Income of legal heir

This query is : Resolved

CA Chetan Singhal (Querist)
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08 October 2012 if an assessee die and his FDR is transfer to his legal heir whether interest on that FDR will be taxable in hand of assessee of legal heir (please mention section)

Sunil

Sunil (Expert)
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08 October 2012 Depends on when the income is to accrue on the FD as per schedule of the bank. Usually they credit interest every quarter. For interest accrued prior to death of assessee, or paid / matured before death but paid to legal heir after, it would be on the PAN of the deceased and return filed by legal heir on account of deceased. Now if the quarterly interest falls due after the death, all that is taxable in the hands of the legal heir in his own PAN even though the deceased may have been alive for some days in that beriod between last interest credit and the one credited after death. If the FD matures after death of the assessee, the interest between last credited and paid on maturity becomes taxable in PAN of legal heir.

However, many make pro rata calculation till death of assessee at hands of the deceased. Technically this would be wrong as the interest may not be due and hence not credited by the bank. Some banks credit interest half yearly. You must take a statement of the FD number and determine interest credited before death and interest credited after death because in mercantile or accrual system, the date bank recognises its expenditure and credits the interest to the FD is the date assessee has to take as income accrued.

Sunil

Sunil (Expert)
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08 October 2012 Do note that if FD matured before death and nomination proceeds given to nominee after the death as assessee may not have encashed the proceeds, then the entire interest from accrued interest filed till last return and that till maturity is at hands of deceased even though nominee receives it after the death because deceased was alive at time of interest becoming due and matured FD.

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