Abstract

Inheritance tax or Estate Duty, as it has been called in India, is a much discussed and debated issue in light of recent indications of its reintroduction by the Government. Inheritance tax is often considered to be an unpopular subject in jurisdictions across the world as it is viewed as double taxation in some quarters. Notwithstanding this perceived unpopularity, a rationalized implementation of inheritance tax may result in a stable source of additional revenue for the Government. This additional revenue may be utilised by the Government to undertake development activities or to reduce the burden of other taxes on medium and low income groups. In this article, the authors have analyzed the working and implementation of the erstwhile Estate Duty (as one way of imposing a tax on inheritance) in India and the form and manner in which a similar tax may be reintroduced in the country. The authors have taken assistance from similar taxes in other jurisdictions to analyze the efficiency and efficacy of a tax on inheritance in the Indian context. Towards the end of the article, the authors comment on the probable from and structure in which a tax on inheritance may be reintroduced in the country in the near future.

Introduction

Estate duty was a form of tax which was levied on the total value of the property held by an individual calculated at the time of his / her demise. It was payable at the time when the deceased individual’s property was passed on to the successors. Estate duty was payable only if the total value of the inherited portion of the property exceeded the exclusion limit prescribed under the Estate Duty Act, 1953 (“the Act”). In India, estate duty was set at a rate as high as 85% (eighty five per cent). However, in 1985, estate duty law was abolished in India. While India does not currently provide for a levy of estate duty, in the recent past, a few reports by the Government have suggested/triggered a wide spread speculation that estate duty may be reintroduced in India. Speculations are rife in the market that the Government may reintroduce the levy of estate duty as it would serve as a stable source of revenue for the Government and may give a boost to India’s economy.

Imposition and Abolition of Estate Duty in India

In India, in terms of the Act, the property deemed to pass on death included property which the deceased individual at the time of his / her death was competent to dispose of, and property in which the deceased individual or any other person had an interest ceasing on the former’s death.1 Further, (a) if the deceased individual was domiciled in India at the time of his death, the duty was leviable on all immovable property situated in India, and on all movable property (situated in India or outside) which passed on upon his death; and (b) if the deceased individual was domiciled outside India, the duty is leviable on all immovable property situated in India, all movable property situated in India and movable property situated outside India, if it is settled property and the settler was domiciled in India at the time the settlement took effect.

While calculating the total value of the property of the deceased individual, the market value as at the time of the death was taken into consideration. Certain deductions were permissible from the value so determined, subject to certain limitations, on account of reasonable funeral expenses and for debts and encumbrances.

Contributed by: Divi Dutta, Partner; Anant Gupta, Associate; Himanshu Malhotra, Associate

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