Prime Minister Narendra Modi who is all set for a second term on Saturday said that his government will now begin ‘a new journey to build a new India with new energy’. To flush out the black money, the government has come up with a number of measures like re-introducing an estate tax on inherited property and banking cash transaction tax (BCTT). The measures will proceed after the appointment of a new Finance Minister by the newly elected National Democratic Alliance (NDA). The suggestions will be proposed during Budget 2019-20 which is expected to be presented in mid-July. The IANS article quoted an official aware of budget consultations saying, “They are at initial stages of discussion. These have to be vetted thoroughly for its effectiveness.”
The Centre levied estate tax on passed-on property but was axed in 1985, but according to reports, the tax will soon be revived to boost central revenues. “Imposing an estate tax would be a retrograde step. This will badly affect the real estate sector which is already in the grip of a slowdown. The government needs to take steps that would accelerate the economy,” said an industry watcher to IANS, maintaining enough anti-graft measures were already in place.
What is ‘Estate Tax’ and why it was scrapped?
Also called as ‘Inheritance Tax’, it was introduced in 1953, under the aegis of the then finance minister V.P. Singh. It is imposed on the value of assets transferred upon a person’s demise. The tax rate would go as high as 85 percent. The tax was scrapped in 1985 because the revenue generated from the duty was lower as compared to the cost of administration. In India, currently, there is no inheritance tax. In many countries, it is mandatory for the heir to pay inheritance tax.
Similar to Estate tax, there was a gift tax which was introduced in 1958. The main aim of the tax was to recover the income tax revenue lost because of the transfers of an income-producing property by donors belonging to high-income tax groups to receivers belonging to lower tax brackets. The government scrapped the tax in 1998 owing to the less revenue generation compared to the cost of administration.