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The Author in this article, discusses inheritance tax being the tool to tide over the covid-19 phenomenon


a) In view of the outbreak of Covid-19, various state Governments are struggling to even pay salaries of their staff. Central Government is no exception for the same. It is a consequence of multiple things which has taken effect over a decade or even more.

b) Reportedly, to cope-up with the situation, Central Government is considering various options.

c) One of the things is reintroduction of inheritance tax. Why re-introduction ? because inheritance tax existed in India till 1985.

d) When the author is in process of authoring this article, CBDT has issued an press release whereby it has made it clear that it has not asked for any such report and CBDT has initiated inquiry to look into the publication of the said fact.

e) Even if it is accepted that no official recommendation was there, a –– still remains and it may be an opportune movement to discuss this issue.

Entering the subject

f) In India, the Estate Duty Act, 1953 [the Erstwhile ED Act, 1953] prevailed till 1985 which is the inheritance tax. There was a rumour that it was abolished because it would have caused big trouble to Mr. Rajiv Gandhi while inheriting the property of Smt. Indira Gandhi.

g) The author is not aware of any official or credible source of information to substantiate the above mentioned claim.

Take away points

1) The very basis of inheritance tax is that it endevours to reduce economic inequality.

2) To give a simple example, the child of Mr. Mukesh Ambani is placed at much higher a pedestal than a child of any common man.

3) The author is of the opinion that, at concept level, inheritance tax definitely makes a point and the Government should consider its re-introduction.

4) The other expectations of the author are given at the end of this article.

Current Scenario

h) First and foremost, there is no inheritance tax as of today in India.

i) Gift Tax was abolished in 1997 and till July 2004 i.e. before introduction of the Finance No.2 Act, 2004, [Section 56(2)(v) to be specific] there was no taxation on gifts at all. Even section 56(2)(v) does not tax inheritance, but taxes some portion which was chargeable to tax under the Erstwhile ED Act, 1953.

j) On perusal of the Erstwhile ED Act, 1953 one will find the concept of SAAR [Specific Anti Avoidance Rules]. The reason of highlighting this fact is that the Erstwhile ED Act, 1953 itself was a complete code to tax the subject matter.

k) The charging phenomenon under the Erstwhile ED Act, 1953 was “property passing on death” of as defined in section 2(16) which are re-produced hereinbelow.

(16) ” property passing on the death” includes property passing either immediately on the death or after any interval, either certainly or contingently, and either originally or by way of substitutive limitation, and” on the death” includes” at a period ascertainable only by reference to the death”;

Salient features of erstwhile ED Act, 1953

l) The salient features of the Erstwhile ED Act 1953 are as follows;

1) The property deemed to pass on death included property which the deceased individual at the time of his / her death was competent to dispose of, and property in which the deceased individual or any other person had an interest ceasing on the former’s death. Sec 2(15).

2) Further, if the deceased individual was domiciled in India at the time of his death, the duty was leviable on all immovable property situated in India, and on all movable property (situated in India or outside) which passed on upon his death; Section 21(1)(b)(i).

3) If the deceased individual was domiciled outside India, the duty is leviable on all immovable property situated in India, all movable property situated in India and movable property situated outside India, if it is settled property and the settler was domiciled in India at the time the settlement took effect. Section 21(1) (a) and (b).

4) While calculating the total value of the property of the deceased individual, the market value as at the time of the death was taken into consideration Section 36(2).

5) Certain deductions were permissible from the value so determined, subject to certain limitations, on account of reasonable funeral expenses and for debts and encumbrances.

6) The Act contained various provisions to counteract attempts at legal avoidance. One set of provisions was that the gifts made by an individual ‘in contemplation of death’ as defined in the Indian Succession Act, 1945, were treated as passing on death of such individual. Section 8.

7) Gifts for public charitable purposes made within a period of 6 (six) months before the death, and gifts for other purposes made within 2 (two) years before death takes place, were also treated as passing on death. Section 9(1).

8) Such gifts, however, were exempted from duty up to a maximum of INR 2,500 (Rupees two thousand five hundred) in case of gifts for charitable purposes and of INR 1,500 (Rupees one thousand five hundred) in case of other gifts. Section 33(1) (a) and (b).

9) Further, where the deceased individual had transferred any property to a controlled company and derived any benefits from it, a part of the assets of the company were deemed to be property passing on his / her death, in the same proportion as the benefits derived by him / her during last 3 (three) accounting years of the company bearing to the income of the company in those years.

Reasons for failure of erstwhile the ED Act, 1953

m) The reasons for failure of the Erstwhile ED Act 1953 are as follows;

1) Wide perception to be a complex piece of legislation,

2) Different valuation rules for different kinds of property.

3) Increased number of litigations relating to determination of principal value of the property.

4) Estate duty and wealth tax were together seen as double tax on the same base.

5) Collection of tax was meager and it was reported to constitute a miniscule percentage.

6) The administration cost incurred by the government remained high.

7) Failed to crack the prevalent Practice of holding benami properties

8) A lot of inherited properties remained illegitimately concealed from the purview of tax and therefore the rate of tax collection was low.

9) Imposition of the estate duty was alleged to have caused disruption to the financial economy of Indian families.

Framework of drafting mechanism

a) The Government should not leave any stone un-turned. The Government may consider following broad framework.

1) The Government needs to have a strong political willingness to tax the rich. It is so because these only are the people who will have a strong influence on the policy of the Government.

2) Give a reasonably big basic exemption limit say Rs. 10 Crores whereby keeping 95% of the population of India out of the net of this tax. It will substantially reduce the compliance cost.

3) The Government may give a mandate to a task-force to draft the Gift and Inheritance Act, 2020. The task-force be given the same status of standing committee of parliament.

4) The draft may be put in public domain for discussion and constructive criticism so that much of the potential litigation may be avoided.

5) The code may be drafted adhering to plain language principles to iron out the complexity of drafting, reading and interpreting.

6) Task-force will present a revised code which may be called as first revised code.

7) The first revised code may be referred to Law Commission of India for its opinion.

8) The Task force will incorporate the suggestions of Law Commission of India which may be referred as second revised code.

9) The second revised code may be referred to the Supreme Court of India for its advisory opinion though a presidential reference under article 143 of the Constitution of India.

10) An effort may be made that the provisions should pass the muster through the Apex Judicial razor.

      • Constitutional validity
      • Reasonableness of Validity of Valuation rules
      • Intelligible differentia in case of exemptions / deductions given

11) It is a safeguard to avoid / reduce future potential litigation.

Author’s Personal opinion

o) Following are the suggestions. The most important thing that one has to bear in mind is that taxation is a matter of policy and right to tax emerges from the concept of sovereignty.

1) The Government should try and consolidate all the levies, direct taxes into one code may be the Direct Tax Code which will include

i. Equalisation levy

ii. Income tax

iii. Wealth Tax

iv. Gift Tax

v. Inheritance Tax

vi. Any surcharge or cess on above

2) The code itself will pronounce that there is double taxation in some formats like income tax on income is earned / accrued / arisen / received and inheritance tax being on property purchased from same income at the time of “passing on death” of the individual.

3) Taking into consideration the judicial pronouncements under the Erstwhile ED Act, 1953.

4) The Government may consider Stamp duty value as available on or after 2006. It may be declared that this is the deemed value of immovable properties which will exclude the aspect of Market value.

5) More care may be taken in drafting the valuation rules. The experience of section 56(2)(vi) is also not very good.


The author is indebted to Divi Dutta and Himanshu Malhotra for their article dated 06 June 2018

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  1. yogesh limaye says:

    Inheritance tax has specialty where it will tax only the rich [or super rich]. I know people may think that it is the typical communist approach. But it is not income tax. the cost of collection can be very low. the number of assessees can be genuinely very low a few hundreds.


    Suggestions are aplenty to raise revenue. Please calculate the per capita GST. As of now everyone is expected to have a mobile number and you shell out 18% whenever you use it. By increasing it to 20% the Govt can raise more funds than complicated legislation
    Common man is already suffering. Pleas keep that in mind

    1. yogesh says:

      sorry for delayed reply. But please check that there is a tendency to change mobile every 5 year. secondly if basic exemption limit is 10 crores, it will keep say 90-95% polulation out of it. Is it not sufficient ? than increasing GST ? secondly, this is a mis-onception that it will be a complicated legislation. In today’s digitised era, it can be very straight forward one if political will is there. It will tax only the top 5%

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May 2024