(Last Month, we looked at some transmission formalities which the deceased’s family has to carry out. We continue with some more such procedures in this Concluding Part.)
Death claim for Bank Accounts
Pursuant to the RBI’s Circular, all nationalised and private banks now have simplified processes in case of death claims for bank accounts of deceased. The salient features in this respect are as follows:
(a) Bank Accounts/Lockers with survivor/nominee clause
In the case of deposit accounts/lockers where the depositor had utilised the nomination facility or where the account was opened with the survivorship clause, the payment of the balance in the deposit account can be made to the survivors/nominee of a deceased deposit account holder provided:
(i) the bank verifies the identity of the survivors/nominee and the fact of death of the account holder, through appropriate documentary evidence;
(ii) there is no order from the competent court restraining the bank from making the payment from the account of the deceased; and
(iii) it has been made clear to the survivor(s)/ nominee that he would be receiving the payment from the bank as a trustee of the legal heirs of the deceased depositor, i.e., such payment to him shall not affect the right or claim which any person may have against the survivor(s)/nominee to whom the payment is made.
(b) Bank Accounts/Lockers without the survivor/ nominee clause
In cases where the deceased depositor/locker holder had not made any nomination or for accounts other than those styled as ‘either or survivor’, and if the legal heirs of the deceased customer are identifiable and there is no dispute amongst the legal heirs, then banks generally settle the claims without insisting for obtaining Succession Certificate/Letter of Administration etc. These claims are generally settled after obtaining an Indemnity with or without Surety in favour of the bank. In case only one of the legal heirs wants to claim/receive the amount or contents of locker etc., then he must obtain a Power of Attorney in his favour from the other legal heirs.
(c) Premature Termination of term deposit accounts
In the case of term deposits, banks incorporate a clause in the account opening form itself to the effect that in the event of the death of the depositor, premature termination of term deposits would be allowed. Such premature withdrawal would not attract any penal charge.
(d) Treatment of flows in the name of the deceased depositor
With regard to the treatment of pipeline flows in the name of the deceased account holder, banks generally adopt either of the following two approaches:
(i) The bank could be authorised by the survivor(s)/nominee of a deceased account holder to open an account styled as ‘Estate of Mr.X, the Deceased’ where all the pipeline flows in the name of the deceased account holder could be allowed to be credited, provided no withdrawals are made.
OR
(ii) The bank could be authorised by the survivor(s)/nominee to return the pipeline flows to the remitter with the remark ‘Account holder deceased’ and to intimate the survivor(s)/nominee accordingly. The survivor(s)/nominee/legal heir(s) could then approach the remitter to effect payment through a negotiable instrument or through ECS transfer in the name of the appropriate beneficiary.
(e) Time limit for settlement of claims
Banks generally settle the claims in respect of deceased depositors and release payments to survivor(s)/nominee(s) within a period not exceeding 15 days from the date of receipt of the claim subject to the production of proof of death of the depositor and suitable identification of the claim(s), to the bank’s satisfaction.
PPF of the Deceased
A nomination can be made even in respect of a person’s balance standing in the Public Provident Fund or PPF. If such a nomination has been made, the nominee or nominees may make an application in Form G together with proof of death of the subscriber and on receipt of such application, all amounts standing to the credit of the subscriber after making adjustment, if any, in respect of interest on loans taken by the subscriber shall be repaid by the Accounts Office itself to the nominee or nominees.
Where there is no nomination in force at the time of death of the subscriber, the amount standing to the credit of the deceased after making adjustment, if any, in respect of interest on loans taken by the subscriber, is repaid by the legal heirs of the deceased on receipt of application in Form G in their behalf, from them.
A balance of upto Rs. 1 lakh may be paid to the legal heirs on production of (i) a letter of indemnity, (ii) an affidavit, (iii) a letter of disclaimer on affidavit, and (iv) a certificate of death of subscriber.
Jewellery/Bullion of the Deceased
The Executor should distribute the jewellery/bullion belonging to the deceased in accordance with his Will. While making such distribution, the beneficiaries should also be given copies of the bills of the jewellery/bullion so that they can keep a record of the cost of acquisition and period of holding since both of these relate back to that of the deceased.
Art and Antiques of the Deceased
The Executor should distribute the Art/Sculptures/ Antiques belonging to the deceased in accordance with his Will. One element to consider when inheriting a work of art or any antiques is the provenance, or the actual history of ownership. This lays down precisely who was the original owner of the work, i.e., the title history. A provenance is very valuable during a resale and fetches a higher price than a work without one. Internationally, sellers of antiques who can provide ownership proof of the items with ancestors can demand a higher price. Again the original purchase bill/proof would help.
Digital Assets of the Deceased
While most people prepare a Will for their assets, how many people prepare a Digital Will? A Digital Will bequeaths a person’s online assets, such as, email accounts, online photos, Facebook account, cloud data, passwords, etc. There are no specific laws in India for a Digital Will and even the Information Technology Act, 2000 does not deal with this situation.
Hence, what happens to a person’s digital assets and online records when he dies is largely controlled by the Terms of Service that ac-company the different websites or companies with which a person has accounts. The terms of some of the popular service providers are as follows:
• Gmail does not delete a deceased’s account and states that in “rare cases,” it may be able to provide the account content to an authorised representative of the deceased user. The applicant would have to prove his identity, a death certificate and proof of relationship.
• Hotmail sends a copy of any email messages that may be stored on a deceased’s account, along with any existing contact lists, and will ultimately close the account upon request. It will not provide the password to an account or transfer owner-ship of the account. In most cases, email account contents are deleted after nine months of inactivity, and the account itself is deleted after an additional three months; for a total of one year.
• Yahoo permanently deletes all content and terminates the account upon receipt of a copy of a death certificate. It will not provide access to user’s accounts or email. The Yahoo! account is non-transferable and any rights to the Yahoo! ID or contents within the account terminates upon your death.
• Facebook prepares a memorial of the deceased’s account to allow friends and family to write on his wall. The account may be closed upon a formal request from his next of kin or upon a legal request.
• LinkedIn removes a deceased’s account, after receiving a Death Certificate and the alternative email address registered in the deceased member’s account.
• Twitter allows family members to remove the deceased’s account and/or save a backup of his public tweets.
• PayPal allows the Executor of the Estate to close the account.
• iTunes provides that when a person buys music, movies and books, he is acquiring a non-transferable license for personal use. It does not provide for anything on the death of an account holder.
Foreign Assets of the Deceased
With the introduction of the Liberalised Remittance Scheme of the RBI, residents are now able to acquire foreign securities, immovable property, foreign assets, etc. The bequest/transmission of these foreign assets would be in accordance with the provisions of the applicable foreign law in this respect. The FEMA Regulations provide that a person resident in India may acquire foreign securities by way of inheritance from a person resident in or outside India. However, there is no provision under the FEMA Regulations as to whether foreign immovable property can be inherited by another person resident in India from a person who has acquired it under the LRS.
HUF of the Deceased
On the death of the deceased, his/her eldest child, whether a son or a daughter, would become the Karta of the deceased’s HUF. Necessary steps should be taken for inducting the new Karta as authorised signatory of all bank accounts, demat accounts, etc., of the HUF.
On the death of a Hindu, his/her interest in an HUF passes by any one of the following two modes:
(a) As per the Hindu Succession Act, a Hindu can make a testamentary disposition of his interest in an HUF. Thus, if he has included his HUF interest in his Will then its disposition would be in accordance with his Will.
(b) If no will is prepared in respect of the undivided share, then it passes on the legal heirs of the deceased and is governed by the succession rules laid down under the Hindus Succession Act.
Thus, if a father dies, leaving behind his mother, wife, son and daughter and there are three other members in his own HUF, then his interest will devolve by intestate succession upon his legal heirs, i.e., the mother, wife, son and daughter. Thus, the mother would also stand to get a share in her son’s HUF. Prior to 2005, it would have devolved only upon the HUF members and hence, their interest would have increased from ¼ each to 1/3 each. This is an important change brought about by the Hindu Succession Amendment Act of 2005.
Son liable for Father’s Debts?
Under the Hindu Law, a son was personally liable for the debts of his deceased father. This was known as the son’s pious obligation. It was considered that without clearing the debts, his father would not rest in peace. The Supreme Court in the case of Pannalal vs. Mt. Naraini, AIR 1952 SC 170, also upheld this theory but held that the liability of the son is limited only to his share in the joint family property or the property inherited by him from his father.
Section 6(4) of the Hindu Succession Act has been amended in 2005 to do away with the theory of pious obligation. Thus, now a Hindu son’s share in the joint family property or the property inherited by him from his father is not liable for recovery of debts. However, debts prior to 9th September, 2005 (the date of amendment of the Act) would yet be covered by the old law.
No Objection Certificate
In several cases of transmission, the entities may require the legal heirs of the deceased to furnish a No Objection Certificate in favour of the person receiving the asset on transmission. For instance, if a deceased leaves behind a wife and two children and the transmission of an asset is in favour of the wife, then an NOC may be required from the children. An NOC can be executed on a plain paper.
In some cases, an Indemnity is also required. An Indemnity protects the entity which allows the transmission from any legal claims/loss. An Indemnity is to be executed on a stamp paper of Rs. 200 in Maharashtra and requires to be notarised.
Taxation of the Deceased
In the year of death, there would be two assessments in respect of the deceased. U/s. 159 of the Income -tax Act, the Legal Representative of a de-ceased assessee would be liable to pay tax in the like manner and to the same extent as that of the deceased. Section 2(29) of the Act defines the term Legal Representative to mean a person who in law represents the estate of the deceased person. There could be more than one legal representatives but compliance may be practically done by any one legal representative.
The Legal Representative would be liable to pay tax on the income of the deceased received/accruing to him up to the date of his demise. In respect of income, such as interest which accrues on a yearly basis, the income would have to be apportioned between the period up to date of death and thereafter.
A separate procedure is prescribed for e-filing of Return of Income by legal representative. The procedure is available on the Income-tax Department’s Website. As per the procedure, the PAN of legal representative is required to be registered with the Income-tax Department. Based thereon, a legal representative will be able to file return of income by mentioning in verification part, the details and PAN of legal representative, while the form of the return of income may carry the PAN of the deceased. To file a return of income with digital signature, the legal representative is also required to register his digital signature.
In respect of the period commencing from the date of death until the period when the deceased’s Estate is fully executed, his Executors would be liable to tax u/s. 168 of the Act. U/s. 168(3), a separate assessment would be made on the Executor commencing from the date of death up to the date of complete distribution of the Estate to the beneficiaries. In addition to the Return filed by the Executor in his representative capacity u/s. 168, he would also file a Return in his own personal capacity. A PAN may be obtained in the name of the Estate of the deceased.
If there is only one Executor, then he is taxed as if he were an individual. However, if there is more than one Executor, then all of them are taxed as if they were an Association of Persons (AOP). Further, the residential status of the Executor would be that of the deceased during the previous year in which he died. Thus, if the deceased was a non-resident, then the Executor would also be a non-resident.
The assessment in the hands of the Executor shall be made for each completed previous year which begins from the date of the death of the deceased and continues till such time as a complete distribution is made to the beneficiaries according to their several interests. While computing the income of the Executor, any distribution which has already been effected to a specific legatee shall be excluded from the income of the Executor. The same would be taxed in the hands of the specific legatee to whom the distribution was made.
The Full Bench of the Madras High Court in the case of P. Manonmani, 245 ITR 48 (Mad), has held that these provisions apply only when a person dies after leaving a will, i.e., they do not apply to intestate deaths.
Taxation of the Beneficiaries
In respect of any asset received under a Will or by succession, inheritance or devolution, the cost of the asset to the beneficiary and the period of holding to the beneficiary would be the same as that to the deceased. Similarly, for claiming depreciation, the actual cost in case of an asset acquired by inheritance is the actual cost to the previous owner. Recent High Court decisions have held that the benefit of indexation is also available to the beneficiary from the date on which it would have
been available to the deceased – Arun Shungloo Trust vs. CIT, (2012) 205 Taxman 456 (Delhi); CIT vs. Manjula J.Shah (Mumbai), (2012) 204 Taxman 691 (Bom).
The provisions of section 56(2)(vii) of the Income-tax Act do not apply to gifts received without consideration if they are received under a will or by way of inheritance. Thus, even if a Will leaves everything to a person who is not a “defined relative” under section 56(2) of the Income-tax Act, say, a friend, then the recipient is not liable to tax on the gift so received by him by virtue of this express exemption.
FEMA and Transmission
The FEMA, 1999 and its Regulations contain certain provisions for legacies involving a resident testator and a non-resident legatee or vice-versa. These are as follows:
(i) A person resident in India may hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India if such asset was inherited from a person who was resident outside India.
(ii) A person resident outside India may hold, own, transfer or invest in Indian currency, Indian security or any immovable property situated in India if such asset was inherited from a person who was resident in India.
(iii) A foreign national of non-Indian origin who is not a Nepalese or a Bhutanese may have inherited assets in India from a person resident in India who acquired the assets (being immovable property, securities, cash, etc.) when he was an Indian resident. Such a Person of Indian Origin or a Foreign Citizen can remit an amount not exceeding $ 1 million per year if he produces documentary proof in support of the legacy, e.g., a will, and a tax clearance/no-objection certificate from the Income-tax Department. “Assets” for this purpose include, funds representing a deposit with a bank or a firm or a company, provident fund balance or superannuation benefits, amount of claim or maturity proceeds of insurance policies, sale proceeds of shares, securities, immovable properties or any other asset held in accordance with the FEMA Regulations.
(iv) A Non-Resident Indian or a Person of Indian Origin, who has received a legacy under a will, can remit from his Non-Resident Ordinary (NRO) Account an amount not exceeding $ 1 million per year if he produces documentary proof in support of the legacy, e.g., a will, and a tax clearance/no-objection certificate from the Income-tax Department. The meaning of the term “Assets” is the same as that under (iii) above.
(v) In case of a remittance exceeding that specified in (ii) and (iii), an application can be made to the Reserve Bank of India in Form LEG.
(vi) A Person of Indian Origin may acquire any immovable property in India by way of inheritance from a person resident in India or a person resident outside India who acquired the property in accordance with the prevailing foreign exchange law, i.e., FEMA or FERA.
Takeover Regulations
The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 apply in case of certain transfers in listed companies. If the prescribed threshold limits are breached, then the acquirer of the shares has to make a public offer, i.e., an offer to acquire shares from the public. However, the provisions relating to making of an open offer do not apply to an acquisition of shares of a listed company received by way of transmission, succession or inheritance. The Acquirer is required to file a Report with the stock exchanges where the shares are listed within four days of the acquisition.
Chartered Accountant’s Role
Normally, a CA in his capacity as an Auditor is not directly involved with succession/transmission issues. Nevertheless, a CA can provide a lot of value added services to his clients if he is aware of the law in this respect. He can be of great assistance to his clients in complying with various transmission formalities. It is an area where he can assist his client and avoid unnecessary problems.
