The Chairman of the Indian Overseas Congress, Sam Pitroda, triggered a political slugfest in India with his statement on inheritance tax. He cited the rule in the US wherein a person who leaves money for his children has to cough up 55 per cent of the money as inheritance tax. Within no time, political parties in India reached the conclusion that the Congress party would re-introduce inheritance tax in India if voted to power. The party played the controversy out by distancing itself from the comments made by their overseas chairman. Here are some points in this regard.

Estate duty

Estate duty tax was first introduced in India in 1953 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.

The tax 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 rate of estate duty reached a peak of 85 per cent — making it highly unpopular. In 1985, the tax was abolished.

Gift tax

India also had a Gift Tax Act from 1958 which allowed imposition of duty on any gift made by one person to another . A gift was defined as any existing movable or immovable property transferred by one person to another voluntarily. All taxable gifts were imposed with a duty of 30 per cent.

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 by taxing any gifts (cash or non-cash) above ₹50,000. Exceptions include donations, inheritance, and gift money received during weddings.

Wealth tax

India also had a wealth tax from 1957 that taxed the net worth of a person. Under this regime, a 1 per cent 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 aircraft, ships, and cars, property apart from one’s residential home, and any cash above ₹50,000. This tax was abolished in 2015 due to heavy costs in execution.

Over the last decade or so, rumours about the reintroduction of inheritance tax keep cropping up during the weeks prior to the presentation of the Union Budgets. In 2018, the then Finance Minister stated that that inheritance tax was the reason for large endowments to hospitals, universities, and other institutions in the West which was not the case in India. History is evidence to the fact that any form of inheritance tax brings in only negligible revenues to the government. The costs of running an inheritance tax regime in India far outweigh the benefits that the levy could bring. Though there could be an increase in the wealth profile of Indians over the last decade or so, incremental revenues from inheritance taxes are still going to be minimal. Since inheritance taxes are levied on family inheritances, it would be odious to cite examples of countries that have inheritance taxes since their family structure, social fabric and values are very different from ours.

Taxpayers in India would be happy if inheritance taxes were to remain a part of political debates rather than tax laws.

The writer is a chartered accountant

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