Understanding Section 172 of Income Tax Act: A Comprehensive Guide
When a person passes away, the process of settling their estate can be complex and lengthy. One of the key considerations is how to handle the deceased person’s tax obligations. In India, the Income Tax Act of 1961 governs taxation and provides guidelines for handling the tax affairs of deceased individuals. Section 172 of the Income Tax Act lays down the provisions for the same. In this blog, we will dive into the details of Section 172 and understand its key aspects.
What is Section 172 of the Income Tax Act?
Section 172 of the Income Tax Act deals with the “Income of estate of deceased person.” It lays down the provisions for assessing and collecting income tax on the income earned by a deceased person’s estate. The section applies to all types of income, including income from salaries, property, business, and other sources.
Who is responsible for complying with Section 172?
The executor or administrator of the estate is responsible for complying with Section 172. The executor or administrator is the person appointed by the court to manage and distribute the assets of the deceased person’s estate.
What are the key provisions of Section 172?
Section 172 lays down the following key provisions:
- Obligation to file returns
The executor or administrator of the estate must file a return of income for the deceased person’s estate. The return must be filed within the prescribed time limit.
- Liability for tax
The deceased person’s estate is liable for any income tax payable on the deceased person’s income up to the date of death. The executor or administrator is responsible for paying the tax.
- Assessment of income
The income earned by the deceased person’s estate is assessed in the same manner as it would have been assessed if the deceased person was alive. The income earned after the date of death is assessed separately.
- Set-off of losses
The losses incurred by the deceased person’s estate can be set off against the income earned by the estate after the date of death.
- Deductions
The estate is entitled to claim deductions for expenses incurred in earning the income.
- Recovery of tax
The tax due on the deceased person’s income is recovered from the estate. The tax can be recovered from any person who holds money on behalf of the estate.
- Penalty for non-compliance
The executor or administrator of the estate can be penalized for non-compliance with the provisions of Section 172.
How to comply with Section 172?
To comply with Section 172, the executor or administrator of the estate must follow these steps:
- Obtain a PAN card for the estate
The estate must obtain a PAN card to file a return of income.
- File a return of income
The executor or administrator must file a return of income for the estate within the prescribed time limit.
- Pay tax
The executor or administrator must pay any tax due on the deceased person’s income.
- Maintain proper records
The executor or administrator must maintain proper records of the income earned and the expenses incurred by the estate.
- Obtain a tax clearance certificate
The executor or administrator must obtain a tax clearance certificate before distributing the assets of the estate to the beneficiaries.
In addition to the key provisions and steps to comply with Section 172, there are a few other important aspects to keep in mind when dealing with the tax affairs of a deceased person’s estate:
- Deadline for filing the return
The return of income for the estate must be filed within the same time limit as for an individual taxpayer. For example, for the financial year 2021-22, the due date for filing the return is July 31, 2022, for individuals and September 30, 2022, for taxpayers who are subject to audit.
- Income earned after the date of death
Any income earned by the estate after the date of death is taxable in the hands of the estate. The income can be earned from any source, such as rent from a property or interest on investments. The income earned after the date of death is assessed separately from the income earned before the date of death.
- Multiple beneficiaries
In some cases, the deceased person’s estate may have multiple beneficiaries, such as family members or charitable organizations. In such cases, it is important to determine the share of income and tax liability for each beneficiary. The executor or administrator must file separate returns of income for each beneficiary.
- Dispute resolution
In case of any dispute related to the tax liability of the estate, the executor or administrator can file an appeal with the Income Tax Appellate Tribunal (ITAT). The ITAT is an independent tribunal that hears appeals related to income tax matters.
- Tax implications for the beneficiaries
The beneficiaries of the estate may also have tax implications, depending on the nature of the assets they receive and the tax laws applicable to them. For example, if a beneficiary receives a property as part of the estate, they may have to pay stamp duty and registration charges.
There are a few additional points to consider when dealing with the tax affairs of a deceased person’s estate:
- Taxation of capital gains
If the estate sells any assets after the date of death, such as stocks or property, any gains or losses from the sale are taxable in the hands of the estate. The estate can claim any available deductions and exemptions while calculating the capital gains tax liability.
- Deductions for charitable donations
If the deceased person made any charitable donations during their lifetime, the estate can claim a deduction for such donations while calculating the income tax liability of the estate.
Conclusion
Section 172 of the Income Tax Act lays down the provisions for assessing and collecting income tax on the income earned by a deceased person’s estate. The executor or administrator of the estate is responsible for complying with the provisions of Section 172. It is important to comply with the provisions of Section 172 to avoid penalties and ensure that the assets of the estate are distributed in a timely and efficient manner.
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Frequently Asked Questions (FAQs)
- What is Section 172 of the Income Tax Act?
Section 172 of the Income Tax Act lays down the provisions for filing the return of income for a deceased person’s estate.
2. Who is responsible for filing the return of income for a deceased person’s estate?
The executor or administrator of the estate is responsible for filing the return of income for the deceased person’s estate.
3. What is the deadline for filing the return of income for a deceased person’s estate?
The deadline for filing the return of income for a deceased person’s estate is the same as for an individual taxpayer. For example, for the financial year 2021-22, the due date for filing the return is July 31, 2022, for individuals and September 30, 2022, for taxpayers who are subject to audit.
4. What are the consequences of not complying with the provisions of Section 172?
If the provisions of Section 172 are not complied with, interest and penalties may be levied by the income tax department.
5. Can the executor or administrator of the estate seek professional advice while settling the tax affairs of the estate?
Yes, the executor or administrator of the estate can seek professional advice from a chartered accountant or a tax consultant while settling the tax affairs of the estate.
6. Can the beneficiaries of the estate have any tax implications?
Yes, the beneficiaries of the estate may have tax implications, depending on the nature of the assets they receive and the tax laws applicable to them.
7. What is the tax liability of the estate for income earned after the date of death?
Any income earned by the estate after the date of death is taxable in the hands of the estate.
8. Can the estate claim any deductions or exemptions while calculating the tax liability?
Yes, the estate can claim any available deductions and exemptions while calculating the tax liability.
9. What is the procedure for settling the tax affairs of a deceased person’s estate?
The procedure for settling the tax affairs of a deceased person’s estate involves filing the return of income, paying any tax liability, and complying with any other relevant tax laws and regulations.
10. Are there any additional tax implications for foreign assets owned by the deceased person’s estate?
Yes, if the deceased person had any foreign assets, such as bank accounts or property, the estate may have additional tax implications, and the executor or administrator may need to comply with the Foreign Exchange Management Act (FEMA) and other relevant laws and regulations.
