Section 87 of the Income Tax Ordinance, 2001: Deceased Individuals

Section 87 of the Income Tax Ordinance, 2001, governs the taxation of deceased individuals in Pakistan. It ensures that the legal representatives of the deceased fulfill the tax obligations left behind, safeguarding the government’s revenue while respecting the financial capabilities of the estate.

Key Provisions of Section 87

1. Legal Representative’s Liability

The legal representative of a deceased individual is responsible for:

Subsection 1(a): Taxes the deceased would have owed if they had not passed away.
Subsection 1(b): Taxes on income generated by the deceased’s estate.

2. Extent of Liability

Subsection 2: The liability is limited to the extent that the deceased’s estate can cover.
Subsection 2A: The liability under this Ordinance is the first charge on the deceased’s estate, ensuring priority over other claims.

3. Continuation of Proceedings

Subsection 3(a): Proceedings initiated against the deceased before their death are treated as proceedings against the legal representative.

Subsection 3(b): New proceedings can be initiated against the legal representative for any obligations the deceased would have faced.

4. Definition of Legal Representative

A legal representative includes anyone legally managing the deceased’s estate or intermeddling with it. This includes individuals inheriting the estate or managing its affairs.

Practical Examples

Example 1: Tax Liability Before Death
Mr. Ahmed passed away on 15th June 2024, leaving unpaid taxes for the fiscal year 2023. His legal representative, Mr. Bilal, is required to pay the outstanding taxes using Mr. Ahmed’s estate. If the estate is worth PKR 1,000,000 and the tax liability is PKR 300,000, the estate will first satisfy the tax debt.

Example 2: Estate Income
Ms. Fatima passed away, leaving a property that generates rental income. The legal representative must file tax returns for this income and pay the corresponding tax.

Example 3: Ongoing Proceedings
Tax proceedings were initiated against Mr. Tariq for underreporting his income before his death. His legal representative must continue the proceedings from where they left off.

Implications for Legal Representatives

Record Keeping: Maintain clear records of the deceased’s financial and tax matters.
Timely Filing: Ensure timely filing of tax returns and payment of dues.

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FAQs About Section 87 of the Income Tax Ordinance, 2001

Q1. What is Section 87 of the Income Tax Ordinance, 2001?
Answer: Section 87 outlines the tax obligations of deceased individuals, to be managed by their legal representatives.

Q2. Who is considered a legal representative?
Answer: A legal representative is anyone managing or inheriting the estate of the deceased.

Q3. Is the legal representative personally liable for taxes?
Answer: No, liability is limited to the extent of the deceased’s estate.

Q4. What happens if the estate cannot cover the tax liability?
Answer: The legal representative’s liability is restricted to the estate’s value.

Q5. Do I need to file a tax return for the deceased?
Answer: Yes, for both pending and estate-generated income.

Q6. Can ongoing tax proceedings against the deceased continue?
Answer: Yes, they will continue against the legal representative.

Q7. What if the deceased had unfiled taxes?
Answer: The legal representative must address them using the estate.

Q8. Are taxes the first priority for the estate?
Answer: Yes, as per subsection 2A, taxes are the first charge on the estate.

Q9. How can I calculate the tax liability?
Answer: Consult a tax advisor or use an automated tax calculator.

Q10. What documents are required?
Answer: Death certificate, estate valuation, and tax history of the deceased.

Q11. What is intermeddling with the estate?
Answer: Intermeddling refers to the act of dealing with or managing the deceased’s estate without legal authority. This could include activities like accessing bank accounts, selling assets, or making decisions about the estate without being formally appointed as a legal representative. Intermeddling can lead to legal liabilities for the person involved.

Q12. Can multiple representatives be liable?
Answer: Yes, if they collectively manage the estate.

Q13. Does rental income from the estate need taxation?
Answer: Yes, rental or any other income from the estate is taxable.

Q14. How to ensure compliance with Section 87?
Answer: Keep thorough records and consult a tax expert.

Q15. What is the penalty for non-compliance?
Answer: Penalties may include fines or legal action against the representative.

The content provided in this blog represents a general point of view regarding Section 87 of the Income Tax Ordinance, 2001. It is intended for informational purposes only and should not be considered as legal advice. Interpretation and application of tax laws may vary based on individual circumstances and may differ when evaluated by legal professionals or authorities. Readers are strongly advised to consult their tax consultant or legal advisor for personalized guidance and compliance.