Should the inheritance tax be reintroduced?

Nov 23 2012, 04:12 IST
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SummaryWhile some argue that the increase in HNIs and rising inequality in India is cause enough for the inheritance tax to be brought back, others say such a tax, coupled with a wealth tax, would be difficult to implement and an unfair burden on tax payers.

Sonu Iyer

With the increase in HNIs in India and lower administrative costs, one may justify an inheritance tax, but a transparent set of rules and a realistic threshold limit are necessary to avoid hardships for taxpayers

As India strives to enhance its growth trajectory in today’s difficult economic environment, it is faced with rising fiscal debt. For financial year 2012-13, the fiscal debt till September 2012 is already touching 66% of the budget estimate, up from 37.4% at the end of June 2012. Fiscal consolidation (raising government revenues and cutting expenditure) is the need of the hour. But growth in both personal tax and corporate tax collections for the financial year till July 2012 has decelerated. The 2G spectrum auction has not lived up to expectations. However, the government is committed to its expenditure and is finding ways to increase revenue. Recently, finance minister P Chidambaram encouraged the authorities to debate over the inheritance tax while addressing a National Institute for Public Finance and Policy function.

Inheritance tax is a levy paid by a person who inherits money or property, or a tax on the estate (total value of the money and property) of a person who has died. When one dies, the government assesses the worth of the estate of the deceased, which may include cash in the bank, investments and any other property or business owned by the deceased. If the value of the estate exceeds the inheritance threshold set by the government, the deceased (technically, his estate) will pay tax on the same at the rate fixed by the government of the country.

It is a powerful fiscal measure used to counter increasing government debt in many countries such as the US, the UK and Germany, where inheritance taxes provide millions in revenue. In the US, like every time, it has been a controversial aspect of the Presidential elections. An estimate shows that the proposed repeal of the inheritance tax in the US after 2010 would have reduced revenues by $290 billion through 2015. President Obama has stuck with the inheritance tax during his tenure. Mario Monti, Italy’s technocratic Prime Minister, has reintroduced higher inheritance tax rates upon his induction in crisis-stricken Italy.

So, it is no small wonder that one can hear slight whispers of its reintroduction in India. India is not new to this tax. Inheritance tax, or estate duty, was levied between 1953 and 1985. All assets below

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