 "Inheritance tax is a duty levied on the assets of a person who has passed away. Representational image.")
Sam Pitroda’s remarks on inheritance tax have created a firestorm.
The chairman of Indian Overseas Congress in a recent interview, came out in favour of an inheritance tax in India.
“…In America, there is an inheritance tax. If one has $100 million worth of wealth and when he dies he can only transfer probably 45 per cent to his children, 55 per cent is grabbed by the government. That’s an interesting law. It says you in your generation, made wealth and you are leaving now, you must leave your wealth for the public, not all of it, half of it, which to me sounds fair. In India, you don’t have that. If somebody is worth 10 billion and he dies, his children get 10 billion and the public gets nothing… So these are the kind of issues people will have to debate and discuss,” Pitroda said.
His remarks came in the backdrop of Congress leader Rahul Gandhi vowing to ‘redistribute wealth.’
Prime Minister Narendra Modi slammed Pitroda and the Congress’ remarks.
“The advisor (Sam Pitroda) of the ‘prince’ and the ‘royal family’ had said some time ago that more taxes should be imposed on the middle class. Congress says that it will impose an inheritance tax, and it will also impose tax on the inheritance received from parents. Your children will not get the wealth that you accumulate through your hard work, rather the claws of the Congress government will snatch it away from you,” he was quoted as saying by The Times of India.
Modi earlier claimed the Congress wanted to distribute the country’s wealth among “infiltrators” and families with more children if voted to power.
“When they (the Congress) were in power, they had said Muslims have the first right to the wealth of the nation. This means they will distribute this wealth to those who have more children, to infiltrators. Should your hard-earned money be given to infiltrators? Do you agree with this?” the PM had said during a rally earlier this week in Rajasthan.
He added, “Congress’s manifesto says they will take stock of the gold that mothers and daughters have, and will distribute that wealth. Manmohan Singh’s government had said Muslims have the first right to wealth. Brothers and sisters, this Urban Naxal thinking will not spare even the mangal sutras of my mothers and sister.”
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More ShortsBut what is in inheritance tax? Does India have an inheritance tax? Which other countries have it?
Let’s take a closer look:
What is it? Does India have it?
According to Investopedia, Inheritance tax is a duty levied on the assets of a person who has passed away.
Based on the value of the assets of the deceased, it is paid by the beneficiary.
Whether and how much the beneficiary pays depends on his or her relationship with the deceased.
India has no inheritance tax.
The levy was abolished by the Rajiv Gandhi government in 1985.
As per The Economic Times, prior to that, inheritors of assets like property would have to pay up to 85 per cent of its value under the Estate Duty Act, 1953.
The Income Tax Act of 1961 now designates movable and immovable assets received as inheritance or through a will out of the purview of gifts.
People in India only have to pay taxes while selling inherited property or assets.
Here, the long or short-term capital gain is determined by the time for which they hold the asset.
If it’s longer than 24 months, then the citizen has to pay long-term capital gain.
Which other countries have it?
United States
While the US has no federal inheritance tax, however, half a dozen states – Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania – have such a law on their books.
The tax may be determined by the state or states where the deceased lived or owned property.
According to USA Today, inheritance tax rates depend on the state where the heirs live.
The rate of tax can be as little as under 1 per cent and as much as 20 per cent.
This is usually applicable to a certain amount higher than an exempted limit.
In general, the closer your familial link to the person that passed away, the less you are likely to pay.
All six states do not levy any inheritance tax on spouses that survive the deceased. Barring New Jersey, domestic partners do not also have to pay any inheritance tax.
Only Nebraska and Pennsylvania make descendants pay inheritance tax, as per Investopedia.
Meanwhile, Iowa is set to do away with its inheritance tax next year, as per USA Today.
United Kingdom
The United Kingdom has an inheritance tax of 40 per cent.
Beneficiaries in the UK do not usually pay tax on assets they inherit.
Instead, that is left to the estate of the deceased.
The inheritance tax is also applicable only to part of the assets above a set threshold – £325,000 (Rs 3.36 crore).
There is no inheritance tax if the value of the assets passed down is under that limit.
There is also no tax if you leave everything over that threshold to
Spouse
Civil partner
Charity
Community amateur sports club
Those leaving their homes to their children or grandchildren can increase their threshold to £500,000 (Rs 5.17 crore).
Even better, for those married or in a civil partnership whose estate is valued under the threshold, their partners can add your unused threshold after you pass to their own limit.
Citizens can also lower the tax rate to 36 per cent by leaving 10 per cent or more of the net value of their assets to charity.
Those that receive gifts might have to pay inheritance tax if the person hands out over £325,000 (Rs 3.36 crore) and passes away in seven years.
Japan
Japan has the highest rate of inheritance tax (sōzokuzei) of all the members of the Organization for Economic Cooperation and Development.
According to the English Lawyers Japan website, this can be as high as 55 per cent and as low as 10 per cent.
This is levied after ¥30 million (1.61 crore) and ¥6 million (Rs 32 lakh) per heir is subtracted from value of the estate).
Like in the states in the US, the inheritance tax is paid by the beneficiaries and not the deceased’s estate.
The slabs in Japan are
Till 10 million yen 10%
10 million to 30 million yen 15%
30 million to 50 million yen 20%
50 million to 100 million yen 30%
100 million to 200 million yen 40%
200 million to 300 million yen 45%
300 million to 600 million yen 50%
More than ¥600 million yen 55%
Inheritance tax must be paid by the beneficiary within 10 months of the deceased’s death.
This must be done in a lump sum through a tax office, post office, or through a lawyer or local tax representative.
If the beneficiary fails to make the payment, he or she can face harsh penalties.
South Korea
South Korea, with an inheritance tax rate as high as 50 per cent, follows in Japan’s footsteps.
According to the PwC website_,_ inheritance in South Korea is governed by the Inheritance and Gift Tax Law.
But according to the Wall Street Journal, South Korea’s inheritance-tax rate can soar to as high as 60 per cent in certain circumstances.
For example, this is when shares are passed down in companies where a family has a majority stake.
According to the newspaper, inheritance tax has become a hot-button issue in Korea.
Proponents say it is necessary to keep income inequality in check.
Still, the concept has its critics.
Kim Kyeong-jun, president of CEO Score, a corporate-research firm in Seoul, told the newspaper, “Taxes are certainly necessary, but excessive taxation can make it incredibly difficult for a company owner to run a business.”
France
The inheritance tax in France can be as high as 45 per cent.
As per Harrison Brook.Fr, this is when the assets pass directly from the deceased to his children, parents and grandparents.
Starting at five per cent, it increases in concert with the value of the inheritance.
It is thus calculated based on the value of the assets.
Like the UK, there is also an exemption for the heirs when it comes to the value of the inheritance.
For children and parents, that figure is 100,000 euros (Rs 89 lakh each).
Which means that they have to pay no tax on that amount.
However, grandchildren and great-grandchildren have an exemption of just 1,594 euros (Rs 1.41 lakh).
When it comes to indirect inheritance, where distant family members or those not related to the deceased inherit, the tax rate can be as high as 60 per cent of the net taxable value of the assets.
Spain
In Spain, the inheritance tax or succession tax, is known as “impuesto de sucesiones y donaciones.”
It is applicable to both residents and non-residents.
The tax slabs for inheritance tax in Spain are as follows
7.65 per cent for €7,993
7.65 to 10.2 per cent for €7,993 to €31,956
10.2 and 15.3 per cent for €31,956 to €79,881
15.3 and 21.25 per cent from €79,881 to €239,389
25.5 per cent from €239,389–€398,778
29.75 per cent from €398,778–€797,555
34 per cent for over €797,555
You can also claim an exemption based on your relation to the decased.
Children of the deceased, including adopted under 21, are entitled to an exemption of €47,859.
Those over 21, grandchildren, parents & grandparents and spouse are entitled to an exemtion of €15,957.
Siblings, nieces, nephews, aunts, uncles, descendants, ascendants and in-laws are entitled to an exemption of €7,993.
Cousins, unmarried partners in areas in which civil partnerships are not legal and unrelated individuals get no allowance
Ireland
Ireland has a standard inheritance tax of 33 per cent.
The tax, known as Inheritance or Capital Acquisitions Tax (CAT). is paid by the beneficiary.
It is applicable to all property in Ireland and property outside the country if the inheritor or deceased is a resident of the nation.
No CAT needs to be paid on inheritances given or received by a civil partner or spouse.
However, like many of the other countries, Ireland too has allowances and exemptions.
This, of course, depends on the relationship between the inheritor and the deceased.
Like Spain, beneficiaries are split up into groups when it comes to the exemption allowed.
Group A including children, parent and minor grandchild get an exemption of €335,000.
Group B including parent with limited interest, siblings, nieces and nephews and grandchildren get an exemption of €32,500.
Group C, those in a relationship with the deceased, not in the above groups, get an exemption of €16,250.
Belgium
The inheritance tax rate in Belgium ranges from 3 per cent to 30 per cent.
The rates vary depending on the relationship of the beneficiary with the deceased person and the value of the assets passed down.
For spouses, children, grandchildren, parents and grandparents, the rates range from
€0.01 to €50,000 3%
€50,000.01 to €100,000 8%
€100,000.01 to €175,000 9%
€175,000.01 to €250,000 18%
€250,000.01 to €500,000 24%
Over €500,000 30%
Other countries that have inheritance tax include Germany (30%), Chile (25%) Greece (20%), Netherlands (20%) Finland (19%), Denmark (15%) Iceland, (10%) Turkey (10%), Poland (7%), Switzerland, (7%) and Italy (4%).
It remains to be seen whether Pitroda’s remarks hurt or help the Congress in the upcoming Lok Sabha polls.
With inputs from agencies