Inheritance Tax India

The Ministry of Finance which operates under the Government of India is the authority for tax in India. It formulates the different policies regarding taxation and is responsible for administering the tax system. Inheritance Tax in India was in the form of estate duty. The practise of charging estate duty was started in 1953, but was discontinued in 1985. The Amendment Act of 1985 abolished estate duty and inheritance tax was not charged on deaths of individuals which took place after March 16th 1985.

Inheritance tax and estate duty have a slight differentiation in terms of definition, as inheritance tax has to be paid by the inheritor and estate duty is charged on the estate of the dead person. Also inheritance has close connection with gift tax as sometimes in different countries an inheritance is taken to be a gift received from a deceased person. In United Kingdom before 1986 an inheritance was considered to be a form of gift and the inheritor was charged Capital Transfer Tax under Gift Tax rules. In 1986 UK formulated a separate Inheritance Tax law and has many provisions in it.

As mentioned earlier there is no inheritance tax in India and a person is not charged any kind of tax, including income tax when he receives an amount or property through a will or natural inheritance. However there is Wealth Tax levied on people whose net assets exceeds 1,500,000 in Indian Rupees. For calculating Net Assets, the total value of the assets are taken and all debts relating to them are deducted from the amount. On this amount, wealth tax is charged at the rate on one percent. So when a person inherits property it is possible he will cross this limit on net assets and will be liable to pay wealth tax. The value of properties is usually computed by the tax authorities but self assessment is also allowed. But this kind of assessment is subject to penalties if it is found to be inaccurate by the tax authorities.

The absence of inheritance tax is applicable for people who are not citizens of India as well. For example if a person leaves some money or property to a foreign national, the recipient is not charged any inheritance tax. Even though that is the case, there are separate laws governing ownership of property and its transfer to a foreign national. These laws are mentioned in FEMA (Foreign Exchange Management Act).