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While India Waits Eagerly For Budget Tomorrow, Here Is All You Need To Know About Inheritance Tax That The Govt. May Bring Back

What is Inheritance Tax and will it be beneficial to India? BW takes a look...

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What is Inheritance Tax?

Also known as Estate Tax, where the heir is obliged to pay taxes on any property or asset (including ancestral ones) received from their parents or grandparents or any relative, after their death. 

Why did India discontinue Inheritance Tax in 1985? What has changed now?

Inefficiencies in implementation and corruption were the major reasons behind abolishing the laws. The tax collection was very meagre. And, pronouncement of  value on the assets were very subjective.

However, today much of the property records are digitised and inheritance can be tracked easily to a particular person. Hence, taxing an individual will be much easier now.

Should it be brought back?

The question is whether the inheritance tax really pro-poor or is it going to inhibit the growth of our economy rather than helping. Mukesh Jain, Corporate Lawyer at Mukesh Jain and Associates, says that the inheritance tax is going to put barriers against domestic savings, which is the backbone to our economy. The domestic savings have saved India against several economic hits in the past. Jain adds, “We don’t have a strong social security, unlike some European countries where the inheritance tax is in effect, it will actually be counter-productive in the Indian context. It is nothing but an populist measure and an unnecessary adventurism.” Jain says. “It is just a momentary thrill by harassing the rich people,” he further adds. 

If at all it is brought back what’s to be made sure?

India having such a diverse and complex system of organization, issues always pertain at the level of implementation. Suraj Malik, Tax Partner at BDO India, says that before government puts the inheritance tax in effect there are several issues to be dealt. "First, there should be a simple layout or formula to assess the value of assets to make it rather objective to deal with. Second, a transparent and viable government machinery should be in place to handle the implementation. Else, it may facilitate tax avoidance instead of tax compliance." 

Can it help the economy?

The proponents of the inheritance tax have argued that the tax collection revenue could help the economy and could breach the inequalities. Prime Minister Narendra Modi has set target to make India a 5 Trillion dollar US economy by 2024. Given this context, the question arises whether the inheritance tax could help with that and to what degree. “With the average life expectancy improving, the likelihood of any significant revenue collection being made by the government in the next 10 years appears bleak,” writes Pratik Shah, Senior Manager, and Siddhartha Shah, Manager, at Deloitte Haskins and Sells LLP. Jain says, “Government already collects 20 Lakhs crores through GST and Income Tax that are available to improve country’s infrastructure facilitating growth.” On the question of removing inequalities, Jain says that the idea is nothing but hoax. “The focus should not be on hating the rich, but uplifting the poor – focus should be on wealth creation and not otherwise.” 


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