Income Tax 30 Jan,2020
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Union Budget 2020 - Inheritance Tax or Wealth Tax ?! Or Both?!
PRABHAKAR K.S.Proprietor, Shree Tax Chambers

Given the amount of inequality now, wealth tax is completely sensible and more redistribution is required...

Nobel laureate Abhijit V Banerjee

Whether the time has arrived to reintroduce erstwhile Inheritance Tax or Wealth Tax or both in India ? Whether prevailing conditions are in its favour? Alarming? Answer can be affirmative. . .

1. Inheritance Tax

Inheritance Tax is levied on the value of assets passed on to legal heirs through inheritance. After Independence, the Central Government has introduced its first-ever inheritance or estate duty under the Estate Duty Act, 1953 and continued to levy till 1986. Prior to its removal, like Income Tax, inheritance tax was also levied on a slab basis ranging from 7.5 percent to 85 percent of the principal value of the assets or estates exceeding Rs. 20 lakhs as the case may be.

Conditions - In favour of

  •  To set off of the effect of abolition of wealth tax w.e.f the financial year 2015 - 16.

  •  To widen the direct tax base and to boost its revenue to meet fund requirements for infrastructure and social development projects.

  •  To bring an economic equilibrium in Indian society and to reduce the wealth concentration.

Oxfam, a rights group in its last week's Report states that India's richest people, say, 1 percent hold more than four-times the wealth held by 95 crore ordinary Indians. It also quoted that the combined total wealth of 63 ordinary Indians are higher than the total Union Budget of India for 2018-19 which was at Rs 24,42,200 crore.

Taxability – Under which head?

The Central Government may bring an exclusive Chapter and Rules in Finance Act 2020 like "Equalisation Levy' or suitably amend the head "Capital Gains" and may levy tax between 25 percent to 40 percent (during 1985 - 86 it was around 40 percent, so Finance Minster may consider even more than the said rate..!!) on a particular segment of assessees like High Net worth Individuals (HNIs), Non- Resident Indians (NRIs), centuries-old or recently created "Family Trusts," etc.

Sri. Akhilesh Ranjan Panel on Inheritance Tax

According to media reports, Sri. Akhilesh Ranjan Panel did not recommend to levy inheritance tax.

Inheritance Tax - In other Countries

Few developed countries say the UK and the US have an inheritance tax system. The US has three types of taxes on estates or assets being passed on to the next generation, they are Gift Tax, Estate Tax and Inheritance Tax and the rate of Estate taxes in the US stands at 40 percent.

Unlike the US, the UK has a unified regime of Inheritances tax system where the standard rate stands at 40 percent which is charged on the estate with a specified threshold, currently 325,000 pounds. If the estate is given to the children or grandchildren, the said threshold will be 4,25,000 pounds. However, like India, many other countries such as China, Singapore, Hong Kong, Australia and the Gulf countries have repealed their inheritance tax over a period of time.

2. Wealth Tax

Since independence, the Central Government used to levy wealth tax under the erstwhile Wealth Tax Act, 1957 on certain benefits derived from ownership on Individual, HUF & Company. Late Sri. Arun Jaitley, then Finance Minister while presenting his Union Budget for 2015-16 quoting low yield from wealth tax and administration issues, abolished it by replacing with an additional surcharge of 2 percent on the super-rich with a taxable income of over Rs 1 crore.

Further, in 2019, Smt. Nirmala Sitharaman, Finance Minister, while presenting her maiden Budget for 2019-20, has increased the surcharge for those earning Rs. 2.5 crore to 3 percent and for those earning above Rs. 5 crore to 7 percent.

Sri. Arbind Modi Panel on Wealth Tax

During November 2017, the Central Government has constituted a task force headed by Sri. Arbind Modi as its convener and CA Dr. Girish Ahuja, Sri Rajiv Memani, Sri Mukesh Patel, Sri GC Srivastava, IRS (Retd.), Smt. Mansi Kedia and Sri. Arvind Subramanian was as its members to review and draft a new Direct Tax Law in consonance with the economic needs of the country. On 26.11.2018, the task force has been partially modified by replacing its convener by appointing Sri. Akhilesh Ranjan and Sri. Ritvik Pandey as Member.

Prior to the reconstitution of the said Task Force, Sri Arbind Modi Panel has submitted its 'Detailed Reports in 4 Volumes' including Volume - 4 exclusively meant for 'Wealth-Tax & Equalisation Levy' where it was recommended to levy Wealth Tax at 1 percent after allowing credit for pre-paid taxes, if any.

Wealth Tax - In other Countries

United States - The Presidential candidates, Bernie Sanders and Elizabeth Warren, are proposing to levy wealth tax at varied rates between 1 to 8 percent.

European Union - More than a dozen of countries used to have wealth taxes, however, Austria, Denmark, Finland, France, Germany, Iceland, Ireland, Italy, the Netherlands, Luxembourg, and Sweden repealed their wealth taxes later. Currently, Norway, Spain, and Switzerland continued with the said levy.

Conclusion

In the interest of revenue, the Ministry of Finance, if not in the Union Budget for 2020-21, by constituting a Taskforce in line with the Direct Tax Code, should reintroduce inheritance Tax or Wealth Tax or both while overhauling of decades of old Income Tax Law.