TaxTMI 
TaxTMI 
Taxation of income arising from the estate of a deceased individual : Clause 312 of Income Tax Bill, 2025 Vs. Section 168 of Income-tax Act, 1961
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.... to the beneficiaries is not used as a loophole for tax evasion and that the estate remains liable for taxation until its complete distribution. The evolution from Section 168 to Clause 312 also reflects the legislative intent to modernize and clarify the law in this area. Objective and Purpose The primary objective of both Section 168 and Clause 312 is to provide a clear legal framework for the assessment and taxation of income arising from the estate of a deceased individual, during the period of administration by the executor or administrator, until the estate is fully distributed to the beneficiaries. The provisions aim to: * Ensure continuity of tax liability post the death of an assessee. * Prevent any income escaping assessment....
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.... groups managing common income. Residential Status of Executor * Clause 312(2) provides that the executor is deemed to be resident or non-resident according to the residential status of the deceased for the tax year in which death occurred. This is a legal fiction to ensure continuity and fairness in taxation, as the executor merely steps into the shoes of the deceased for the purposes of administering the estate. * This deeming provision ensures that the tax liability is not altered by the executor's personal residential status, which could otherwise result in unintended tax benefits or liabilities. Definition of Executor * Clause 312(3) expands the definition of "executor" to include an administrator or any other person admini....
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....t all income generated during administration is taxed appropriately. Exclusion of Income Distributed to Specific Legatees * Clause 312(6) provides that any income of the estate, distributed to or applied to the benefit of a specific legatee during a tax year, shall be excluded from the estate's taxable income for that year. However, such income is to be included in the total income of the specific legatee for the same tax year. * This mechanism prevents double taxation and ensures that income is taxed in the hands of the ultimate beneficiary, in line with the principle of taxing the person who actually receives or enjoys the income. It also incentivizes timely distribution and proper record-keeping by executors. Comparative Analys....
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.... from "previous year" in the new legislation. 2. Placement and Structure of Definitions Section 168 includes an Explanation at the end, defining "executor" to include administrators and other persons administering the estate. Clause 312 places this definition as a substantive provision (sub-clause 3), possibly for greater clarity and prominence. 3. Legislative Clarity and Accessibility The language of Clause 312 is marginally more modern and accessible, reflecting a legislative trend towards clearer drafting. For example, the use of "includes an administrator or other person administering the estate" in the body of the provision, rather than in an explanation, aids in immediate comprehension. Analysis of Each Provision: Side-by-Side&nb....
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....anning the changeover period. * The treatment of partial distributions, and the point at which the executor's liability ceases, may require further clarification in subordinate legislation or through judicial interpretation. * The definition of "specific legatee" remains unchanged; however, practical difficulties may arise in distinguishing between specific and residuary legatees, especially in complex estates. Practical Implications For Executors and Administrators Executors are placed in a position of fiduciary responsibility, with clear statutory obligations to account for and pay tax on the estate's income until its distribution. The requirement for separate assessments and the exclusion of income distributed to specific ....
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....s during administration. The approach of taxing the executor as a representative, with income distributed to beneficiaries being taxed in their hands, is a widely accepted principle. The use of "tax year" aligns with international practice and may facilitate cross-border administration and compliance. Policy Rationale The provisions reflect a balance between protecting the revenue and ensuring fairness to executors and beneficiaries. By providing for separate assessments, clear rules for exclusion, and rights of recovery, the law seeks to avoid hardship and ensure that tax is paid by the correct person, at the correct time. Conclusion Clause 312 of the Income Tax Bill, 2025 largely carries forward the well-established principles of....