When a person dies, the question arises: who should pay tax on the interest earned in their bank accounts after death? This article explains how interest income from a deceased person's bank accounts is taxed and who is responsible for reporting it.
- If the deceased did not leave a valid will, the interest income earned after death is shared among legal heirs.
- Interest earned before death is reported by the legal representative in the deceased's income tax return.
- If there is a valid will, the executors handle the income and tax until assets are distributed.
What happens if the father died without a valid will?
When a person dies without a valid will, they are said to have died intestate. In such cases, all assets without a will pass immediately to the legal heirs. The income from these assets after the date of death must be included in the income of the respective heirs.
For example, if your father died in September 2025 without a will, the interest earned on his bank accounts from April 1, 2025, until his death must be included in the income tax return filed by you as the legal representative.
Any interest earned after his death until March 31, 2026, must be divided among all legal heirs and included in their individual incomes. From the next financial year onwards, the interest income will be taxed in the hands of the heirs who inherit the asset.
How is interest income treated if there is a valid will?
If the deceased person made a valid will covering some or all assets, those assets do not pass immediately to heirs. Instead, the executors named in the will manage the assets.
Any income earned from these assets after death is taxable in the hands of the executors as part of the deceased's estate. The executors must pay tax on this income until they fully distribute the assets according to the will's instructions.
Who files the income tax return for the deceased?
The legal representative, often the heir or executor, files the income tax return for the deceased person. This return includes income earned up to the date of death, such as interest earned before death.
What should legal heirs do about interest income after death?
Legal heirs must include their share of interest income earned after the deceased's death in their own income tax returns. The interest is divided according to each heir's share in the inheritance.
Key takeaways
- Interest earned before death is reported by the legal representative in the deceased's tax return.
- Interest earned after death is shared among legal heirs and taxed in their hands.
- Executors handle income and tax if a valid will exists until assets are distributed.
- Legal heirs must include their share of post-death interest income in their tax returns.
Frequently Asked Questions
Q: Who pays tax on interest earned before the father's death?
A: The legal representative files the deceased's income tax return and reports interest earned before death.
Q: How is interest income after death divided among heirs?
A: Interest earned after death until the end of the financial year is divided among all legal heirs according to their shares and taxed in their hands.
Q: What if the deceased left a valid will?
A: The executors of the will manage the assets and pay tax on income earned until the assets are fully distributed.
Q: When do legal heirs start paying tax on inherited interest income?
A: From the financial year following the year of death, legal heirs include the interest income in their tax returns.
