When an individual passes away, their tax obligations do not perish with them. Section 87 of the Income Tax Ordinance, 2001, ensures continuity of tax liability and clearly defines the responsibilities of the deceased person’s legal representatives. This provision is essential to protect public revenue and outlines the scope and mechanism of tax recovery from the estate of a deceased person.
Understanding Section 87 – Tax Liability of Deceased Individuals
Section 87 deals with liability for tax in case of death and ensures that if a person dies during a tax year or before discharging their existing tax liabilities, those liabilities can be enforced against their legal heirs or estate. It covers:
Who pays the tax due on a deceased’s income
How the tax demand is created and enforced
Extent of liability of legal representatives
First charge on the estate by the government
Original Text of Section 87 – Income Tax Ordinance, 2001
Section 87: Liability for Tax in Case of Death
(1) Where a taxpayer dies, the legal representative of the deceased shall be liable for any tax that the deceased would have been liable to pay if the person had not died.
(2) The liability of a legal representative shall be limited to the value of the estate of the deceased that is in the possession or control of the legal representative.
(3) Any tax payable under this Ordinance by a deceased taxpayer in respect of the period up to the date of death shall be a first charge on the estate of the deceased.
(4) Where a taxpayer dies, the Commissioner may proceed against the legal representative of the deceased or any other person in possession or control of the deceased’s estate, to recover the unpaid tax.
Clause-by-Clause Breakdown of Section 87
Subsection (1): Posthumous Liability
The deceased’s tax liability transfers to their legal representative. This includes unpaid taxes, penalties, or assessments determined after death.
Subsection (2): Liability Limit
The liability of the legal representative is not personal but is restricted to the value of the estate under their control.
Subsection (3): First Charge
FBR’s claim for tax dues becomes a first charge over the estate. This has legal superiority over any other creditor claims.
Subsection (4): Recovery Mechanism
The Commissioner can recover unpaid tax from either the legal representative or any other person managing the estate, such as trustees, administrators, or even intermeddlers.
Responsibilities of Legal Representatives under Section 87
File final tax return of the deceased
Respond to notices of assessment or recovery
Facilitate tax audit or inquiry, if required
Make payment from estate assets, not personal funds
Avoid distribution of assets before settling tax dues
First Charge on Deceased’s Estate – Legal Priority of Tax
Section 87(3) makes it clear that tax is the first legal claim on the estate, even before debts owed to family, banks, or any third party. This provision ensures that government revenue is protected.
Continuation of Tax Proceedings after Death
FBR is authorized to continue any ongoing assessment, audit, or proceedings after the person’s death. Any pending or posthumous tax liability is enforceable, and the assessment order can be passed in the name of the legal representative.
Definition of Legal Representative – Who Bears the Burden?
Legal Representative includes:
Executors of a will
Administrators appointed by court
Heirs in actual control of the estate
Anyone intermeddling with the estate
Implications for Executors, Administrators, and Intermeddlers
Any individual who gains possession of the deceased’s estate, even without formal authority (e.g., without probate), is legally deemed a representative and assumes tax liability up to the value of the estate managed.
Examples for Better Understanding
Example 1:
Mr. A died on 15 June 2025. His final tax return for Tax Year 2025 must be filed by his son, Mr. B, who controls the estate.Example 2:
Mr. C, a nephew, takes control of the estate informally and sells property before tax clearance. FBR may recover tax directly from him under Section 87(4).
Comparison with International Tax Practices
Many countries follow similar practices:
UK: HMRC requires the executor to file returns and settle dues
USA: IRS recovers tax from estate before asset distribution
India: Section 159 of Income Tax Act, 1961 governs similar liability
Pakistan’s Section 87 aligns well with international standards but places clear and actionable responsibility on local representatives.
Penalties for Non-Compliance by Legal Representatives
Failure to file returns or pay tax from estate funds may lead to:
Imposition of default surcharge (Section 205)
Prosecution for willful concealment
Freezing of estate assets or bank accounts
Disallowance of probate or succession rights
Conclusion and Practical Advice
Section 87 ensures the continuity of tax obligations after death. Legal representatives must act diligently, declare estate assets honestly, and prioritize tax settlement before distributing the estate. Ignorance of the law can result in severe penalties, both financial and legal.
FAQs – Tax Liability of Deceased Persons under Section 87
Who is responsible for filing the deceased’s income tax return?
The legal representative or executor of the estate.Is the legal heir personally liable to pay tax from their pocket?
No, only from the estate value under their control.Is tax payable on income earned after the date of death?
No, income after death is taxed in the name of heirs or estate entity.What happens if no return is filed after the person’s death?
FBR can issue notices to legal heirs and assess tax under best judgment.Can legal heirs distribute property before paying tax?
No, tax must be settled first as it is a first charge.Is inheritance tax applicable in Pakistan?
No, but income tax obligations of deceased must be fulfilled.Can multiple heirs be held responsible?
Yes, if they are in joint control of the estate.What is the time limit for tax recovery after death?
General limitation laws apply, usually 5 years.Can FBR freeze assets of a deceased person?
Yes, if tax liabilities are unpaid.Are pensions or family benefits taxable in deceased’s return?
No, those are not considered taxable income of the deceased.Can heirs be prosecuted for default?
Only if they knowingly conceal or misappropriate estate.How is the estate value determined?
Based on documentation, property, and financial records.Is probate necessary to deal with tax?
Not always, but helpful for legal clarity.Can someone refuse to act as legal representative?
Yes, but if they take control of the estate, they are deemed responsible.Are foreign assets of deceased included?
Yes, if deceased was resident at the time of death.What documents are needed for final return filing?
CNIC, death certificate, last return, asset details, and bank statements.Is there a different process if deceased was non-filer?
FBR may assess based on best judgment.Can tax be adjusted against refunds?
Yes, if any refund is due, FBR will set it off against tax liability.How to report a deceased taxpayer to FBR?
Submit a written intimation with death certificate and CNIC.Is digital filing allowed for deceased’s return?
Yes, through IRIS portal under legal representative’s login.
Disclaimer
This blog is for informational and educational purposes only. It does not constitute legal or tax advice. For personalized guidance, consult a licensed tax advisor or legal professional in Pakistan
