Indian context: inheritance tax is ill-suited and unnecessary

On April 23, Indian Overseas Congress Chairman Sam Pitroda advocated for the implementation of an inheritance tax legislation in India based on the US model and endorsed the Congress party’s position on wealth redistribution. Pitroda’s remarks on the “inheritance tax” drew criticism from Prime Minister Narendra Modi, who said the party was exposing “dangerous intentions” to take people’s property and rights.

 

“There is an inheritance tax in the United States. If a person is worth $100 million, the government will take over 55% of his estate and only be able to provide 45% to his heirs upon his passing. That legislation is intriguing. Pitroda had said in an interview, “It says you, in your generation, made wealth, and you are leaving now, you must leave your wealth for the public, not all of it, half of it, which sounds fair.”

What then is the big deal?

Prior to being transferred to a dead person’s lawful heirs, inheritance tax, also known as estate tax, is levied on the whole amount of money and property that they leave behind. Typically, the value of the assets less any applicable exemptions or deductions is used to calculate this tax. Inheritance taxes are primarily intended to increase government income and promote wealth redistribution.

South Korea has a 50% inheritance tax rate, whereas Japan has one of the highest rates in the world at 55%. The UK and US come in at 40%, France at 45%. These rates demonstrate several international methods of taxing and distributing wealth. Economic policies, social welfare programs, and choices about wealth transfer and intergenerational justice are all influenced by inheritance taxes. Since the estate and inheritance taxes were removed in 1985, inheritance is tax-free in India.

What do experts say?

National co-convenor Ashwini Mahajan of Swadeshi Jagran Manch claims that no party has really considered an inheritance tax. It was abolished by the Congress, and in their ten years in power, the BJP has done nothing to implement an inheritance tax. According to Mahajan, “the issue needs to be discussed and deliberated.”

National co-convenor Ashwini Mahajan of Swadeshi Jagran Manch
Such taxes are inappropriate for India, according to Sandeep Jhunjhunwala, M&A Tax Partner at Nangia Andersen LLP.

“There doesn’t seem to be a need to introduce a new tax without an adequate rationale,” Nangia stated. “Currently, considering various social, economic, and political factors, Corporate and Personal income taxes, including capital gains tax on the direct tax side and GST on the indirect tax side, have seen a significant surge in the last few years, much beyond the projections.”

Economic instability and significant effects on family-owned enterprises might result from inheritance taxes.