Centre may bring back estate tax

Estate tax, which was abolished in India in 1985, could be brought back by the Modi government in the name of enhancing transparency in tax administration and checking concentration of wealth in the hands of a few.

Finance Minister Nirmala Sitharaman may propose the idea in her maiden Union Budget to be presented on July 5. The revenue generated through the tax, also known as inheritance tax in India, could be used for the social sector programmes.

Estate tax is levied on the value of property when it is passed onto heirs upon the owner’s death.

“The minister may propose an idea and the estate tax could form part of the Direct Taxes Code as the government is working on widening its scope. It will, however, not be as harsh as it was prior to 1986,” an official privy to the development told DH.

Earlier, people who inherited property were taxed at a whopping 85%.

In its new avatar, the tax rate could be much lower and may be set according to international standards. The US and the UK tax an estate at 40% while in France the tax ranges from 5% to 60%, with several slabs in between.

An exemption may be worked out on the value of property up to Rs 2.5 cr under the new estate levy.

Another tax which could return is on cash withdrawals above Rs 10 or Rs 15 lakh per annum from banks.

Former finance minister P Chidamabram had introduced the banking cash transaction ta in 2005 at the rate of 0.1% on cash withdrawal above Rs 10,000. It was, however, scrapped in 2009 amid protests.

The possible re-introduction of these taxes is aimed at generating more revenues and checking accumulation of wealth in the hands of a few rich people in the country, the official said.

The recent Oxfam survey has suggested that the richest 1% people cornered 73% of wealth generated in the country.

One reason for abolition of estate tax in 1985 was that the administrative cost of collecting such a tax was more than its actual collection.