The noise against a proposal to recall the infamous estate duty to life is gaining volume. CNBC-TV18's Ashmit Kumar finds out what one can do to reduce the burden of this tax, should it come to pass.
A proposal to bring back the inheritance tax has opened up a whole new can of worms. Not only are there moral concerns about imposing tax on a family that is grieving but financial concerns are also mounting.
Experts opposed to the tax argue that by bringing back this tax, the government is coming dangerously close to imposing a regime of multiple taxation.
Mahesh Shah, director-tax, Ernst & Young, said, "The person is subject to wealth tax under the Indian taxation system. Post that if inheritance tax is levied upon demise of that person, then the person’s estate would also suffer the inheritance tax. People are highly mobile, they travel cross border. It may so happen that may be paying inheritance tax in India and they might have to pay inheritance tax in other jurisdictions as well."
Daksha Baxi, executive director, Khaitan & Co said, "I would consider that to be a measure being resorted to because no other innovative ways and means of expanding tax base is being explored."
Experts also warn that different models for computation of assets could spark off a flurry of uncertainty and litigation.
Mahesh Shah further says if you look at the history in terms of valuation; for wealth tax there were different rules. For gift tax there were different rules for valuation. If there are multiple valuation rules and always there could be difference of opinion, resulting into litigation.
There is also an argument that the administrative costs of collecting such a tax may be much higher that collections themselves.
Daksha Baxi adds, it is invariable complicated and complex to implement that kind of tax provision. One of the main reasons why it was abolished was because the complexities of implementing those taxes was so much, that the collection was less than the actual cost of administering that tax.
Arguments aside, experts have begun preparing for the worst. Experts are advising clients to ring-fence assets by conceding asset ownership to a trust, since a trust cannot attract this tax.
They also advise gifting assets to immediate relatives, since such gifts to relatives, irrespective of size or value do not attract even gift tax.
However, there is still some tension in the air. After all, with the government in fiscal consolidation overdrive, it may move to plug these gaps to ensure its collections do not suffer.