Inheritance Tax in India: A Historical Perspective
Prior to 1985, India levied an inheritance tax on assets transferred to legal heirs upon the owner’s death. This tax, known as estate duty, was introduced under the Estate Duty Act of 1953 and was designed to address economic inequality.
The estate duty was structured progressively, with rates increasing up to 85% for estates valued over Rs 20 lakh. It applied to both immovable and movable properties inherited by successors upon an individual’s death, regardless of their location.
To prevent tax avoidance, the law included anti-avoidance measures targeting transactions like gifts made in anticipation of death or within two years prior to death.
Despite its well-intentioned goals, the estate duty law faced widespread criticism. The complexity of the law resulted in increased litigation and administrative costs. Concerns were also raised about double taxation, as assets were subject to both estate duty and wealth tax (which was later abolished from the financial year 2016 onwards).
Furthermore, estate duty collections were lower than expected due to issues such as the illegal concealment of assets and the prevalence of holding benami properties.
Consequently, in 1985, the estate duty was abolished in India. Currently, the country does not have an inheritance tax system, and assets inherited through inheritance or a will are not subject to gift tax.
