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A debate has arisen in India over ‘Inheritance tax’ following Indian Overseas Congress chairman Sam Pitroda’s remarks on April 24 advocating for a US-style tax policy for inherited family wealth. Responding to this, Prime Minister Narendra Modi alleged alleged that Congress would impose such a tax on inherited wealth if voted to power.
Mr. Pitroda’s remarks were themselves a response to Mr. Modi’s allegations that the Congress was planning to redistribute citizens’ wealth among Muslims. In public meetings in Rajasthan’s Jalore and Banswara constituencies, Mr. Modi claimed that the Congress would conduct a survey to find out the property of individuals, Mangalsutra (gold) owned by women, silver owned by tribals, and land and cash of government employees and then redistribute it “among those who have a large number of children… and among the intruders” – alluding to the Muslim community.
Criticising the PM’s remarks, Mr. Pitroda stated that Congress party would frame a policy through which the wealth distribution would be better. Citing the inheritance tax imposed by some states in the US, Mr. Pitroda claimed: “Probably 45% of a US citizen’s wealth can be transferred to his children, 55% is grabbed by the government. That’s an interesting law.”
His remarks were vehemently denied by the Congress, with general secretary Jairam Ramesh clarifying, “I would like to categorically state that Congress has no plan on the inheritance tax. (Sam) Pitroda is a very distinguished professional and has expressed his views in the American context, which has no relevance for us. He does not speak on behalf of the Congress.” Later, Mr. Pitroda himself clarified that he only cited an example so that the issue can be debated. “I mentioned US inheritance tax in the US only as an example in my normal conversation on TV. Can I not mention facts ? I said these are the kind of issues people will have to discuss and debate. This has nothing to do with policy of any party including Congress,“ Mr. Pitroda posted on X, formerly Twitter.
In fact, it was former Prime Minister Rajiv Gandhi who abolished Estate Duty in 1985, Mr. Ramesh said, alleging that it is the Modi government that has wanted to impose such a tax, citing various instances from 2014, 2017 and 2018 when then-Finance Minister Arun Jaitley talked about it.
Does India have an inheritance tax?
In 1953, India’s Parliament had passed the Estate Duty ‘Death Tax’ Act, which was later abolished in 1985 by the Rajiv Gandhi government. As per the Act, tax/duty was imposed on the principal value of movable and immovable property, including agricultural land, passed on to any person after the death of the owner of such property. The Act was applicable only if the property-owning person died as an adult (i.e. completed 18 years of age). Furthermore, Estate duty was applicable only on inherited properties with a value above the exclusion limit set by the Act, and the tax rate was calculated as per the market value at the time of death.
The properties on which this duty was applied included immovable and movable property owned by the deceased in India and outside, which were passed on to a successor – if the person died when domiciled in India. If not, estate duty was levied only on immovable property in India and all movable properties; immovable properties outside India were not taxed. The Act was amended in 1960 to exclude properties in Odisha, West Bengal, and Jammu & Kashmir, and further in 1968, 1982, and 1984 to include amendments made by other Finance laws.
After implementation, the death duty imposed peaked up to 85%, making it highly unpopular. In 1985, the then Finance Minister V.P. Singh abolished it as the income generated for the Centre via such taxes was much less than the cost incurred due to the administrative process in executing it.
As of date, there is no tax imposed on property inherited, whether through a will or by intestate succession.
This is in stark contrast to several other countries. According to leading financial firm Pricewaterhouse Coopers (PwC), most European, American and even African nations levy inheritance tax. In Europe, the top nations levying tax on inherited properties are — France (60%), Germany (50%), United Kingdom (40%), Spain (33%) and Hungary (18%). Other countries with high inheritance taxes are Japan (55%), South Korea (50%), Ecuador (37%), Chile (25%), South Africa (25%) and Taiwan (20%)
What other similar taxes does India have?
Similar to Estate duty, India also had the ‘Gift Tax’ Act, passed in 1958. The Act allowed imposition of duty on any ‘gift’ made by one person to another in that financial year. A gift was defined as any existing movable or immovable property transferred by one person to another voluntarily, without considering its value in terms of money, after April 1, 1957. All taxable gifts were imposed with a duty of 30%; the government sought to recover some of the tax revenue lost when a high income tax donor transferred property to a donee falling in the lower income tax bracket. Due to similar constraints to those faced while implementing estate duty, this tax was scrapped by the government in 1998.
However, in 2004, gift tax was reintroduced in the Finance Act as part of additions to the Income Tax Act. Any cash gifts above ₹50,000 and any gifts in kind (i.e. immovable property) above the value of ₹50,000 are taxable. Exceptions include donations, inheritance, and gift money received during 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 regime, a 1% duty was imposed on earnings of over ₹30 lakh earned by a citizen in that financial year. The tax was imposed on all assets of Indian citizens and only Indian assets of non-residential Indians (NRIs). Assets under the purview of this regime were gold, silver, and platinum ornaments, transport vehicles like private aircrafts, ships, and cars, property apart from one’s residential home, and any cash above ₹50,000. Exemptions underthe law included rental properties, business property, smaller properties below the prescribed limit, and investments in schemes. This tax was also abolished in 2015 due to heavy costs in execution.
Were there efforts to revive inheritance tax?
In 2011, during a Planning Commission meeting, the then-Home Minister P Chidambaram had batted for higher taxes on luxury products and re-imposing inheritance tax. At a meeting headed by the then-PM Manmohan Singh, he said, “Since non-plan expenditure is difficult to contain, the tax-GDP ratio must be raised especially by taxing conspicuous consumption and imposing inheritance tax.”
Prior to the Union Budget in 2013, Mr. Chidambaram had said, “Non-debt revenue should be increased; therefore, the rich must be prepared to pay more tax.” In a 2013 lecture to honour Raja Chelliah, Mr. Chidambaram called for a debate on the need for inheritance tax. He had questioned the accumulation of wealth by a few individuals while the majority languished.
Similarly, in 2017, reports suggested that the then-Finance Minister Arun Jaitley was planning to levy taxes on inherited wealth. The proposed move was to levy tax on any property or cash above ₹50,000 received or inherited by a person as an ‘income from other sources.’ Due to severe backlash from the public, the move was scrapped.
Later in 2018, Mr. Jaitley claimed that inheritance tax was the reason for large endowments to hospitals, universities, and other institutions in the West. Contrasting it to India, he stated funding for such institutions were mainly from religious groups and corporate social responsibility (CSR) programmes. He claimed that endowments from rich individuals were not a norm in India. However, he did not suggest re-imposing the tax.
