Inheritance or Estate Tax is levied on the value of assets passed on to legal heirs through inheritance.

Whether the time has come to reintroduce said inheritance tax in India? Whether prevailing conditions are in its favour? The answer is affirmative. In the interest of revenue, if not in this budget, the Ministry of Finance may give a serious thought and reintroduce it in 2019- 20 or in subsequent Union Budgets.

Genesis

After Independence, the Indian Government has introduced its first-ever inheritance or estate tax during 1953 and same has levied till 1986. Prior to removal, like Income Tax, inheritance tax also levied on a slab basis ranging from 7.5% to 40% of the principal value of the estate or assets as the case may be.

Conditions – In favour of

  1. Absence or abolition of Wealth Tax w.e.f the financial year 2015 – 16.
  1. To widen the direct tax base and to boost its revenue to meet fund requirements for infrastructure and social development projects.
  1. To bring an economic equilibrium in Indian society and to reduce the wealth concentration.
  1. Abruptly increase in wealth of Individuals, a media report says that In India, currently there 600 plus Individuals who own more than Rs. 1,000 crore wealth as inherently.
  1. A very recent media report states that India’s richest people say 1 percent now hold a huge 58 percent of the country’s total wealth, which is higher than the global levels of about 50 percent.

Taxability – Under which head?

The Central Government may bring an exclusive Chapter and Rules in Finance Act 2018 like “Equalisation Levy’ or suitably amend the head “income From Capital Gains.”

The Central Government may levy tax between 25% to 40 % (during 1985 – 86 it was around 40% so the Government may consider even more than said ..!! ) on particular segment of assessees like High Net worth Individuals (HNIs), Non- Resident Indians (NRIs), centuries-old or recently created “Family Trusts,” etc.  Few developed countries that have the inheritance tax, levy as high as 80% on the net value of the assets passed on.

Inheritance Tax- In other Countries

Few developed countries say the UK and the US have inheritance tax system. The US has three types of taxes on estates or assets being passed on to the next generation. They are Gift Tax, Estate Tax and Inheritance Tax. The rate of Estate taxes in the USA stands at 40%.

Unlike the US, the UK has a unified regime of Inheritances tax system where the standard rate stands at 40% which is charged on the estate specified threshold, which is currently 325,000 pounds. In case, if the estate is given to the children or grandchildren, the said threshold will be 425,000 pounds.

However, there are many countries such as China, Singapore, Hong Kong, Australia and the Gulf countries have repealed their inheritance tax.

Conclusion

In the interest of revenue, if not in this budget, the Ministry of Finance should reintroduce inheritance Tax or Estate Tax after studying thoroughly of its impact and repercussions by forming a dedicated committee in this regard.

Fingers are crossed..!!

 The author is a budding Tax Law Professional and can be reached at  shreetaxchambers@bsnl.in

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