INHERITANCE TAX

Inheritance tax is levied on property/asset inherited upon an individual’s death. It differs from estate tax, which is levied on the total value of a deceased person’s estate. 

• It is levied by many countries. E.g. Japan (tax rate is 55%), South Korea (tax rate is 50%) etc.

History of Inheritance Tax in India 

• In India, currently there is no inheritance tax. 
• Earlier, estate duty was imposed in 1953. The tax rate reached up to 85%, making it highly unpopular. Thus, it was abolished in 1985. 
• Similar to Estate duty, gift tax and wealth tax were imposed in India.
  •  These were abolished in 1998 and 2015 respectively. However, gift tax was re-introduced in 2004. 
    • Under Gift Tax, any gifts received exceeding Rs 50,000 in a financial year is added to the person’s “income from other sources” and taxed according to the income tax slab. 
    • Exceptions include donations, inheritance, and gifts from close relative, gifts during weddings etc. 

Benefits of Inheritance Tax 

• Revenue Generation: It may lead to an increase in revenue generation for the government which can be used for social sector programs to uplift poor people. 
• Reducing Wealth Inequality: It can mitigate the concentration of wealth and reduce economic inequality by redistributing a portion of inherited wealth to fund public programs and services. 
• Promoting Meritocracy: Taxing inherited wealth can help create a more level playing field and promote a meritocratic society. This is because, taxing inherited wealth ensures that success is based more on individual effort and talent rather than family wealth and privilege. 
• Encouraging Productive Investment: It can encourage wealthy individuals to invest their wealth more productively during their lifetimes, rather than simply passing it on to their heirs. 
• Intergenerational Equity: Inheritance tax can help ensure that resources are more evenly distributed across generations, rather than perpetuating dynastic wealth accumulation.