Inheritance Tax

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Context

• A video of Nikhil Kamath, co-founder of Zerodha, expressing his support for inheritance tax as a tool for wealth distribution to the poorer people went viral on April 24.

What is Inheritance Tax?

• Inheritance tax is a levy imposed on the transfer of assets from deceased persons to their beneficiaries.
• It is implemented in various countries as a means to redistribute wealth and promote economic equality.

Background

• Initiation of Debate: The debate over inheritance tax began with Sam Pitroda, Chairman of the Indian Overseas Congress, recommending inheritance tax in India.
• Objective: The suggestion aims to bridge the rising income and wealth inequality in the world's largest democracy.

Importance of Inheritance Tax

• Wealth Redistribution: It serves as a tool for redistributing wealth from affluent individuals to the less privileged.
• Economic Equality: By imposing tax on inheritances, it helps in creating a more equitable distribution of wealth within society.

Inheritance Tax in India: Past, Present, and Future Considerations

History of Inheritance Tax in India (1953-1985)

• Introduction: The inheritance tax was introduced in 1953 under the Estate Duty Act to reduce economic disparity.
• Tax Structure: Estate duty was imposed on the total value of the property held by an individual at the time of their demise.
• Rates: Rates ranged from 7.5% to 85%, with higher rates for properties exceeding Rs 20 lakh.
• Controversies and Abolition: The tax faced criticism for complexity, high rates, and administrative challenges, leading to its abolition in 1985 by then finance minister VP Singh.

Reintroduction Debates

• Political Discussions: The idea of reintroducing inheritance tax has been debated for over a decade.
• UPA Government: Home Minister P Chidambaram raised the issue in 2011 and 2012, citing the need for inter-generational equity and revenue enhancement.
• NDA Government: In 2014, Minister of State for Finance Jayant Sinha supported the tax to level the playing field and reduce advantages for dynastic business people.
• Arun Jaitley's Advocacy: In 2018, Finance Minister Arun Jaitley advocated for inheritance tax, highlighting its role in generating large endowments for institutions.

Global Comparison

• International Prevalence: Inheritance tax is prevalent in countries like the UK, Japan, France, and Finland.
• US Scenario: In the United States, only six states have inheritance tax, indicating a varied approach within the country.

Recent Controversy and Debate

• Support: Nikhil Kamath's support for inheritance tax indicates a growing recognition of the need for wealth redistribution.
• Opposition: However, there is likely to be opposition from those who argue against taxing inheritances, citing reasons such as double taxation and the right to pass on wealth to heirs.

Conclusion

• The debate surrounding inheritance tax underscores the broader discussion on wealth distribution and economic equality.
• While it may face opposition, proponents argue that it is a necessary step towards creating a more just society.

PRACTICE QUESTION Q.   Which of the following statements regarding inheritance tax in India is/are correct? 1.Inheritance tax was introduced in India in 1953 under the Estate Duty Act. 2.The tax was levied on the total value of the property held by an individual at the time of their demise. 3.Estate duty rates in India ranged from 7.5% to 85% for properties exceeding Rs 20 lakh. 4.The inheritance tax was abolished in 1985 by then Finance Minister VP Singh. Select the correct answer using the codes below: A) 1 and 2 only B) 1, 2, and 3 only C) 2, 3, and 4 only D) 1, 2, 3, and 4 Answer D) 1, 2, 3 and 4