Sitharaman, who succeeded Arun Jaitley as Finance Minister, will present her maiden Union Budget on Friday.
Amid expectations that the Narendra Modi-led NDA government will provide tax relief to millions of individual taxpayers, there are also reports that the Finance Minister Nirmala Sitharaman may introduce inheritance or estate tax in the Union Budget 2019 after 35 years.
Sitharaman, who succeeded Arun Jaitley as Finance Minister, will present her maiden Union Budget on Friday.
Ahead of the Budget, reports quoting sources said that a tax on properties, jewellery, shares, fixed deposits (FDs), cash in bank inherited is likely to be re-introduced by the Finance Minister. The sources said that the move would not be to raise resources but to demonstrate the government`s pro-poor orientation, discourage wealth accumulation and fight black money, sources said. Globally, the Us and the UK are among the large economies where such a tax is levied, IAN reported.
The experts are, however, unanimous in their assertion that tax will harm a slowing economy which a huge capital infusion.
Here is more on Inheritance Tax:
1. Inheritance Tax
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Many countries have an inheritance tax or estate tax under which the heir must pay Inheritance Tax for inheriting any property or assets from parents, grandparents or any other relative or friend. Currently, in India, the Income-Tax Act, 1961, excludes a case of transfer under a will or inheritance from the purview of gift tax.
Accordingly, there is no provision for taxation of property received by way of inheritance. Once a property is inherited, the owner can choose to sell it subsequently. This way, the capital gain or loss too, will accrue to the legal heir.
Further, the holding period of ownership will determine whether capital gains will apply under long-term capital gains tax or short-term capital gains tax.
2. Abolished in 1985
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The inheritance or estate tax in India was abolished in 1985 by the Rajiv Gandhi government for a number of reasons including inefficiencies in implementation and red-tapism. It has been a matter of debate ever since.
3. What will be considered inheritance?
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Sources in the Finance Ministry said that a tax on properties, jewellery, shares, fixed deposits (FDs), cash in bank inherited is likely to be re-introduced by the Finance Minister.
4. What experts think
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Tax experts are almost unanimous about the negative impact of such a tax. "Inheritance tax is called an estate duty. It was just like a wealth tax. All assets of a father to his children minus liabilities could be included," tax expert Ved Jain was quoted as saying by IANS. "When the new tax is introduced in order to avoid repercussions, the government can fix a tax of 5 or 10 per cent on inheritance assets of more than Rs 10 crore. It may not be a big amount, but in India how many people have Rs 10 crore," he said.
"Not much fund can be raised through such a tax. It is not imposed to raise revenues, it is a thought process -- socialist or communist or capitalist. It is not a revenue generating measure. It is a socialist thought. This will harm the economy," Jain added.
5. Challenges for the govt
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One of the major challenges for the government in introducing the inheritance tax would be the liquidity to pay the tax. For example, if one has shares worth Rs 50,000 crore in a company and if one has to pay Rs 5,000 crore tax, the person will have to sell the shares to pay tax, according to one tax expert.
