Karachi, September 23, 2024 – The Federal Board of Revenue (FBR) has provided a comprehensive explanation of the tax liabilities of deceased individuals, as outlined under Section 87 of the Income Tax Ordinance, 2001. This clarification is intended to guide the legal heirs and representatives of deceased individuals regarding their tax obligations.
Section 87 of the Income Tax Ordinance, 2001, deals with the tax treatment for individuals who pass away but are still liable to pay taxes during their lifetime. According to the FBR, the legal representatives of such individuals are responsible for handling any outstanding tax obligations of the deceased.
Responsibilities of Legal Representatives
The FBR clarified that under subsection 1 of Section 87, legal representatives are responsible for:
1. Any tax that the deceased individual would have been liable for if they had not passed away.
2. Any tax payable concerning the income of the deceased’s estate.
However, the FBR emphasized that the liability of the legal representative is limited to the extent to which the deceased’s estate is capable of meeting the tax obligations. In simple terms, a legal representative is only responsible for paying taxes from the estate of the deceased and cannot be held personally liable beyond that amount.
Estate as the First Charge
An important provision under subsection 2A of Section 87 states that the tax liability will be treated as the first charge on the deceased’s estate. This means that before any other claims on the estate, such as distribution to heirs, the taxes must be settled first. The FBR’s clarification ensures that tax obligations take precedence over any other financial disbursements from the estate.
Continuation of Proceedings Against Deceased
In cases where tax proceedings were initiated against an individual before their death, these proceedings can be continued against the legal representatives. The law provides that the legal representatives effectively step into the shoes of the deceased for tax purposes and are responsible for resolving any outstanding tax matters. Subsection 3(a) allows such proceedings to continue from where they left off prior to the individual’s passing. Additionally, subsection 3(b) states that any tax proceedings that could have been initiated if the deceased were alive can still be pursued against the legal representative after the death of the taxpayer.
Definition of Legal Representative
The FBR also elaborated on the term “legal representative.” It includes any person who, by law, represents the estate of the deceased, as well as anyone who intermeddles with the estate. This definition also extends to parties involved in legal proceedings related to the deceased’s estate.
The FBR’s clarification serves as a reminder for legal heirs and representatives to ensure that tax liabilities are properly handled to avoid complications in the distribution of the deceased’s estate.
