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The government is mulling re-introducing the inheritance or estate tax for the people with high net worth, reports the Economic Times. Currently, the government is seeking feedback and recommendations for it.
The tax could range from 5-10 percent and is likely to be introduced in the next Budget, the report said.
A reason for this is many individuals with high net worth are forming family trusts to avoid such a tax.
The tax was abolished in India during Rajiv Gandhi's rule in 1985. It was levied in India from 1935-1985.
What is inheritance or estate tax?
Inheritance tax is imposed on assets that an individual inherits from a deceased person. The tax rate usually depends upon the value of the asset inherited.
However, the tax is not applicable on the property inherited, but on the income earned from it.
The heir, who has received the property, will also have to file Income Tax return at the year-end. Income received from it will need to be disclosed at the time of filing returns.
Capital gains will also be liable on the sale of such a property. The original value of the property will be considered the cost of acquisition.
If the property is inherited by more than one person, the tax would be levied on each individual in equal proportions. Capital gains tax will also be divided equally.
Some individuals could also have to pay 1 percent wealth tax if the property value exceeds Rs 3,000,000. Other assets on which wealth tax could be levied include jewellery, cars and cash in excess of Rs 50,000.
However, there are restrictions on who can inherit property in the country. There are certain individuals who cannot inherit property:
> Sharia Law — Under Sharia Law, non-Muslims, murderers, unborm children, children born out of marriage and step-parents cannot inherit the property.
> The Foreign Exchange Management Act — This is for those Indians who dot reside in India. For example, if the deceased is a non-resident Indian, an individual can only inherit if he/she is an Indian citizen or a resident of India.
> Disqualified nationalities — There is a list of nationalities that cannot inherit property in India. It includes citizens of Pakistan, Bangladesh, China, Iran, Nepal, Bhutan, Sri Lanka and Afghanistan.
In adverse cases, individuals from above countries will need to take permission from the Reserve Bank of India.
India also has different inheritance laws based on religions:
> Hindu Succession Act — This covers Hindus, Buddhists, Sikhs and Jains. In case of males, four classes of people can inherit the property — first preference is given to immediate heirs, followed by parents, relatives from the male line and last preference is given to relatives from female line.
In case of females, first preference is given to her husband and children, followed by husband's heirs, her parents and last, the mother's heirs.
> Sharia Law — This is for Muslims wherein only one-third of the property can be divided as per wish. The rest of the will need to be divided among the following members — sons, daughters, wives, parents, siblings and grand children.
Each person will get an equal share.
> Intestate Succession Act — This covers Parsis, Christians and mixed origin couples. Here, one-third of the property is given to wife or husband if there are no children. The rest of the property is divided among children and surviving relations including parents.
In case, the individual transfer his/her inheritance outside India, rule or taxation policy of that country will need to be followed.
Why is it in news again?
In 2014, after assuming office, the then Minister of Finance Jayant Sinha was in favour of bringing back the inheritance tax in its original or some other form.
However, Finance Minister Arun Jaitley had opposed it. But now, the buzz is that the government is keen on reintroducing the tax to get additional revenues.
India currently has 671 individuals whose wealth together amounts to Rs 1,000 crore as on July 31, the ET report said.
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