A debate over an “inheritance tax” has erupted in India following remarks by Indian Overseas Congress president Sam Pitroda on April 24 in which he advocated a US-style tax policy on inherited family wealth. In response to this, the Prime Minister Narendra Modi alleged he claimed that Congress would impose such a tax on inherited wealth if elected to power.
Mr. Pitroda’s remarks were themselves a response to Mr. Modi’s allegations that the Congress was planning to redistribute citizens’ wealth to Muslims. At public meetings in Jalore and Banswara districts of Rajasthan, Mr. Modi claimed that the Congress would conduct a survey to find out what wealth of individuals, Mangalsutra (gold) is owned by women, silver is owned by tribals, and land and cash of government employees and then distribute it “among those who have a enormous number of children… and among interlopers” – referring to the Muslim community.
Criticizing the prime minister’s statement, Pitroda said that Congress would establish policies that would make the distribution of wealth better. Citing the inheritance tax imposed by some US states, Mr. Pitroda stated: “Probably 45% of a US citizen’s estate can be passed on to his or her children, 55% goes to the government. This is compelling law.”
The Congress strongly denied his remarks, with Secretary General Jairam Ramesh explaining: “I would like to state categorically that the Congress has no plan for inheritance tax. (Sam) Pitroda is a very distinguished professional and expressed his views in an American context that is irrelevant to us. He does not speak for Congress.” Later, Mr. Pitroda himself explained that he only gave an example so that the issue could be discussed. “In my normal TV conversation, I mentioned US inheritance tax just as an example. Can I not mention the facts? I said these are the kinds of issues that people will have to discuss and debate. This has nothing to do with the politics of any party, including Congress,” wrote Pitroda on X, formerly Twitter.
In fact, it was former Prime Minister Rajiv Gandhi who abolished the property tax in 1985, Ramesh said, maintaining that it was the Modi government that wanted to impose such a tax, citing various cases in 2014, 2017 and 2018 when: The minister said this Finance Arun Jaitley.
Is there an inheritance tax in India?
In 1953, the Indian Parliament adopted the so-called Property obligation The ‘Death Tax’ Act, later abolished in 1985 by the Rajiv Gandhi government. Pursuant to the Act, the main value of movable and immovable property, including agricultural land, transferred to any person after the death of the owner of this property was subject to tax/duty. The Act only applied if the owner of the property died at the age of majority (i.e. over 18 years of age). Moreover, inheritance tax was only applicable to inherited properties whose value exceeded the statutory exclusion limit, and the tax rate was calculated according to the market value at the time of death.
The assets on which this obligation was imposed included immovable and movable properties owned by the deceased inside and outside India, which passed to the heir – if the person died while domiciled in India. Otherwise, property tax was levied only on Indian immovable property and all movable property; properties outside India were not taxed. The Act was amended in 1960 to exclude properties in Odisha, West Bengal and Jammu and Kashmir and then in 1968, 1982 and 1984 to take account of changes introduced by other financial laws.
Once implemented, the death tax imposed peaked at 85%, making it highly unpopular. In 1985, the then Finance Minister, VP Singh, abolished it because the revenue generated by the Center from such taxes was much less than the costs incurred in the administrative process involved in implementing it.
Currently, there is no tax levied on property inherited either by will or by intestate succession.
This is in stark contrast to several other countries. According to leading financial company Pricewaterhouse Coopers (PwC) most European, American and even African countries charge inheritance tax. In Europe, the most popular countries imposing tax on inherited property are France (60%), Germany (50%), Great Britain (40%), Spain (33%) and Hungary (18%). Other countries with high inheritance taxes include Japan (55%), South Korea (50%), Ecuador (37%), Chile (25%), South Africa (25%), and Taiwan (20%)
What other similar taxes apply to India?
Similar to property tax, India also had one Donation tax act, passed in 1958. The Act authorized the imposition of a duty on any “gifts” made by one person to another in a given financial year. A gift was defined as any existing movable or immovable property given voluntarily by one person to another, regardless of its monetary value, after April 1, 1957. A 30% duty was levied on all taxable gifts; the government sought to recover some of the tax revenue lost when a high-income-tax donor transferred property to a beneficiary in a lower-income-tax bracket. Due to similar constraints faced when implementing a property tax, the government abolished the tax in 1998.
However, in 2004, in the Budget Act, as a supplement to the Income Tax Act, the donation tax was reintroduced. Any cash gifts worth over £50,000 and any gifts in kind (i.e. property) worth over £50,000 are taxable. Exceptions include gifts, inheritances and gifts of money received at 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 scheme, 1% cess was levied on earnings exceeding ₹30 lakh earned by a citizen during this financial year. The tax was levied on all assets of Indian citizens and only Indian assets of non-residential Indians (NRIs). Assets subject to this regime were gold, silver and platinum ornaments, transport vehicles such as private aircraft, ships and cars, property outside the dwelling house and any cash over £50,000. Exemptions under the law included rental properties, commercial properties, smaller properties below a certain limit and investments in schemes. This tax was also abolished in 2015 due to high enforcement costs.
Have there been any attempts to revive inheritance tax?
In 2011, during the Planning Commission meeting, then Home Minister P. Chidambaram advocated higher taxes on luxury products and re-imposition of inheritance tax. In a meeting chaired by then Prime Minister Manmohan Singh, he said, “Since unplanned expenditure is complex to curb, the tax-to-GDP ratio should be raised, especially by taxing conspicuous consumption and imposing an inheritance tax.”
Before the Union Budget 2013, Mr. Chidambaram said, “Non-debt revenues need to be increased; therefore the luxurious must be willing to pay more tax.” In a 2013 lecture in honor of Raja Chelliah, Mr Chidambaram called for a debate on the need for an inheritance tax. He questioned the accumulation of wealth by a few people while the majority languished.
Similarly in 2017 reports suggested that then Finance Minister Arun Jaitley was planning to impose taxes on inherited wealth. The proposed move was to impose a tax on any property or cash over £50,000 received or inherited by a person as “income from other sources”. Due to sturdy public opposition, this decision was made scrapped.
Later in 2018 Mr Jaitley claimed that the inheritance tax was the reason for enormous donations to hospitals, universities and other institutions in the West. Comparing the situation with India, he said funding for such institutions comes mainly from religious groups and corporate social responsibility (CSR) programs. He claimed that donations from luxurious people are not the norm in India. However, he did not propose re-imposing the tax.
