NEW DELHI: On April 23, Sam Pitroda, Chairman of the Indian Overseas Congress, supported the Congress party’s stance on wealth redistribution and proposed implemention of an inheritance tax law in India, drawing on the model in the US. Prime Minister Narendra Modi criticised Pitroda’s “inheritance tax” comment, accusing the party of revealing “dangerous intentions” to seize people’s assets and rights.
“In America, there is an inheritance tax. If one has $100 million wealth and when he dies, he can only transfer 45% to his children, 55% is grabbed by the government. That’s an interesting law. 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 to me sounds fair,” Pitroda had stated in an interview.
So what is the fuss all about?
Inheritance tax, also called estate tax, is imposed on the total value of money and property left behind by a deceased individual before it is passed on to their legal heirs. This tax is usually determined by considering the value of the assets minus any eligible exemptions or deductions. The main goals of inheritance tax are to raise government revenue and facilitate wealth redistribution.
In Japan, inheritance tax rate is 55%, among the world’s highest, with South Korea at 50%. France follows at 45%, and the UK and US at 40%. These rates showcase diverse global approaches to wealth distribution and taxation. Inheritance tax influences economic policies, social welfare systems, and decisions on wealth transfer and intergenerational equity. In India, there is no tax on inheritance as the Inheritance or Estate Tax was eliminated in 1985.
What are experts saying?
As per Ashwini Mahajan, national co-convenor, Swadeshi Jagran Manch, no party has given any serious thoughts on Inheritance tax. It was Congress which repealed it, and BJP despite being in power for 10 years has not done anything to bring inheritance tax. “The issue needs to be discussed and deliberated,” says Mahajan.
As per Sandeep Jhunjhunwala, M&A Tax Partner at Nangia Andersen LLP, such taxes are not suited to India.
“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 indirect tax side have seen a significant surge in the last few years, much beyond the projections and there doesn’t seem to be a need to introduce a new tax without an adequate rationale,” Nangia said.
Inheritance tax could have major implications on family-owned businesses and could create economic disequilibrium.