There has been a lot of discussion and debate recently about having an ‘inheritance tax’ in India. An old video of Nikhil Kamath, co-founder of Zerodha, has resurface, where he talks about this issue with media. In the video, Kamath says he supports having an inheritance tax in India. “When wealth gets passed down from one generation to the next, there needs to be a way to redistribute a portion of it. Many countries have inheritance taxes,” he says.
Kamath’s comments come at a time when there is wider talk about distribution of wealth, after recent statements from Sam Pitroda, Chairman of the Indian Overseas Congress, on inheritance tax in the US.
“Countries like South Korea, America, and the UK have inheritance taxes, also known as estate taxes. In India, where only about 3% of people pay income tax, having an inheritance tax could bring more people under the tax net,” Kamath says in the video.
He suggests that such a tax on the ‘extremely rich’ could give the government the money needed to make required reforms. Kamath adds that inheritance tax could be a way to achieve this.
However, some argue against having an inheritance tax in India, saying it may not be justified. “An inheritance tax discourages people from working hard and could set the country back,” says Mumbai-based investment and tax expert Balwant Jain.
In his view, implementing an inheritance tax does not serve the national interest.
Inheritance tax is not a new concept in India. This tax existed in India before it was removed in 1985.
Introduced in 1953 under the Estate Duty Act, the inheritance tax aimed to reduce economic inequality. The government at that time saw significant wealth inequalities and thought of having such a tax.
Neeraj Agarwala, partner at Nangia Andersen India, says that according to section 47 of the Income Tax Act, the transfer of capital assets through inheritance is not considered a taxable transfer. So, receiving ₹20 lakh and two house properties through inheritance does not have any tax liability currently. Any tax would only come if the house property is sold in the future. He says there is currently no provision in the income tax return for declaring inherited property, and so, no additional disclosure is required for these inherited assets.
Sam Pitroda sparked this debate on ‘inheritance tax’ in India recently. He pointed to the existing inheritance tax in America, where 45% of wealth can be transferred to children upon death, while 55% goes to the government, saying this is a fair system. Pitroda highlighted that there is no such provision in India, where heirs inherit the full wealth, leaving nothing for the public. He stressed the need to debate and discuss these issues, saying wealth redistribution policies should prioritize the interests of the people, not just the super-rich.