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Mahesh

28/04/24 11:53 AM IST

Inheritance tax in India

In News
  • Inheritance tax — a duty on property inherited by a person— has become a polarising topic in this Lok Sabha campaign, with both Congress and BJP accusing the other of reviving it
Inheritance tax
  • In 1953, India’s Parliament had passed the Estate Duty ‘Death Tax’ Act, which was later abolished in 1985 by the Rajiv Gandhi government.
  • As per the Act, tax/duty was imposed on the principal value of movable and immovable property, including agricultural land, passed on to any person after the death of the owner of such property.
  • The Act was applicable only if the property-owning person died as an adult (i.e. completed 18 years of age).
  • Furthermore, Estate duty was applicable only on inherited properties with a value above the exclusion limit set by the Act, and the tax rate was calculated as per the market value at the time of death.
  • The properties on which this duty was applied included immovable and movable property owned by the deceased in India and outside, which were passed on to a successor – if the person died when domiciled in India.
  • If not, estate duty was levied only on immovable property in India and all movable properties; immovable properties outside India were not taxed.
  • The Act was amended in 1960 to exclude properties in Odisha, West Bengal, and Jammu & Kashmir, and further in 1968, 1982, and 1984 to include amendments made by other Finance laws.
  • After implementation, the death duty imposed peaked up to 85%, making it highly unpopular.
  • In 1985, the then Finance Minister V.P. Singh abolished it as the income generated for the Centre via such taxes was much less than the cost incurred due to the administrative process in executing it.
  • As of date, there is no tax imposed on property inherited, whether through a will or by intestate succession.
  • This is in stark contrast to several other countries. According to leading financial firm Pricewaterhouse Coopers (PwC), most European, American and even African nations levy inheritance tax.
  • In Europe, the top nations levying tax on inherited properties are — France (60%), Germany (50%), United Kingdom (40%), Spain (33%) and Hungary (18%). Other countries with high inheritance taxes are Japan (55%), South Korea (50%), Ecuador (37%), Chile (25%), South Africa (25%) and Taiwan (20%).
Other taxes in India
  • Similar to Estate duty, India also had the ‘Gift Tax’ Act, passed in 1958.
  • The Act allowed imposition of duty on any ‘gift’ made by one person to another in that financial year.
  • A gift was defined as any existing movable or immovable property transferred by one person to another voluntarily, without considering its value in terms of money, after April 1, 1957.
  • All taxable gifts were imposed with a duty of 30%; the government sought to recover some of the tax revenue lost when a high income tax donor transferred property to a donee falling in the lower income tax bracket.
  • Due to similar constraints to those faced while implementing estate duty, this tax was scrapped by the government in 1998.
  • However, in 2004, gift tax was reintroduced in the Finance Act as part of additions to the Income Tax Act.
  • Any cash gifts above ₹50,000 and any gifts in kind (i.e. immovable property) above the value of ₹50,000 are taxable. Exceptions include donations, inheritance, and gift money received during weddings.
  • Another similar tax in India was the wealth tax introduced in 1957 to impose a duty on a person’s net worth. Under this regime, a 1% duty was imposed on earnings of over ₹30 lakh earned by a citizen in that financial year.
  • The tax was imposed on all assets of Indian citizens and only Indian assets of non-residential Indians (NRIs).
  • Assets under the purview of this regime were gold, silver, and platinum ornaments, transport vehicles like private aircrafts, ships, and cars, property apart from one’s residential home, and any cash above ₹50,000.
  • Exemptions underthe law included rental properties, business property, smaller properties below the prescribed limit, and investments in schemes. This tax was also abolished in 2015 due to heavy costs in execution.
Source- The Hindu

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