A debate has arisen in India over ‘Inheritance tax’ following remarks by some politicians, however, the concept is not new in India.
About inheritance taxes
- Estate and inheritance taxes are two types of taxes that are imposed when a person passes away. Although, both are related to death, yet they have different targets.
- Estate taxes are applied to the total value of the deceased person’s property as of the date of death, whereas inheritance taxes are charged on the beneficiaries who inherit the property.
- The primary objectives of inheritance taxes are to boost government revenue and promote wealth redistribution.
- Several developed countries, including the United States, the United Kingdom, Japan, France, and Finland, have implemented inheritance tax laws with tax rates ranging from 7% to 55%. However, in recent years, there has been a trend towards scrapping estate or inheritance tax.
- According to data from the Tax Foundation, since 2000, 11 countries and two tax jurisdictions have abolished inheritance tax.
Estate Duty in India
- India’s Parliament had passed the Estate Duty ‘Death Tax’ Act. As per the Act, tax/duty was imposed on the principal value of movable and immovable property, including agricultural land, passed on to any person after the death of the owner of such property.
- Estate duty was applicable only on inherited properties with a value above the exclusion limit set by the Act, and the tax rate was calculated as per the market value at the time of death.
- It was later abolished in 1985 by the Rajiv Gandhi government as the income generated for the Centre via such taxes was much less than the cost incurred due to the administrative process in executing it.
- As of date, there is no tax imposed on property inherited, whether through a will or by intestate succession.
Gift Tax
- India also had the ‘Gift Tax’ Act, passed in 1958. The Act allowed imposition of duty on any ‘gift’ made by one person to another in that financial year.
- A gift was defined as any existing movable or immovable property transferred by one person to another voluntarily, without considering its value in terms of money, after April 1, 1957.
- Due to similar constraints to those faced while implementing estate duty, this tax was scrapped by the government in 1998.
- In 2004, gift tax was reintroduced in the Finance Act as part of additions to the Income Tax Act. Any cash gifts above Rs 50,000 and any gifts in kind (i.e. immovable property) above the value of Rs 50,000 are taxable. Exceptions include donations, inheritance, and gift money received during weddings.
Wealth tax
- Another similar tax in India was the wealth tax introduced in 1957 to impose a duty on a person’s net worth.
- Under this regime, a 1% duty was imposed on earnings of over ₹30 lakh earned by a citizen in that financial year.
- The tax was imposed on all assets of Indian citizens and only Indian assets of non-residential Indians (NRIs). This tax was also abolished in 2015 due to heavy costs in execution.
(Compiled from The Hindu, ET and Business Standard)
