Delhi resident Madan Kumari Jain is a conscientious citizen. She earns a steady income and pays her taxes religiously. In 2010-11, she paid Rs 2.01 lakh in tax. A year before that, she enriched the income tax department by Rs 2.05 lakh. In fact, she has made the exchequer richer by a million rupees in the past five years. Nothing unusual except for the fact that Jain died in 2007.
A query under the Right to Information Act has revealed that many dead Indians continue to pay income tax.
In Mumbai, a unit of the IT office received Rs 4.05 crore as tax from dead assessees in the past five years. In the same period, a Ranchi unit received Rs 27 lakh from seven deceased tax payers. The IT office in Allahabad has two dead taxpayers on its rolls and Porbunder 13. The income tax office allows a legal heir or the executor of a will to settle tax liabilities on behalf of a deceased person, but does not place a cap on the number of years a dead person's tax file can be kept active.
"We do not have information on the system about such cases," said Krishna Rao, commissioner of the central processing centre of the IT department, Bangalore.
The RTI query about dead people filing tax returns was filed by activist Rajiv Singhal, a former president of the Bharat Merchants' Chamber, in March with all IT circles in India. He received 1,150 replies, with IT officials acknowledging in most cases that they were aware of the practice, but did not have information about taxes being paid on behalf of dead people. While a few IT offices gave precise information, others refused to part with data, saying it was not in public interest. Singhal said, "With computerization, the IT department must distinguish dead tax assesses from the ones who are alive. Several people are taking benefit of the tax exemption (sic) for years on end." For instance, P Kedia, a cloth manufacturer in Mulund, lost his father in 1990. But he continued to pay taxes for his dead dad for a full decade. There are two benefits that apparently accrued to Kedia: one, his tax liability as the legal heir did not balloon suddenly because his father died; two, he could avail of the standard tax deduction on his father's income too.
A merchant from Kanpur said, "Like my father, I have drawn up my will in such a way that my income will not be officially added to that of my two children. But they will have the power to use the money the way they want."
His will lays down a slow process of 50 years through which his assets will be disposed of after his death. Till then, his children and grandchildren will enjoy their gifts.
The deceased, it may be clarified, cannot earn a salary or any other emoluments-for obvious reasons. They can simply earn income on investments in the form of interest or even profit on stock.
What the law says
Section 159 of the Income Tax Act says that when a person dies, his/her legal representatives shall be liable to pay any sum that the deceased would have been liable to pay if he/she had not died, in a like manner and to the same extent as the deceased.
In case a person dies without transferring his/her estate (for instance, a fixed deposit and income from it, which is taxable) the legal representatives continue to file returns till the estate is transferred. Once the estate is transferred, the person who gets it files returns on taxable income earned from the estate.
If a legal representative files tax returns on behalf of a deceased person to claim tax deductions or incentives without disclosing that the assessee has died, it amounts to fraud.