Inheritance tax means, a tax which is levied on properties, jewellery, shares, fixed deposits, cash in bank, immovable and movable properties that have been passed on to from family members to successors after the death of the actual owner.
Citing official sources, news agency IANS stated that tax on properties, jewellery, shares, fixed deposits (FDs), cash in bank inherited is likely in the upcoming Union Budget, in order to demonstrate the government’s pro-poor orientation, and to discourage wealth accumulation and fight black money.
It was collected before the Estate Duty Act, 1953, was abolished in 1985. It has been a matter of debate since then.
Globally, the UK is an example where such a tax is levied.
While many experts believe that the tax may lead to a damage to the already slowing economy, the government may present it as a "bold and inclusive move”.
As per the Finance Ministry officials, 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.
The government is looking at re-introducing an estate tax on inherited property and illiquid assets after 35 years. 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 sources said.
The tax was, however, scrapped in 2009 owing to low collection on this count.
In many 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.
Further, the holding period of ownership will determine whether capital gains will apply under long-term capital gains tax or short-term capital gains tax.
As per reports, tax experts are unanimous about the negative impact of such a tax for a developing country like India which needs capital formation.
(with inputs from IANS)