Let’s take you back to the year 1953 when India was included in several reforms that were introduced, abolished, or changed! For instance, the creation of Indian airlines, Air India getting nationalized, the introduction of inheritance tax/estate duty, etc. There were several kinds of taxes that have been worked on, abolished & changed.
Inheritance taxes or estate duty was levied against a particular asset, like the ancestral property during the time of its inheritance.
The question is, is inheritance tax still continued in India, like in the countries?
It is given that one’s property and assets (including ancestral ones) get passed on to their legal heirs – children, grandchildren, or wards – after he/she passes away. In many countries, the heir must pay an Inheritance Tax for inheriting any such property or assets from your parents or grandparents or any other relative or friend.
During the Rajiv Gandhi Government in 1985, an inheritance tax was abolished in India. In spite of its noble intentions, V.P. Singh, the then finance minister, believed that it has failed to bring about an equilibrium in society and reduce the wealth gap.
A few rumored economists have advocated for the return of Estate duty as they see it as a viable tool to combat rising inequality, beat the deficit, and boost revenues.
Even Finance Minister Arun Jaitley has denied the reintroduction of this tax as he says that the revenue generated by it will be dismal due to the fact that Indians do not inherit assets of the same value as those in developed countries. Thus, government sources have repeatedly denied these claims.
Inheritance tax is observed in many countries, such as the USA, UK, Netherlands, Spain, and Belgium, and China even introduced rules for inheritance tax back in 2002, but the idea was opposed strongly and could not be implemented.
Most developed countries that practice inheritance tax levy a maximum rate of as high as 80% on the net value of the assets passed on to legal heirs after the owner’s demise but these high rates are offset by the fact that most of these countries provide a strong form of social security to their citizens.
Income tax implications on inheritance
A deceased individual’s property would pass on to his legal heirs upon his death. There is no doubt that this is a transfer without any consideration in return. Therefore, it would qualify as a gift for tax purposes.
Under the Income Tax Act, of 1961, the transfer of assets by will or inheritance is specifically excluded from gift tax. Consequently, the property received through inheritance is not subject to taxation.
Inheritor taxes depend on how much capital gain they gain from selling their ancestral property. There are two clauses involved here:
All laws that govern the sale of inherited immovable property must be familiar to the inheritors. The capital gains tax should be calculated based on the purchase price, indexation costs, and all other relevant information.
If heirs reinvest the amount within certain timeframes, they can avoid paying capital gains tax on the gain. They can also invest in capital gains bonds if their capital gains tax is high. The 1961 Income Tax Act allows a maximum investment of Rs. 50 lakh per year under section 54EC.
Unless the inheritors sell the inherited movable assets, there is no tax liability. In addition, the following requirements must be met:
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