The concept of an inheritance tax—a levy on assets passed from deceased individuals to their heirs—is once again at the center of economic and political discourse in India. While the country currently does not impose such a tax, recent debates have reignited interest in whether reintroducing inheritance tax could help address wealth inequality and boost public revenue.
What Is Inheritance Tax?
Inheritance tax is a fiscal charge imposed on the transfer of assets—such as property, investments, or cash—from a deceased person to their legal heirs. This tax is typically calculated based on the value of the inherited assets and the relationship between the deceased and the beneficiary. In many countries, closer relatives like spouses or children receive higher exemptions and pay lower rates.
How Is Inheritance Tax Calculated?
- Progressive Rates: Most countries apply a sliding scale—higher-value inheritances are taxed at higher rates.
- Relationship-Based Exemptions: Spouses and direct descendants often receive favorable tax treatment. For example, in the U.S., surviving spouses are fully exempt from inheritance tax in applicable states.
- Thresholds: Taxes are usually levied only on estates exceeding a certain value, often over $1 million.
Inheritance Tax in India: Past and Present
India once had a form of inheritance tax known as estate duty, introduced in 1953. It applied to both movable and immovable assets passed on after death. However, due to administrative inefficiencies and widespread litigation, the Rajiv Gandhi government abolished estate duty in 1985.
India also repealed its wealth tax in 2015 and gift tax in 1998, leaving no direct tax on inherited wealth today. Despite this, calls for reintroducing inheritance tax have resurfaced, especially in the context of rising income inequality and fiscal demands.
Potential Benefits of Inheritance Tax
- Revenue Generation: Could fund social welfare programs and reduce fiscal deficits.
- Wealth Redistribution: Helps curb dynastic wealth accumulation and promote economic equity.
- Meritocracy: Encourages success based on individual effort rather than inherited privilege.
- Productive Investment: May incentivize the wealthy to invest rather than hoard assets for inheritance.
Challenges and Criticisms
- Administrative Burden: Valuation and enforcement require significant resources.
- Impact on Small Businesses: Heirs may be forced to sell assets to pay taxes.
- Discourages Savings: Could shift behavior toward consumption, potentially fueling inflation.
- Double Taxation: Critics argue that inherited assets have already been taxed as income.
Global Inheritance Tax Landscape
Inheritance tax policies vary widely across the globe, reflecting each country’s approach to wealth distribution, social equity, and fiscal priorities. While some nations impose high rates to curb wealth concentration, others have abolished the tax altogether. This section explores how different countries structure their inheritance tax systems, offering insights into global trends and what India can learn from them
| Country | Tax Rate Range | Notable Features |
| USA | Varies by state | 6 states levy it; Iowa phasing out by 2025 |
| France | 5%–60% | Higher rates for non-family heirs |
| UK | 40% | Based on domicile; global estate taxed |
| Japan | 10%–70% | Includes gift tax; high top rate |
| Belgium | Up to 80% | Among the highest globally |
| Germany | Based on benefit | Exemptions vary by relationship |
| Singapore | Abolished | Only nominal stamp duty applies |
| India | None | Estate duty abolished in 1985 |
Conclusion
The inheritance tax debate in India reflects a broader conversation about economic fairness, wealth redistribution, and fiscal responsibility. While India currently does not impose such a tax, global examples show that inheritance tax can serve as a powerful tool to reduce inequality and fund essential public services. Advocates argue that taxing inherited wealth promotes meritocracy and encourages more productive use of assets during one’s lifetime. It could also generate significant revenue for social programs.
However, critics highlight challenges such as administrative complexity, valuation disputes, and the potential burden on small businesses and middle-class families. Concerns about double taxation and reduced incentives for savings also persist.
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