It may be time to debate a tax on inheritance in India, but it will not be a walk in the park

The informal proposal in the Congress quarters of an inheritance tax has garnered attention and curiosity across India. While the party has distanced itself from these remarks, originally made by Indian Overseas Congress chairperson Sam Pitroda, the Statement has given another stick to the BJP to beat the Congress with. As to the viability of implementing a tax system akin to America’s, delving into the issue requires a comprehensive examination of various factors, including economic, social and political. The US has long embraced the concept of taxing inheritance, albeit with its own complexities and controversies. The rationale behind such a tax is multilayered. One, it aims to address wealth inequality by ensuring that accumulated wealth is not perpetually passed down generations without contributing to public good. Two, it serves as a source of revenue for the Government, aiding in funding public services and initiatives. However, the implementation of an inheritance tax in India would face unique challenges. One of the primary concerns is the prevalence of informal economies and undocumented wealth, which could potentially evade taxation. Additionally, India’s cultural and social fabric places a significant emphasis on familial ties and inheritance practices, making the introduction of such a tax a sensitive issue. Moreover, the Indian taxation system already comprises various levies, including income tax, capital gains tax and wealth tax (though repealed in 2015), which may complicate the addition of an inheritance tax. There are also concerns about the practicality of administering such a tax, given the diverse nature of assets and prevailing inheritance structures.

However, proponents argue that implementing an inheritance tax could serve as a tool for promoting economic mobility and reducing wealth concentration among a select few. By imposing a tax on large inheritances, the Government could potentially redistribute wealth more equitably and generate revenue to fund social welfare programmes. To effectively assess the feasibility of an inheritance tax in India, policymakers would need to engage in extensive consultations with stakeholders, including economists, tax experts, legal professionals and the public. Additionally, careful consideration has to be given to designing a tax framework that minimises loopholes and ensures compliance while addressing concerns related to family businesses, agricultural land and other sensitive assets. Any decision to introduce an inheritance tax should be accompanied by measures to enhance tax transparency, improve enforcement mechanisms and bolster efforts to combat tax evasion and avoidance. In conclusion, while the idea of taxing inheritance in India draws parallels with the US model, its implementation would necessitate a nuanced approach tailored to the nation’s unique socio-economic context.