Inheritance Tax is a tax on your (Beneficiaries) right to receive property from a deceased (dead) person. Inheritance tax is charged based on the value of property being inherited. You will have to pay a different amount in tax, depending on how much you have inherited.
It’s common in India for children to inherit property and assets from parents and grandparents. In some countries you must pay an inheritance tax on inherited assets. Inheritance or Estate Tax was abolished in India in 1985.
Both inheritance tax and estate tax are separate taxes, commonly referred to as death taxes. Inheritance tax is charged on the value of the property or asset. Estate tax is applied to the estate (based on value of the asset), before the assets are distributed to the beneficiaries.
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People in India are waiting with bated breath; Will inheritance Tax make a comeback after 35 years? All eyes are on Finance Minister Nirmala Sitharaman in Union Budget 2019.
The Modi Government may introduce a tax on jewellery, properties, shares, mutual funds, FDs, cash in hand and pretty much everything inherited, in Union Budget 2019. This would be an inheritance tax, pretty much on the lines of what the UK has.
This inheritance tax would not bring much money to the Government? So, why this tax? The Government wants to demonstrate it’s pro-poor. It also wants to discourage excess wealth accumulation and fight tax evasion and black money.
This could be a very bold move by the Finance Minister. This could deny the rich more wealth through inheritance and prevent further distortion of wealth distribution in India.
How would the poor benefit through an inheritance tax? Well, the poor in India would get the resources they badly need. People would be able to avoid inheritance tax by donating to Government approved Institutions and Public Welfare Trusts. This money flows to the poor.
See Also: Union Budget 2019-2020: Major Takeaways
It’s been more than 3 decades since estate duty was abolished in India. Now, there’s a big chance estate duty could make a comeback in Union Budget 2019, albeit in a different avatar.
Estate Tax is charged based on the net value of property owned by a deceased person, at the time of his/her death. There was an exemption limit as per law. Estate Tax is charged only if the value of the property exceeds the exemption limit. The estate duty was abolished in India in 1985 for very good reason.
The tax yield (Money collected from estate duty), was much lower than the cost of administration. There were also several litigations which were a big headache to the Government. Forget about history and all the problems; This is a great time to introduce inheritance tax.
Income Inequality: Income and consumption inequality (This is income inequality in India) is at the highest since 1922. This is when income tax was first introduced in India. Take a look at this fact: In the 1930’s the top 1% of India’s earners accounted for less than 21% of the country’s total income. This means the remaining 99% of the people in India accounted for most of India’s wealth.
Take a look at the 1980’s. Here top 1% of India’s earners accounted for 6% of the country’s total income. This means 94% of the country’s income was not from the top 1% of India’s earners. This shows a fairly even distribution of wealth in the 80’s. Now, in the year 2014, it’s at a historical high of 22%. Something must be done about income inequality.
See Also: 5 Union Budget Expectations For Women
Wealth Inequality: Wealth inequality in India is really bad. Take a look at Credit Suisse 2018 Global Wealth Report. It says the richest 1% own 51.5% of India’s wealth. The richest 10% own nearly 78% of India’s wealth. Now, take a look at this. The bottom 60% of India’s population owns just 5% of the Nation’s wealth. Don’t you think this is grave injustice? Don’t you see inheritance tax is the need of the hour?
India’s per capita income has really gone up since liberalization. Growth is not inclusive which means it has not reached the poor. Wealth is in the hands of a few and to make growth inclusive, distributional gaps must be reduced.
Yes, Estate duty was a failure in the 80’s. But today, we have an information technology revolution. Central Board of Direct Taxes or CBDT has Big Data to catch tax evaders. The Tax Department has made sure of tax compliance. In today’s digital economy and the powers of the tax department in catching tax evaders, administering and monitoring inheritance tax is not a problem.
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