May 3, 2024


Should India reintroduce the inheritance tax?

There aren’t many of us who are privy to getting a massive inheritance of property or anything else. Thus, the concept of an inheritance tax seems distant or inconsequential. However, thanks to the political discourse, it’s in the news now. Rather, it’s back in the news now.

Indian Overseas Congress chairman Sam Pitroda said Prime Minister Narendra Modi would advocate for a US-style tax policy for inherited family wealth. Modi responded by saying it’s actually something Congress would do if voted to power. India hasn’t had an inheritance tax for decades. Is it time for it to return?


It all began with Modi’s controversial allegations that Congress was planning to redistribute people’s wealth among Muslims. He claimed that Congress would conduct surveys on people’s properties, gold and silver owned by women and tribals, and land and cash of government employees and redistribute them among “those who have a large number of children”, alluding to Muslims. The Congress denied having any such plans.

An inheritance tax is levied on property inherited when a person dies. In 1953, Parliament passed the Estate Duty ‘Death Tax’ Act. Per the Act, a tax or duty was imposed on the principal value of moveable and immovable property, including agricultural land, given to another person once the owner dies.

There were a few conditions. The deceased owner had to be 18 or above. The tax was only applicable on properties whose value was above the exclusion limits set by the Act, and the rate was calculated per the market value at the time of death.

In 1960, the Act was amended to exclude properties in Odisha, West Bengal, and Jammu & Kashmir. Further amendments were made in 1968, 1982, and 1984. After the law was implemented, the death duty increased to 85%, which made the law very unpopular. In 1985, then Finance Minister VP Singh abolished it since the income generated for the government was less than the cost incurred due to how expensive the administrative process was.

During a 2011 Planning Commission meeting, then Home Minister P Chidambaram argued for higher taxes on luxury products and to re-impose the inheritance tax. He argued that non-plan expenditure was difficult to contain, and the tax-GDP ratio needed to increase through an inheritance tax on conspicuous consumption. Before the 2013 Budget, he said non-debt revenue should be increased, and the rich should be prepared to pay more tax.

In 2017, there were reports that then Finance Minister Arun Jaitley planned to levy taxes on inherited wealth. The supposed plan was a tax on property or cash inherited valued at over ₹50,000. The plan was scrapped following backlash from the public.

With the issue now back in the headlines, albeit in a partisan political way, should the inheritance tax return?

VIEW: It should be brought back

Many countries have an inheritance tax already built into their tax system. India is a land of inequalities, and that wealth gap is only getting wider. It’s arguably the right time for such a tax. That being said, what would make things easier is data on real asset holdings. Also, such a tax needn’t be harsh. There needs to be a generous exemption threshold. For example, a high threshold like ₹25-30 crore, a low tax rate of 10%, and no inheritance tax on some generation transfers will encourage more people to comply.

The discussions around an inheritance tax often deem it a leftist or socialist idea. It’s a commonly misunderstood tax since it’s rooted in liberal economics. Some argue it’s the most fair and progressive tax out there. While some argue that it’s double taxation, every tax does that. For example, the GST is paid out of taxed income. Unlike income tax, an inheritance tax doesn’t affect the incentive to work. Unlike capital gains, it doesn’t disincentivise savings and investments.

The government is always looking to widen the taxpayer base without unnecessarily burdening individual taxpayers who aren’t very wealthy. An inheritance tax would be successful today if the facets of tax burden, an individual’s tax status, and social factors affecting inheritance are kept in mind. If the government introduces an inheritance tax, the tax base would increase. That’s additional tax revenue to help finance social and economic initiatives and establish a social security network.

COUNTERVIEW: We don’t need it

A developing country and economy like India doesn’t need more taxes. It certainly doesn’t need an inheritance tax. The basic idea of it is to tackle inequality through wealth distribution. There’s a reason why it was abolished decades ago – it didn’t achieve that objective. It didn’t increase State revenues, and income inequality remained untouched. It was also complex and costly to implement since it had different valuation rules for different kinds of property.

Currently, the overall tax-GDP ratio is healthy at 11.7%. That’s the highest it has been since 1999. The direct tax-GDP ratio is 6.11%. It’s the highest since 2007-08. Over the past decade, direct tax collection has tripled and return filers have increased 2.4x. Direct tax contributions, comprising mainly corporate and personal income tax collections, have reached pre-pandemic levels. Despite a decrease in tax rates, higher tax revenues reveal that tax leakages have been plugged.

There’s no point in copying other countries with an inheritance tax. They do it to generate revenue for social security programmes. We’re still a ways off. If an inheritance tax is introduced, then high net-worth individuals would form family trusts, which would be outside the tax net since ownership isn’t transferred but only the shareholding of the trust changes. They might also form such a family trust abroad. This would go against the government’s promises of bringing back the accumulated wealth of certain people abroad.

Reference Links:

  • Inheritance tax in the eye of political storm amid Lok Sabha elections – Hindustan Times
  • Sam Pitroda inheritance tax debate: What is inheritance tax in India – The Economic Times
  • India Had Its Own Inheritance Tax Till 1985. Why It Was Abolished – NDTV
  • Explained: What the raging debate about inheritance tax is all about – Business Standard
  • A case for inheritance tax – Forbes
  • The spin on inheritance tax – The Financial Express
  • Inheritance Tax: The Hard Facts – News18

What is your opinion on this?
(Only subscribers can participate in polls)

a) The inheritance tax should be brought back.

b) The inheritance tax shouldn’t be brought back.


For the Right:

The Rs 60,000 Crore Question the BJP Needs to Answer About its Financials

For the Left:

From election interference to smear campaign, Washington Post hitjob is an exercise in manipulation