Introduction:
Section 168 of the Income Tax Act, 1961 provides for executors and the taxation of income from a deceased person’s estate. Further, the section states that the income of a deceased person’s estate is taxable in the hands of the executor of the estate. Moreover, the executor is required to file a separate Tax Return in respect of the estate’s income which is assessed separate from his personal income.
Role of Executors:
The role of Executors in the administration of the estate of a deceased person is crucial. The executor is to ensure that:
- The assets of the estate are distributed to the beneficiaries as per the will of the deceased person.
- For paying off any outstanding debts and liabilities of the deceased person.
Who will be an executor under Section 168 of the Income Tax Act, 1961?
An executor is a person who takes care of the estate of the deceased. It also includes:
- Administrator
- Person administrating the estate of the deceased
Tax Liability on the Estate of the Deceased:
The Income Tax Act, 1961, imposes a tax on the income earned by an individual, including the income earned by an estate of a deceased person. The tax liability of the estate is calculated based on the income earned by the estate during the relevant financial year. The income earned by the estate can be from various sources such as rental income, interest income, capital gains, and other sources.
Taxing the income of the estate of the deceased under Section 168
The income of the deceased’s estate will be taxed in the hands of the executor. It will be charged as follows:
- There is 1 executor – charged as an ‘individual.’
- There are 2 executors – charged as ‘association of persons.
Residential Status of the Executor
Further, the executor will be a resident or non-resident as per the residential status of the deceased person in the previous year of his death.
Separate Assessment of Executor under Section 168
It is important to note that the executor is assessed separately from his personal income. This means that the executor’s personal income is not considered while calculating the tax liability of the estate. However, the executor is required to file a separate Tax Return for his personal income.
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How is a separate assessment made under Section 168 of the Income Tax Act, 1961?
Separate assessment will be on the total income of the previous year which will be from the date of death of the deceased till the complete distribution to the beneficiaries.
Total income of the previous year: This will exclude the income from the estate distributed or applied to the legatee of the estate in the previous year.
Note: This income will be included in the specific legatee’s previous year’s income.
Filing of Tax Return:
The executor is required to file a tax return for the estate within the due date as stated in the Income Tax Act. The Tax Return must be filed in the prescribed format. Additionally, it must contain accurate and complete information about the income earned by the estate and the tax liability.
Penalties and Liabilities:
If the executor fails to file the tax return or provides false or incorrect information, he can be held personally liable for any tax due from the estate. Therefore, one must ensure that the tax return is filed accurately. Also, it is to be filed within the due date.
Conclusion:
In conclusion, Section 168 of the Income Tax Act, 1961 provides for the taxation of income from the estate of a deceased person in the hands of the executor. The provision also states that such a person is required to file a separate tax return for the estate’s income.
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