Inheritance Tax

 

Inheritance Tax

Why in news?

Oxfam report says that 70% of countries don't have any form of inheritance tax on wealth.

What is Inheritance Tax?

·       This tax is imposed on those those who inherit assets from a deceased person. The rate of this tax depends on the value of the property received by the heir and his relationship to the decedent. This tax is a form of death tax.

Status of inheritance tax in India –

·       In India, the concept of levying tax on inheritance does not exist now.

·       The Inheritance or Estate Tax was abolished with effect from 1985.

·       In the event of death of an individual, properties belonging to the deceased would pass on to his legal heirs, a transfer without any consideration in return.

·       Hence, it could qualify as a gift for the purpose of income tax.

·       The Income Tax Act, 1961, specifically excludes the transfer of assets under will or inheritance from the purview of gift tax.

 

When should the person receiving the inheritance pay tax?

·       On the income earned from the inherited property - The person receiving the inheritance has to pay tax on the income earned (rent, interest etc.) in respect of the assets inherited by him once he becomes owner of the same.

·       On selling the inherited asset - The person has to pay capital gains tax when he sells the inherited asset.

What is the need for an inheritance tax in India?

1.Reduces inequality

2.Dispersion of wealth

3.Revenue to fund public welfare

4.Creation of meritocratic society - It will create a meritocratic society by chipping away the advantages the children of the wealthiest families enjoy by an accident of birth.

International practices

·       Countries such as England, France, Germany, the USA, and Greece have been taxing inherited wealth at as high as 40%.

Inheritance Tax in US

·       In the United States, inheritance tax is levied on money or property that is inherited from a deceased person’s estate. The inheritance tax is fulfilled by the beneficiary. The tax is implemented in 6 states of US- Lowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.

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