If government has its way, high net worth individuals will soon have to pay an inheritance tax. In this regard, the government has sought feedback, including recommendations, on the proposed re-introduction of inheritance tax, according to a report by Economic Times.
The government will levy tax ranging from 5% to 10% on families with a certain net worth, the report further stated. The government has also sought views of taxation lawyers and experts. The new tax could be introduced in next budget.
One of the most common ways to avoid paying inheritance tax is the creation of family trusts because under this ownership of the assets is not transferred. There is only a change in the trust shareholding. However, it is not without any limitations. "Most family trusts typically hold only bank accounts and equity shares and not immovable property. Transferring any property to or from the trust would continue to attract stamp duty and income tax," informs Adhil Shetty, CEO, BankBazaar.com.
While there is no inheritance tax right now, any income earned on inherited property attracts tax. "Say a person purchased a property in 2000 and has been deriving income by renting it out. If his wife stands to inherit the property on his demise, she would not need to pay any income tax on acquiring the property, but any income that she derives from it henceforth would be taxable," adds Shetty
As on July 31, 2017, India has 617 individuals with wealth of 1,000 crore ($154 million), according to the Hurun Research Institute, a luxury publishing group based in Shanghai
Popular by the name of estate duty or estate tax, India held inheritance tax for 33 years from 1953 to 1986 against inheritance of a particular asset. Though inheritance tax is no longer levied but the income earned on the same is taxable.
Like India, many countries had inheritance tax but later abolished them. These countries are Australia, Hongkong, New Zealand, Norway. On the other hand countries like USA, UK, Netherlands, Spain and Belgium still tax their citizens on wealth bequeathed to them by their ancestors.