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Inheritance Tax

Facts for Prelims (FFP)

 

Source: BS

 Context: In India, the debate over inheritance tax as a tool to address economic inequality is ongoing.

What is Inheritance Tax?

It is a tax levied on the assets inherited by individuals from a deceased person. The tax rate depends on the value of the inherited property and the heir’s relationship to the decedent.

 

Unlike estate tax, which taxes the total value of a deceased person’s estate, inheritance tax is specifically levied on inherited property. While many countries impose inheritance taxes,
including the United States (where inheritance tax is imposed on money or property inherited from a deceased person’s estate), India currently does not. Estate duty, imposed from 1953 with tax rates reaching up to 85%, was abolished in 1985 due to unpopularity.

Similarly, gift tax and wealth tax, introduced earlier, were abolished in 1998 and 2015 respectively, although gift tax was briefly reinstated in 2004.

 

Pros of inheritance tax include potential revenue generation for the government and reducing wealth inequality, promoting equality of opportunity. However, it also raises concerns about tax evasion, discouraging hard work, and potential double taxation of already taxed assets.