Sam Pitroda, Chairman of the Indian Overseas Congress on April 23, 2024, clarified and supported Rahul Gandhi's call for wealth redistribution and alluded to an inheritance tax law in connection to making it work. He drew parallels with the US, where inheritance tax exists, suggesting it as an "interesting and fair law". His comment had triggered political slugfest in India.
“In America, there is an inheritance tax. If one has USD 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 must leave your wealth for the public, not all of it, half of it, which to me sounds fair,” Pitroda had said. “In India, you don’t have that. If somebody is worth 10 billion, his children get everything and the public gets nothing, he said.
"Congress party would frame a policy through which the wealth distribution would be better. We don’t have a minimum wage (in India). If we come up with a minimum wage in the country saying you must pay so much money to the poor, that’s the distribution of wealth. Today, rich people don’t pay their peons, servants, and home help enough but they spend that money on vacation in Dubai and London,” Pitroda put forward his suggestions. But Pitroda today clarified that Congress has not taken any decisions and he was just explaining the rationale behind wealth redistribution in a country with the United States as an example.
Meanwhile, Prime Minister Modi had criticised the Congress manifesto's promise that it would redistribute people’s wealth and slammed Congress on "appeasement" politics for its alleged claim of giving reservations to Muslims from the quota for SC, ST, and OCB communities.
Inheritance tax is a tax levied on assets or properties passed to legal heirs such as children or grandchildren, after a person's death. Unlike the United States, India doesn't have this tax currently, but it had earlier and was abolished in 1985. Under the Estate Duty Act of 1953, executors of a deceased estate had to pay up to 85 per cent 'estate duty' of value of inherited property. Even Anti-avoidance measures used to exist to prevent tax evasion through gifts made a few years before death.
Currently, no income tax or gift tax is charged on it because the Income-tax Act of 1961 excludes assets received as inheritance or through a will from 'gifts'. Currently, inherited assets are not taxed under the Income Tax Act of 1961, but taxes may apply when income is generated from them, such as Capital gains tax on profit generated from the sale of immovable assets, and also income tax on rental income.
The nature of capital gain, if it's short-term or long-term, depends on the duration of asset holding. To calculate this, the date of original purchase by the deceased will be considered as the acquisition cost of the asset. For movable assets such as mutual funds, gold, shares, etc., the new owner or legal heir will have to pay tax when they decide to sell these assets.
According to a CNBC report, Inheritance tax is not a federal law and only six US states impose inheritance tax namely Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania. Some states charge 4 per cent whereas some charge as much as 16 per cent as tax on assets. Iowa is planning to eliminate this tax in 2025. But notably, a CNBC report says you don't have to pay inheritance tax in the US if you are a close relative of the deceased person, like spouse, children or grandchildren.
