Poor implementation and loopholes in tax collection in India have allowed people to avoid paying property taxes.
New Delhi:
Indian Overseas Congress Chairman Sam Pitroda’s remarks on US inheritance tax have created a political vortex here in India amid the ongoing Lok Sabha elections.
Mr Pitroda sparked a huge controversy by citing the example of US inheritance tax law to refute the Prime Minister’s claim that Parliament was planning to redistribute the country’s wealth.
“If a person has an estate worth $10 million, after his death, 45 per cent of his estate goes to his children and 55 per cent of his estate goes to the government,” Pitroda told ANI. There are no assets,” he added. There is no such law in India.
He added: “These issues should be discussed. We are talking about policies that benefit the people, not just the wealthy.”
What is U.S. inheritance tax law?
First, this tax is not common in the United States and is only enforced in 6 out of 50 states. This tax is levied on beneficiaries who inherit the assets of a deceased person. Taxation depends on the state in which the person lived or owned property.
There is a big difference between inheritance tax and inheritance tax in the United States. The former is levied on the estate itself before distribution, while the latter is levied only on the beneficiaries.
Inheritance taxes are collected in six U.S. states: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.
Main factors involved and how they are calculated
It’s not a federal tax. Taxes are levied depending on the relationship with the heir and the value of the property. It only applies to the portion of inherited property that exceeds the deduction limit. Above the threshold, tax is usually assessed on a sliding basis, and the tax rate varies from his single digits up to 18%.
For example, in Pennsylvania, the tax rate is 4.5% for transfers to lineal descendants (lineal heirs), 12% for transfers to siblings, and 15% for transfers to other heirs.
In Iowa, there is no tax if the assessed value of the property is less than $25,000 (Rs. 20.83 million). In Maryland, inheritances from estates worth less than $50,000 (Rs. 41.66 million) are also exempt.
In summary, the closer the heir is to the asset owner, the lower the rate of tax he or she will be taxed. In all six states, the spouse of the owner is exempt.
In the UK, assets over £325,000 (Rs 3.37 billion) are subject to inheritance tax of 40%.
Inheritance tax rates in Japan are high, with the current top rate being 55%. The interest rate is determined according to the amount each legal heir receives. On the other hand, South Korea’s inheritance tax rate is 50%. In 2021, the family of deceased Samsung Electronics Chairman Lee Kun-hee announced that they would pay more than 12 trillion won ($10.78 billion) in inheritance taxes on the late patriarch’s estate.
Has there ever been an inheritance tax in India?
Inheritance tax laws existed in India until former Prime Minister Rajiv Gandhi abolished them in 1985. Estate tax is a tax calculated on a person’s death and was introduced by the Estate Tax Act 1953. Payment will be made only if the total amount of inherited property exceeds the deduction limit. In India, rates as high as 85% have been set for real estate. Property worth at least Rs 1.5 million was taxed at 7.5%. Its purpose was to reduce income inequality, but it was abolished in 1985.
“Since both the Wealth Tax Act and the Inheritance Tax Act apply to a person’s property, the former applying to a person’s property during his or her lifetime and the latter after his death, the existence of two separate laws regarding the same property is a procedural Taxpayers and heirs of the deceased must comply with the provisions of two different laws.Considering the relative merits of the two taxes, the inheritance tax was introduced to achieve two purposes. I don’t think we have been able to do that by reducing the unequal distribution of wealth and helping countries finance their development programmes,” said Singh, former finance minister in Rajiv Gandhi’s cabinet. said in his budget speech.
“Although the benefit derived from estate tax is only about Rs. “I propose appropriate legislation for this purpose,” he added.
The Economic Times reported that India’s inheritance tax was abolished in 1985 because it did not help or significantly contribute to reducing economic inequality in society. The total amount of tax collected under the Estate Tax Act during 1984-1985 was Rs 20 billion. However, the recovery costs were very high as the complex calculation structure led to many lawsuits.
For example, according to the regular budget for 1980-1981, the total tax revenue for the period 1979-1980 was 11,447 billion rupees, of which only 12 billion rupees was contributed by real estate tax, later 13 million rupees, and 13 million rupees later. In other words, it has been revised to 0.1%. of total tax revenue. In the budget, the real estate tax collection was expected to be Rs 13 million with the same amount.
In the 1978-79 budget, the tax revenue in the previous budget was Rs 10,750 million out of the total revenue of Rs 9,005.46 million. The budget projection for 1978-79 was Rs 11 billion out of Rs 9,636 million, or 0.1% of the total tax revenue.
Poor implementation and loopholes in tax collection allowed people to avoid paying inheritance tax.
