representative, the heir may need to engage in the proceedings. Their liability is typically limited to the value of the deceased's estate.