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Taxation of the estate of a deceased person is a complex area involving the interplay of succession law and income tax law. Both Clause 312 of the Income Tax Bill, 2025 and Section 168 of the Income-tax Act, 1961 address the mechanism for taxing the income arising from the estate of a deceased person through the executor or administrator. These provisions are foundational in ensuring that the transition of assets and income from a deceased individual 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.
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:
The legislative intent is rooted in the need to address the practical challenges that arise when the legal owner of income passes away, leaving behind an estate that continues to generate income until its distribution.
Clause 312 of the Income Tax Bill, 2025 is structurally and substantively modeled on Section 168 of the Income-tax Act, 1961, with only minor changes in language and certain clarifications. Both provisions are nearly identical in their core elements:
The similarities reflect a legislative intent to retain the tested framework of Section 168, while making the law more accessible and possibly aligning terminology with contemporary usage.
Section 168 uses the term "previous year," consistent with the Income-tax Act, 1961's terminology. Clause 312 refers to "tax year," indicating a shift towards international or more intuitive terminology, possibly to streamline and modernize the tax code. This change is largely semantic, but it may have implications if the definition of "tax year" differs from "previous year" in the new legislation.
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.
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.
Provision | Section 168 of the Income-tax Act, 1961 | Clause 312 of the Income Tax Bill, 2025 | Commentary |
---|---|---|---|
Chargeability & Status | Income chargeable in hands of executor; single executor as individual, multiple as AOP. | Same approach. | No substantive change; maintains continuity; aligns with established jurisprudence. |
Residential Status | Executor deemed resident/non-resident as per deceased's status during previous year of death. | Same principle, but uses "tax year." | No change in substance; "tax year" modernizes terminology. |
Definition of Executor | Explanation at end includes administrator/other person. | Substantive sub-clause (3) includes administrator/other person. | Improved clarity; avoids possible interpretative confusion. |
Separate Assessment | Executor's assessment separate from own income. | Same. | Ensures clear separation of liabilities. |
Assessment Period | Separate assessment for each completed previous year or part thereof until full distribution. | Same, but uses "tax year." | No substantive change; ensures proper assessment during administration. |
Exclusion for Legatees | Income distributed to specific legatee excluded from estate's income, included in legatee's income. | Same. | Prevents double taxation; ensures correct person is taxed. |
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 legatees necessitate accurate record-keeping and timely compliance.
Beneficiaries, especially specific legatees, must be aware that income distributed to them from the estate is taxable in their own hands. This prevents double taxation and ensures that income is ultimately taxed in the hands of the person who enjoys it.
The provisions also ensure that beneficiaries are not unfairly burdened with tax on income they have not received or enjoyed.
The provisions provide a clear mechanism for the assessment and collection of tax during the administration of an estate, reducing the risk of income escaping assessment during the transition from deceased to beneficiaries.
The ability to assess executors as individuals or AOPs, and the clear rules for assessment periods, aid in efficient administration and enforcement.
Executors must file returns and comply with all procedural requirements as if they were the assessee in respect of the estate's income. This includes maintaining separate accounts, filing separate returns, and responding to notices or assessments relating to the estate.
The shift in terminology and structure may require updated guidance and training for practitioners and tax officials.
Many common law jurisdictions, including the UK and Australia, have similar provisions for taxing the income of deceased estates 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.
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.
Clause 312 of the Income Tax Bill, 2025 largely carries forward the well-established principles of Section 168 of the Income-tax Act, 1961, with minor improvements in clarity and statutory cross-referencing. The core framework for taxing the income of a deceased person's estate during administration remains unchanged, reflecting the robustness of the existing approach. The express reference to the executor's right to recover tax paid, and the modernization of terminology, are welcome clarifications. Going forward, further guidance may be required on transitional issues, especially where the change in terminology or structure could impact ongoing estate administrations. The provisions continue to serve the dual objectives of protecting the revenue and ensuring fairness and clarity for executors and beneficiaries.
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