Every now and then, when things get dull at the North Block, the powers-that-be try to have some fun at the expense of the rich and their kids. Ex-Finance Minister P Chidambaram did it a couple of years back. And newly appointed Minister of State for Finance Jayant Sinha did it last year. How? By simply dropping a hint that that it might be a good idea to resurrect inheritance tax, also known as estate duty.

Inheritance tax is levied on assets that legal heirs inherit, while estate duty is applicable on the assets of those who are dead. There is a technical difference between the two, but for practical purposes, the effect is the same: after giving the taxman a chunk, legal heirs get to enjoy less of the assets they are bequeathed. The tax is levied on assets above certain thresholds; the idea is that only the moneyed fall into its net.

The VP Singh government, way back in 1985, abolished estate duty in India. The moneyed heaved a sigh of relief — at its peak, the estate duty rate in the country, was, believe it or faint, 85 per cent. So India is among the countries of the world where there is no inheritance tax or estate duty. Unless, of course, the Modi sarkar listens to Jayant Sinha and taps the ‘death tax’ to shore up its flagging revenue. However, there are some points to note when inheriting assets.

Some outgo involved

You may inherit assets without paying taxes, but you are not going to have a free run all the way. First, the title transfer of land and property from the name of the original owner to your name will entail stamp duty and registration charges. This varies from state to state and could be a tidy sum (as much as 10 per cent or more of the guideline value of the asset).

These charges have to be paid whether you inherit the land or property through the will of the deceased person, or by way of distribution as per the relevant Succession Acts in the absence of a will.

Even if you get the asset as a gift before the death of the owner and not through inheritance, it has to be registered. So there’s no escaping the stamp duty and registration charges on land and property. For financial assets such as equities, debentures, fixed deposits and savings accounts, transmission of the assets to your name after inheritance is essential.

The process may not be expensive or cumbersome as the title transfer for land and property, but it involves paperwork.

Then, like other folk, you too need to pay tax on income earned or deemed to be earned from assets.

No free lunch

For instance, interest earned on the balance in inherited savings accounts or fixed deposits is subject to tax at your slab rates, as is interest on debentures. If you become the owner of more than one property after inheritance, all properties except one will be deemed to have been let out and you will have to pay tax on the deemed rental income. This applies even if the properties have not been actually let out. When you sell the inherited asset, you have to pay tax on the gains . The outgo depends on whether the asset is held for the long term or short term; the former enjoys tax concessions. The good news is that for calculating capital gains, the period of holding for inherited assets is reckoned from the time the previous owner held it, says Rakesh Nangia, Managing Partner at CA firm Nangia & Co.

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