The infamous inheritance tax has sparked debate amidst the ongoing Lok Sabha Elections 2024. Recently, Senior Congress leader and chairperson of overseas operations for the grand old party, Sam Pitroda, drew attention to the absence of inheritance tax in India, suggesting a similar implementation as seen in the U.S.
Inheritance tax, which pertains to the transfer of assets from a deceased individual to their heirs, was once a familiar concept in India for four decades until its abolition in 1985. Pitroda, speaking from Chicago, highlighted the U.S. "inheritance tax" law, mandating the transfer of 55% of an individual's wealth to the government, a concept absent in India.
The comments made by the senior Congress leader didn't sit well, especially as India's election fervour intensified. The ruling BJP promptly criticised Pitroda's remarks, with the Prime Minister Narendra Modi criticising the Congress party for allegdly wanting to bring in inheritance tax if they voted to power. He reportedly said that his government would neither consider, nor implement wealth redistribution or an inheritance tax.
Calculation of inheritance tax
The process of calculating inheritance tax involves assessing the deceased estate's total value, encompassing all assets like real estate, investments, bank accounts, vehicles, personal belongings, and liabilities. Certain beneficiaries may be exempt or subject to reduced rates based on relationships and jurisdictional laws.
Inheritance tax around world
Globally, inheritance tax is enforced in various countries, with Japan having the highest rate at 55%. The inheritance tax mentioned by Pitroda is enforced solely in six U.S. states, which include Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Factors such as inheritance value, beneficiary relationships, and local laws influence the tax amount, emphasising the complexities and variations in inheritance tax worldwide.
India’s relation with inheritance tax
In 1953, the Estate Duty Act introduced the inheritance tax to address economic inequality by taxing wealthy individuals' transferred wealth. Estate duty involved taxing the full value of an individual's property at the time of their death, and this tax obligation was activated when the property was transferred to heirs. The estate duty was applicable to both real estate and movable assets, whether located within India or elsewhere.
However, this tax faced opposition due to its high rates, reaching 85% for properties over ₹20 lakh. Criticism, coupled with low collections and evasion tactics, led to its abolition in 1985 by the then Finance Minister V P Singh. Inheritance tax collections remained meagre due to individuals attempting to avoid taxes, such as hiding inherited assets and participating in benami property deals. Moreover, the simultaneous enforcement of estate tax and wealth tax was criticised as double taxation, leading to significant public dissatisfaction.
However, since then both the governments of BJP and Congress have shown interest in the imposition of this tax.
