A political row around wealth redistribution has flared up after Sam Pitroda, chairman of the Indian Overseas Congress, called for an inheritance tax system in India, a system similar to an existing tax system in the U.S.
Pitroda is advocating for a 50 percent inheritance tax. This means half of whatever a person builds will be charged as a tax upon their death, and their heirs will only be able to acquire the remaining 50 per cent.
Inheritance Tax in the U.S.
In the United States, a similar inheritance tax is a state tax levied on the money or property you receive from a deceased person's estate. The inheritance tax, as opposed to the federal estate tax, is paid by the beneficiary.
As of 2021, only six states impose an inheritance tax: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. The tax rates and exemptions vary by state, with some states exempting certain classes of heirs or imposing lower tax rates on transfers to close family members.
Inheritance tax rates can range from less than 1% to as much as 20% of the inherited property and cash worth. However, the tax is calculated on the amount of the asset which is above a certain threshold. So, for instance, a certain percentage of tax is levied on inherited assets exceeding $1 million. And a person is inheriting assets worth $3 million. The tax will be levied on the remaining $2 million only.
In an interview with ANI, Pitroda said, "In America, there is an inheritance tax. If one has $100 million worth of wealth when he dies, he can only transfer probably 45 percent to his children and the remaining 55 percent is grabbed by the government. That's an interesting law.”
Inheritance Tax in the India
40 years ago, a similar taxation system existed in India, which was scrapped by the then Prime Minister Rajiv Gandhi in 1985, citing the need to simplify the tax system and promote investment and savings. Also known as estate duty, the tax was introduced in India in 1953.
The tax was levied on transferring assets from a deceased person to their heirs. The tax was based on the total value of the estate left behind by the deceased person, and the heirs were required to pay a certain percentage of this value as tax to the government.
Since then, there have been periodic calls to reintroduce the tax, particularly in the wake of rising income inequality and the concentration of wealth in the hands of a few individuals. However, no concrete action has been taken in this regard.