Official sources on Wednesday informed that inheritance tax i.e. a tax on properties, jewelry, shares, fixed deposits (FDs), cash in bank inherited is likely in the upcoming Union Budget.
“The move would not be to raise resources but to demonstrate the government’s pro-poor orientation, discourage wealth accumulation and fight black money,” informed the sources.
Even though experts said this tax will harm a slowing economy needing capital, the Finance Ministry, however, is likely to present it as a ‘bold and inclusive move’ to deny the rich more wealth via inheritance which would create further distortion in wealth distribution in the country.
“The Finance Ministry, however, does not think on these lines. The time is right for levying such a tax, which people can avoid by giving donations to government-approved institutions and trusts for public welfare,” sources informed.
The sources also said the government is looking at re-introducing an estate tax on inherited property and illiquid assets after 35 years.
It may be mentioned here that in 2005, the then Finance Minister P Chidambaram had introduced a banking cash transaction tax (BCTT) of 0.1 per cent on cash withdrawals above Rs 10,000 – a limit which was later raised to Rs 25,000.
The tax was, however, scrapped in 2009 owing to low collection on this count.
It may be mentioned here that globally, the UK is an example where inheritance tax is levied.
In several other countries, the heir must pay Inheritance Tax for inheriting any property or assets from parents, grandparents or any other relative or friend.
Currently, the Income Tax Act, 1961, clearly excludes a case of transfer under a will or inheritance from the purview of gift tax.
Accordingly, Indian law does not provide for taxation of property received by way of inheritance.
The Inheritance or Estate Tax was abolished with effect from 1985. Once a property is inherited, the owner can choose to sell it subsequently. This way, the capital gain or loss too, will accrue to the legal heir.