What Is Inheritance Tax?
Inheritance tax in the US is applied directly to recipients, while estate tax is imposed on the decedent’s assets prior to distribution.
Chief of the Indian Overseas Congress Sam Pitroda has sparked political controversy in India with remarks he made on the inheritance tax in the United States. This caused a commotion during the current Lok Sabha elections and piqued people’s interest in the nature and operation of the inheritance tax.
What Is US’ Inheritance Tax?
Despite the fact that inheritance tax is frequently addressed in relation to the United States, its application varies throughout states. Rather, it only operates in six of the fifty states. The rules and tax rate for this tax, which is levied on those who inherit assets from the deceased, differ according to the state in which the deceased resided or owned property.
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Making the distinction between the US inheritance and estate taxes is crucial. The Inheritance Tax is applied immediately to the beneficiaries, whereas the Estate Tax is imposed on the deceased person’s estate prior to distribution. Only six states in the US currently impose inheritance taxes: Pennsylvania, Kentucky, Maryland, Nebraska, Iowa, and New Jersey.
The inheritance tax rates are subject to change and can range from less than 1% to 20% of the value of inherited assets, including cash and real estate. But normally, this tax is computed based on the assets’ value exceeding a predetermined threshold. For instance, if an individual inherits $6 million worth of assets and a specific percentage of tax is applied to inherited assets beyond $4 million, the tax would only be applied to the $2 million that remains.
Sam Pitroda On Inheritance Tax
Pitroda stated, “There is an inheritance tax in the United States. If a person inherits $100 million, the government will likely take the remaining 55% of his wealth, leaving only approximately 45% for his offspring to inherit. What an intriguing law that is.
Inheritance Tax In India
Up until 1985, when it was repealed by the then-prime minister Rajiv Gandhi, inheritance taxes were levied in India. Established by the Estate Duty Act of 1953, the law, sometimes known as Estate Duty, was a type of taxation that was computed upon the death of an individual. It was only relevant if the inherited share of the estate’s overall value was more than a predetermined exclusion threshold. In India, properties valued at least Rs 1.5 lakh are subject to a 7.5% tax rate, with the potential for a maximum tax rate of 85%. Although this tax was eventually abandoned, its goal was to lessen economic inequality.
India removed its inheritance tax in 1985 due to its ineffectiveness in reducing economic inequality and its minimal contribution to government revenue.