However, the pitchmen on both sides are now disowning the very idea they once proposed as if it’s some junk in the trunk. In fact, none of the party manifestos make even a mention of the infamous inheritance tax.
Perhaps, they all fear getting bad rap from voters, who are smart enough to know that some or other trap lies in wait. For, not all promises in the manifestos are fulfilled. Likewise, what’s never mentioned during electioneering may sooner or later find its way into taxpayers’ wallets. So at this point, the death tax’s greatest political value is in being the bad guy and the intensity with which each party abandons the proposal will gain that much voter goodwill goes the belief.
What’s the fuss about?
It all started with comments from Sam Pitroda, Chairman, Indian Overseas Congress, who advocated a US-style inheritance tax policy in India. Citing the US inheritance tax policy, he said, “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.”
Reacting to Pitroda’s remarks, Prime Minister Narendra Modi charged head-first, alleging that Congress would impose such a tax if voted to power. Criticizing Modi’s allegations of Congress redistributing citizens’ wealth among Muslims, Pitroda said his party would frame a policy through which the wealth distribution would be better.
Strangely, Pitroda’s suggestions were vehemently dismissed by his party itself led by none other than Congress President Mallikarjun Kharge, followed by general secretary Jairam Ramesh who clarified, “I would like to categorically state that Congress has no plan on the inheritance tax. 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.”
Further, Ramesh said it was Rajiv Gandhi who abolished Estate Duty in 1985 and alleged that it was the Modi government that has wanted to impose the tax, citing various instances from 2014, 2017, and 2018 when then Finance Minister Arun Jaitley talked about it.
But the Prime Minister maintained that it was Rajiv Gandhi who abolished the inheritance tax in 1985, not because of taxpayer interest, but to prevent the government from grabbing family wealth.
Addressing a rally in Madhya Pradesh’s Morena last week, he said, “Listen with your ears wide open about the sins that the Congress has committed. I want to put forth an interesting fact. When sister Indira Gandhi passed away, there was a law under which half the portion of the wealth used to go to the government. There was a talk then that Indiraji willed her wealth in her son Rajiv Gandhi’s name. To save the money going to the government, then PM Rajiv Gandhi abolished the inheritance tax.”
What’s a death tax?
As Modi quipped, it’s a ‘zindagi ke saath bhi, zindagi ke baadh bhi‘, levy on individuals. The tax is imposed on the total value of assets left behind by a deceased person, and the heirs were required to pay a certain percentage of the value as tax to the government. These assets included movable and immovable property owned by the deceased in India and outside, which were passed on to a successor, if the person died 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 later amended in 1960 to exclude properties in Odisha, West Bengal and Jammu and Kashmir and further in 1968, 1982 and 1984 to include amendments made by other Finance laws.
Separately, India also previously had a wealth tax and a gift tax, which were done away with in 2015 and 1998, respectively.
Governments believe that both inheritance and gift tax are progressive, i.e., the greater the amount inherited, the higher the tax rate.
But unlike other countries, in India, as per the Income Tax Act of 1961, no tax is levied on the inherited assets, whether movable or immovable, irrespective of whether the transfer of assets happen through a will or by succession. However, tax will be levied if the new owner decides to sell the property. In case of movable assets like mutual funds, gold, shares, etc., the new owner is not liable to pay any tax until they decided to sell.
In contrast, most European, American and African nations levy inheritance tax, and according to PwC, depending on the country, the rate of tax varies at a maximum of 60%. While France imposes 60% tax, Germany has a 50% tax rate, and UK at 40%. Likewise, Asian countries too levy the tax with Japan imposing 55%, South Korea 50%, and Taiwan 20%.
