BySection 114(3) gives the Commissioner of Inland Revenue (FBR official) the authority to require the filing of an income tax return under specific circumstances. This includes situations where:
(a) The person has died: If a person passes away, their legal representative (e.g., heirs, executor, or administrator) can be asked to file the tax return on behalf of the deceased.
(b) The person has become bankrupt or gone into liquidation: For businesses or individuals declared bankrupt, their financial affairs still need to be addressed, including tax matters.
(c) The person is about to leave Pakistan permanently: Before someone exits the country permanently, they may be asked to file their income tax return to settle any outstanding tax matters.
(e) The Commissioner considers it appropriate: This gives the Commissioner discretion to demand a tax return in other circumstances where they see it as necessary, even if the period is less than 12 months.
Why Would the FBR Ask for a Return After Someone’s Death?
Filing tax returns after death is not about penalizing the deceased but about ensuring compliance with tax laws. Some key reasons include:
- Pending Liabilities: If the deceased person owed taxes or had pending financial matters, the FBR ensures that all dues are cleared from the estate.
- Assets and Income: If the person earned income or held significant assets before their death, it is necessary to assess any tax due on that income.
- Estate Settlement: For heirs to inherit property, funds, or other assets, the tax authorities may require a final return to confirm that all tax matters have been resolved.
For example, if someone owned a house, savings, or shares and passed away, the FBR may check whether tax was paid on those assets or any income generated before death. Filing a final tax return helps in clearing the estate’s tax obligations.
Who Files the Tax Return for a Deceased Person?
When a person dies, the responsibility of filing the tax return shifts to their legal representative. This could be:
- Heirs or Family Members: Individuals inheriting assets are responsible for ensuring the tax return is filed.
- Executors or Administrators: Appointed persons who manage the estate of the deceased.
The FBR issues a notice in writing to these representatives, asking them to file the return for a specific period, even if it is less than the standard 12 months.
What Special Powers Does the FBR Have?
The FBR, through its Commissioners, has significant powers to ensure tax compliance under Section 114(3). These include:
- Issuing Notices: The Commissioner can issue a written notice requiring a return to be filed.
- Demanding Returns for Shorter Periods: Normally, income tax returns are filed annually. However, under Section 114(3), the Commissioner can ask for a return covering a shorter period, such as before someone’s death.
- Discretionary Authority: The Commissioner has the authority to decide when it is “appropriate” to ask for such returns.
This allows the FBR to close tax-related matters promptly and prevent tax evasion.
What Happens If the Tax Return Is Not Filed?
If the legal representative or heirs fail to file the return, the FBR can take further action, including:
- Imposing penalties for non-compliance.
- Issuing further notices or conducting audits of the estate.
- Blocking the transfer of assets until tax matters are resolved.
It is important for legal representatives to respond promptly to such notices to avoid complications in the inheritance process.
Key Takeaways
- Yes, under Section 114(3)(a), the FBR can require a tax return to be filed for a deceased person.
- The responsibility falls on the legal representative, such as heirs or estate managers.
- The purpose is to settle any pending tax obligations and ensure compliance with tax laws.
- The FBR holds special powers, including issuing notices for shorter periods and using discretion to demand returns.
Filing a final tax return for a deceased person ensures that their tax affairs are in order and that the heirs or estate administrators can settle matters smoothly without legal hurdles. It is not meant as a punishment but as a necessary step for financial and legal closure.
