Published on: April 24, 21:52 IST
LI Network
Indian Overseas Congress chief Sam Pitroda’s recent remarks regarding the United States’ inheritance tax have ignited a fiery debate within Indian political circles, particularly in the midst of the ongoing Lok Sabha elections. Pitroda’s comments came as a response to allegations by the Prime Minister, who accused the Congress party of advocating for the redistribution of the nation’s wealth.
In an interview with ANI, Pitroda cited the example of the US inheritance tax law, stating that if a person possesses property worth $10 million, upon their demise, 45% of the property is inherited by their children while the remaining 55% goes to the government. He underscored that such discussions are crucial, emphasizing the formulation of policies that prioritize the interests of the populace over the affluent.
Pitroda’s remarks have drawn attention to the intricacies of the inheritance tax system in the United States. Contrary to popular belief, inheritance tax is not uniformly enforced across all states; rather, it is applicable in only six out of the fifty states. This tax is levied on beneficiaries inheriting assets from a deceased individual and varies based on the state in which the deceased resided or owned property.
Distinguishing between Estate Tax and Inheritance Tax in the US is crucial. While Estate Tax is imposed on the estate itself before distribution, Inheritance Tax is solely imposed on the beneficiaries. The six states where Inheritance Tax is collected include Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.
Key determinants in calculating the tax include the relationship between the inheritor and the deceased, as well as the value of the inherited property. Typically, the tax is imposed only on the portion of the inheritance that surpasses the exemption limit. Rates vary among states, ranging from single digits to as high as 18%.
For instance, in Pennsylvania, the tax rate varies based on the relationship of the inheritor to the deceased, with rates ranging from 4.5% for direct descendants to 15% for other heirs. Similarly, in Iowa and Maryland, exemptions are granted for smaller estates valued below certain thresholds.
Comparatively, the United Kingdom imposes a 40% inheritance tax on assets exceeding £325,000, while Japan and South Korea boast significantly higher tax rates of 55% and 50%, respectively.
India, too, had an inheritance tax law until it was abolished by former Prime Minister Rajiv Gandhi in 1985. Introduced through the Estate Duty Act of 1953, the tax aimed to mitigate economic inequality by taxing properties exceeding specified thresholds. However, its efficacy was questioned, leading to its eventual repeal due to minimal revenue generation and high administrative costs.
Pitroda’s invocation of the US inheritance tax system serves as a catalyst for discussions surrounding wealth distribution policies in India. While the debate continues to simmer, it underscores the nuanced complexities of taxation systems and their implications on socioeconomic structures globally.
