The government of India is looking at the possibility of levying tax on inheritance, as in countries like the US, where an inheritance tax is applicable. Different countries have different tax rates ranging from 10-50%.
Inheritance tax is a tax imposed on a person for the assets inherited from deceased.
Government of India may consider Inheritance tax to raise money to reduce the fiscal deficit.
Earlier, the Estate Duty Act, which came into effect 1953 was discontinued in 1985 and hence the practice of levying inheritance tax was abolished in India.
How does it work?
The government will evaluate the total asset including cash and investment left behind by the deceased after deducting his debt. If the total assets value crosses the threshold limit set by the government, the person who inherits will have to pay tax as per a rate fixed by the government.
This imposition is mainly to redistribute income as children of rich stay rich. By imposition of the tax some of the money will go into government coffers, which would help in reducing India's fiscal imbalance.
However, this may result in multiple taxation as rich may have to pay wealth tax every year and on income earned.
Earlier, estate tax was abolished as it had not met twin objective with which it was introduced, namely, to reduce unequal distribution of wealth and assist the states in financing their development schemes.