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Business News/ Money / Personal Finance/  Sam Pitroda sparks debate on 'inheritance tax' in India: What is it and what are its income tax implications — explained

Sam Pitroda sparks debate on 'inheritance tax' in India: What is it and what are its income tax implications — explained

Sam Pitroda's discussion on inheritance tax in India sparks debate on fair wealth distribution and public welfare resources. Mumbai-based expert Balwant Jain opposes the tax, citing disincentives for hard work.

In India, there is currently no tax on inheritance. The Inheritance or Estate Tax was abolished in 1985.Premium
In India, there is currently no tax on inheritance. The Inheritance or Estate Tax was abolished in 1985.

Indian Overseas Congress chairman Sam Pitroda's recent comments on 'inheritance tax' in India have stirred up a debate. There are differing opinions on whether introducing such a tax could lead to fairer wealth distribution. Conversely, some argue that implementing an inheritance tax in India may not be justified, citing various economic and social factors such as its potential impact on family businesses and concerns about double taxation.

Mumbai-based investment and tax expert Balwant Jain argues that an inheritance tax is not justified in India because it disincentivises hard work and could regress the country.

'It disincentivises people to work hard, and could lead the country backward," said Jain.

He believes that such a tax would discourage individuals from striving for success and could have adverse effects on national progress. In his view, implementing an inheritance tax does not serve the national interest.

Also Read | 'Inheritance tax will bring more people under the tax net': Zerodha's Nikhil Kamath's old video goes viral. Watch here

What is an inheritance tax?

Inheritance tax, also known as estate tax, is a tax levied on the total value of money and property of a deceased person before it is distributed to their legal heirs. The tax is typically calculated based on the value of the assets left behind after any exemptions or deductions. The purpose of inheritance tax is often to generate revenue for the government and to redistribute wealth.

Inheritance tax across the world

In Japan, the inheritance tax rate stands at 55 per cent, making it one of the highest in the world. South Korea follows closely behind with a rate of 50 per cent. France imposes an inheritance tax rate of 45 per cent, while both the United Kingdom and the United States have rates of 40 per cent. These rates reflect the varying approaches countries take to address wealth distribution and taxation. Inheritance tax plays a significant role in shaping economic policies and social welfare systems, influencing decisions on wealth transfer and intergenerational equity.


What is the inheritance tax in India?

In India, there is currently no tax on inheritance. The Inheritance or Estate Tax was abolished in 1985.

Income tax implications on inheritance

Inherited assets may be subject to additional taxes, along with potential implications for income tax. When an individual passes away, their properties are transferred to their legal heirs, which typically include children, grandchildren, or wards. Often, these inherited properties generate income, such as rent or interest, for the new owner. As a result, the new owner is obligated to report this income and pay the relevant taxes.

“When inherited assets are sold by the heirs, they may be subject to some kind of tax. Any income generated by inherited assets, such as interest, dividends, or rental income, is generally subject to income tax. The income tax rate and treatment may vary depending on the nature of the income and the tax laws applicable to different types of assets. When a property is inherited, the tax liability arises not at the time of inheritance but when the inherited property is sold," said Abhishek Soni, CEO of Tax2win.

Taxation on capital gains from sale of inherited property

Capital gains from the sale of property are taxed based on the duration of ownership. “Short-term capital gains are taxed at the individual's applicable slab rate, while long-term capital gains, realised after holding the property for over 24 months, are taxed at a rate of 20.8 per cent, including cess," explained Soni.

Miriam Fozia Rahman, a practising advocate at the Supreme Court of India, states that it has been suggested that inheritance tax isn't a good idea for a developing country.

"As of now, there is no inheritance tax. Instead, we have a capital gains tax that applies when capital assets are sold. During Covid, there was a suggestion that the government should impose an estate tax, but the proposal faced heavy criticism," Fozia Rahman added.

Also Read: ‘Inheritance Tax’ to ‘Selfish Middle class,’ 6 remarks by Sam Pitroda that put Congress on the back foot

Sam Pitroda's wealth tax comments

Previously, Pitroda highlighted the importance of wealth redistribution policies by referencing the concept of inheritance tax in the United States.

"In America, there is an inheritance tax. If someone has $100 million in wealth and passes away, they can only transfer about 45 per cent to their children; the government takes the remaining 55 per cent. It's an interesting law. It suggests that you've accumulated wealth in your lifetime, and upon your departure, a portion of it must be left for the public—not all of it, but half, which seems fair to me," Pitroda explained.

"In India, we don't have that. If someone is worth 10 billion and passes away, their children inherit the full amount, and the public receives nothing...So these are the types of issues we need to debate and discuss. When we talk about redistributing wealth, we're discussing new policies and programmes that benefit everyone, not just the super-rich," he added.

Responding to criticism from several Bharatiya Janata Party leaders, Pitroda clarified that his comments were made in his personal capacity.

"I mentioned the US inheritance tax solely as an example during a normal conversation on TV. Am I not allowed to reference facts?" Pitroda posted on X.

Disclaimer: The views and recommendations made above are those of individual analysts, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

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Sangeeta Ojha
A business media enthusiast. Writes on personal finance, business and banking.
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Published: 24 Apr 2024, 03:40 PM IST
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