In 1985, the then finance minister repealed the Estate Duty Act, 1953, citing the reason as insufficient collections. The collections from estate duty for 1984-85 were nearly R20 crore, merely 0.42% of the total corporate and income tax collections. Interestingly, even if the same proportion were to apply in 2012-13, the government would have collected nearly R2,365 crore—twice that of collections from a wealth tax for 2012-13 and substantially higher than collections from miscellaneous laws (like securities transaction tax). In reality, the collections from estate duty could be much higher than 0.42% in the present generation of India’s Mr Rich as compared to 1985.
Estate duty has been advocated globally as a tool to balance tax trends and prevent the perpetuation of wealth. In a nutshell, the next generation, whether of Mr Rich or not, is encouraged to contribute its share of efforts in accumulating wealth for the economy as a whole. The current fiscal environment and the potential collections from estate duty may have forced the the finance minister to consider the levy of estate duty amongst other levies like a super-rich tax.
In a situation where the the government reintroduces the estate duty in the current generation, the policymakers are expected to produce a mix of certain provisions from the repealed Estate Duty Act, 1953, and the tested provisions of the matured estate duty laws of some other countries.
The erstwhile Estate Duty Act, 1953, taxed the inheritance of the ‘property’ of the deceased, which included all kinds of movable or immovable property including jewellery, bullion, paintings, sculptures or even cash and bank balance, exceeding the threshold of R1 lakh. ‘Property’ also included the deceased’s interest in the joint family property of a Hindu undivided family (HUF) and income accruing to the deceased in a controlled private company for three years before the deceased’s death. However, the Estate Duty Act, 1953, specifically exempted, amongst others, certain debts incurred by the deceased before his death, one house used by the deceased for residence up to the value of R1 lakh and reasonable funeral expenses for the deceased up to R1,000 only.