Aastha Grover

An inheritance tax or Estate tax or Death duty is a tax paid by a person who inherits the assets of the deceased. It is a tax on the assets which a person receives after the demise of the transferor. In international tax law, there is disparateness between an estate tax and an inheritance tax: an estate tax is levied on the assets of the deceased, while an inheritance tax is levied on the assets received by the heirs. Estate tax was there in India from 1953-1985.The reason for its abolition was that administrative cost was more than the tax collection. Government intends to reintroduce the estate duty for the following reasons.

INHERENT TAX A BOON FOR THE GOVERNMENT

1. Government is expecting that the revenues collected through this would be more than the administrative cost.

2. There would be a direct correlation between the tax collected and wealth generated.

3. Property or wealth inherited is a casual income i.e one acquires wealth/estate without any efforts or incurring any cost. Thus such acquisitions should be taxed.

4. Now people can easily afford to pay such taxes.

5. Inherent tax would reduce the income disparity and would serve as a equalizer for the Indian society.

6. Introduction of such tax would bring the heirs at par.

The proposed reintroduction stems from the fact of accumulation of wealth in a few hands, inter-generational equity (for the heir it serves as capital) and a possible increase in contribution to the national exchequer.

Earlier the estate duty was payable by the executors of the estate of a deceased. The maximum slab rate on an estate exceeding Rs 20 lakh was an exorbitant 85 percent

REASONS FOR ABOLISHMENT

1. Complexity of the act owing to application of different valuation rules for different kinds of property, leading to several tax demands.

2. Moreover, the duty was perceived to be a form of double taxation on the same property – wealth tax before death and estate duty after death.

Along with the introduction of inheritance tax, the gift tax would have to be reintroduced simultaneously or else it would be easy to avoid inheritance tax by giving away property as gifts.

Currently, there is no separate Gift Tax Act. However, there is a provision under section 56(2) of the Income-tax Act wherein certain specified gifts are chargeable to tax. However, section 56(2) exempts from tax gifts received under will or by way of inheritance and in contemplation of death.

Inheritance tax may be reintroduced as an amendment to the existing provisions of section 56(2) of the Income-tax Act, by withdrawing the exemptions on gifts under will, inheritance and in contemplation of death.

Inheritance tax, if introduced, would require the heir to the deceased to pay on the property bequeathed to him at a rate probably ranging from 30-40 percent, subject to certain exemptions.

A tax imposed on those who inherit assets from a deceased person. The tax rate for inheritance taxes depends on the value of the property received by the heir or beneficiary and his/her relationship to the decedent.

NO TAX ON INHERITANCE

According to the present Indian income-tax law, no tax is applicable on inheriting property in India. However, tax is applicable when one sells it i.e capital-gains tax is applicable. If the inheritor is an NRI, the seller of the property is required to withhold the tax amount “Tax at Source”. However this can be avoided if the purchaser of the property makes an application u/s 195 (2) or the seller (the NRI inheritor) submits an application u/s 197. Proceeds from the sale of the property are credited to the NRO A/c, which can be repatriated.

If an individual inherits any financial assets in India, no tax has to be paid on them. However, if these assets lead to generation of income/gains, tax has to be paid accordingly.

WEALTH TAX

According to Indian tax Laws, no tax is applicable on the value of inherited property. However, wealth tax would be applicable if one possesses more than one property and the value of the same is more than Rs 30 lakh. In such a case, wealth tax at the rate of 1 per cent is applicable on the value of assets exceeding Rs 30 lakh.

If a person has inherited a property and resides in it and has only one house, rental income will not applicable as this house will be considered as self-occupied property. However, where an inheritor has more than one property, the second will be deemed let out and rental income will be considered on it. The rental income will be added to the income in the hands of the owner and will be charged according to the income-tax slab.

CONCERNS DUE TO PROPOSAL OF REINTRODUCTION OF INHERITANCE TAX

1. It would ultimately amount to multiple taxation.

2. It may so happen that they may be paying inheritance tax in India and they might have to pay in other jurisdictions too thus amounting to double taxation.

3. For wealth tax there were different rules. For gift tax there were different rules for valuation. If there are multiple valuation rules and always there could be difference of opinion, resulting into litigation.

4. It is complex to implement.

A DEBATE-ON INTRODUCTION OF INHERITANCE TAX

AGAINST THE MOTION

1. It is less cumbersome to collect tax revenue from due to the Voluntary compliance scheme which has been introduced. If the Government decides to levy Inheritance Tax, then the culture of the tax payers which has been changed will take a u-turn and the exercise of the Government in educating the tax payers for better compliance and achieving the desired results as a result of tax rate deduction would all be washed away. Rather the law makers should further simplify the tax laws of the country to make it more tax payer friendly so that better revenue is derived by the Government by way of income-tax collection.

2. Due to non-applicability of the Inheritance Tax, Non-Resident Indians would be enticed to bring their funds in India in their old age because most of them migrate. Non-applicability of Inheritance Tax in India would be an inspiration for Non-Resident Indians to revert back to their home country with all their money in hand and save their Inheritance Tax which otherwise was applicable in many other countries. If the Government were to think about imposing of Inheritance Tax, then immediately there would be a shift in the mindset of the tax payers of the country and it is expected that black money and tax evasion transactions would soar.

3. Inheritance Tax world over is paid by the person who inherits certain assets on the death of another person. Due to Inheritance Tax, gifts are being made by tax payers before their demise so that these assets are tax free and since transfer of assets in contemplation of death are not chargeable to tax. In India if Inheritance Tax is introduced, then tax payers would indulge in these activities namely of gifting the asset while they are alive thereby nullifying the impact of Inheritance Tax. But if Inheritance Tax is expected to come, then such tax payers will do everything to break the law and would distribute their assets during their life time whereby the impact of tax collection would be visible right now and the purpose of introduction of Inheritance Tax would be defeated.  Hence, the Government should not at all think about introduction of Inheritance Tax and it may be introduced later on depending on the situation.

FAVOUR OF THE MOTION

1. Once upon a time in India we had “Estate Duty” which was payable after the death of the person on his assets and the maximum rate of Estate Duty was 85 percent. So as to do away of the Estate Duty the tax payers kept the money under their control and would pay taxes on the same because there was no fear of the Estate Duty liability being affected on them at the time of their death. If today a fear is brought in the minds of the tax payers about the likelihood introduction of the Inheritance Tax, in that situation zillion tax payers of India would try to resort to illegal way of keeping their assets and money so that they are not liable to payment of Inheritance Tax if introduced in the country. Hence, the Government should make a categorical announcement. i.e Tax should be introduced only for persons having wealth exceeding  Rs.100 crores so that majority of the tax payers of India are not affected at all.

2. Since in many countries Inheritance Tax is in operation so non-Resident Indians who are based in those countries are trying to come back to India after selling all their assets abroad just to save Inheritance Tax.  For example in U.K the families are liable to 40 per cent Inheritance Tax Bill on whatever they inherit above pound 3,25,000. Although the allowance is double for married couples they are supposed to settle the tax bill before they can inherit any assets. In India the regime of Zero Inheritance Tax the economy is flourishing and tax payers are now resorting to healthy practices of tax payment and are not interested to carry on nefarious activities and tax evading activities but in case Inheritance Tax comes into picture, again we might have the atmosphere of a higher rise.

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0 responses to “Introduction Of Inheritance Tax- Move Towards Reduction Of Fiscal Deficit”

  1. Aastha Grover says:

    In the present scenario it is required,and this tax law is applicable abroad, most of the things /developments/technology upgradations we have seen in India are duplicate models which the developed countries have already followed and following the developed countries we have been most of the times been successful. So this too can be given a thought.Its been given a thought in reality and might come into force.

  2. Aastha Grover says:

    yes,

    There is no foolishness in introducing inheritance tax as far as my knowledge is concerned.Introduction of a new tax regime cannot amount to increase in tax rates,it simply amounts to increasing the tax base.

  3. Aastha Grover says:

    Firstly, inheritance tax never existed in India, so it was estate duty which was there. There is a distinction between inheritance tax and estate duty as per international tax law, though in India they are treated to be at par but they aren’t actually the same.
    I have rectified my heading to eliminate the anomalies, what I meant was introduction of inheritance tax in India and not reintroduction of inheritance tax as it never existed in India.
    My justification as to why this should be introduced is that it is a casual asset/income, which one acquires for free. As far as capital gains existence is concerned, if both are levied it would amount to double taxation so both the taxes should be taken into account, the one which is more beneficial to the inheritor should be paid.
    If direct incomes are taxed then why is casual income exempted. In India a common man is first taxed on his direct income, then all indirect taxes (service tax, excise duty, custom duty, vat, entertainment tax etc) are also to be borne by him, so nearly 50% of his income is lost in taxes, so his disposable income is just 50%. As far as my understanding is concerned, all other taxes which a common man is made to bear should be reduced (income tax rates should be further reduced, and high net worth individuals should be targeted for tax collection purposes and also casual incomes should be taxed at higher rates. When all other casual incomes are taxed then why is this out of that purview. When wealth tax is imposed then why is there no inheritance tax on assets which people acquire for free. As above mentioned why a common man is made to suffer that is what I am talking of.

  4. Jasgun says:

    Seriously ?? Who would even think of this in the present scenario.

  5. Ram S. says:

    The article is well written but the content is in digestible. This seems to be a buddy thinking. Estate Duty was originally for the purpose of those times when Maharaja, and Large Estate owners kept their assets and when it was passing to who inherit it there payable a tax by the inheritor. But remember again remember that the tax has to be paid by the inheritor on the Estate value and only after that the Estate is transferred or he inherits it. You cannot slice a part of it to pay the tax from it and you have no right to touch it before payment of Estate Duty. Therefore LIC of India created lower premium Whole Life Policy -payment on Death only and assigned it for payment of Estate Duty. As the Estate Value increases more policy is taken to pay the premium but the payment is only paid for Estate Duty in the event of Death of the proposer/Insured and this policy settled the payment of Estate Duty first.
    Now there are people who inherit large estate but they even cannot pay the Insurance premium for the property, cannot maintain it, and it is beyond their means but only suffocation. I have proof of it to show you. When you asked the insurance company to insure part of the property they occupy but the Insurance company refuse to give policy as the entire estate has to be insured for fire and other damages and not part of the assets. So either the assets get deteriorated or has to be sold out being beyond maintenance.
    Now coming to the point of taxation. There was no capital gain tax at that time if I remember.
    Now there is Capital Gain Tax – Long Term and Short Term and also Indexation of assets held for number years. Which were not there before.
    Every asset sold is either LT or ST get taxed or invested in property rollover as per law or invested in Capital oriented scheme to save tax and blocked for three years. These has given wider scope for investment in the National Highway corporation Bond, and Rural Electrification Bond. which is boost to our economy. Otherwise in the Estate Duty it would get in the Lions or Elephants Mouth with all the deficit financing and eyeing for more taxation without any benefit for economic capital growth.
    Even in Capital Gain Taxation – the interpretation differs at every case and there are innumerable cases pending before the various Tribunal and Courts of India.
    The reintroduction of Estate Duty is no where relevant to this time as now every property is valuing high and if introduced there going to be high volume of court cases and nothing is going to gain from it.
    Remember and think some thing for the common man than thinking hypothetically which is already in places in every sector.

  6. MCT says:

    It would be foolish to even think about introducing the estate duty again. The right way would be to increase the tax base instead of the tax rates.

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