The Duty to State the Facts on Estate Duty!

Inheritance tax should be debated by competent experts.

According to the available literature, the intent to introduce a law to tax property passing on death of a person was contemplated in 1946 and the idea couldn’t crystallize due to the political flux then and the intervening change in the governance of the country.

The law was introduced in 1953, called the Estate Duty Act,1953 and operationalized from 6^th October 1953.

An unusual feature of the legislation was the power of the union government to tax agricultural land as part of the estate, which was specifically enabled by the different states within the union passing the suitable legislations.

The states were handed over the tax pertaining to the value of such land when collected, an unique dispensation, when seven decades post that, the union and the states are squabbling on fair tax distribution!

It was repealed in 1985, and the relevant extract from the budget speech of Mr. V P Singh is given below.

As can be seen from the above, the law was made ineffective/repealed in respect of deaths occurring on or after 16^th March 1985.

Unlike the Income tax law that operates on the basis of an assessment year, whereby the changes effected to the law would apply uniformly to the entire financial year, estate duty applied with reference to the date of death of an individual and the property passing on such death.

The passing of the property on death was immediate and instantaneous and no interregnum existed in law that can delay such passing.

Whether a person executed a will to enable the property to be succeeded on her death, or left no will or testament, the law recognized no difference to the crystallization of the tax liability.

If a person died on the 31^st October 1984 and the repeal of the law being on the 16^th March 1985, there was no conceivable possibility of the tax, if any, applicable being evaded.

The many postings in the social media that estate duty payment was avoided on the demise of Mrs. Indira Gandhi which took place on 31^st October 1984, because of the later repeal of the law on 16^th March 1985, appear farfetched and misinformed.

That the will under which the properties passed was given effect subsequent to the repeal on 16^th March 1985 which helped to avoid the payment of tax seem to be illogical and contrary to the nature and the structure of the law.

Under the Estate Duty Act, the full account of the properties of the deceased should be handed over to the Controller of Estate Duty within six months of the occurrence of the death. There was no provision to keep the application of the tax in suspended animation like implementation of the will etc.,

If a person died on 31^st October 1984 when the law was in force, there was no way by which the tax liability could have been obviated by the repeal of the law subsequently when the explicit condition stated in the amendment was that the law ceased to apply only in respect of deaths occurring on or after 16^th March 1985.

The debate on whether any form of inheritance tax should be introduced in the country looks characterized by much drivel than sense. The persons currently debating seem ill fitted to such an involved issue in the domain of fiscal economics.

The article has no intention to dabble in the space of fiscal experts. Any form of taxation can be argued to be a disincentive to earn and engage in economically productive endeavors, and create wealth.

The worst form of taxation, which is on consumption, attracts very little discussion among the persons who are seriously worried about taxing the billionaires.

A litre of petrol whether filled into a Merc or a Maruti800 or worse still, a TVS-50, attracts the same level of taxation.

Income tax is the same on two persons earning say Rs 10 lacs; one spends Rs 9lacs on maintaining a family and a rented house, the other need to spend only Rs5 lacs thanks to inherited properties and wealth.

Inheritance tax is levied on saved wealth when it passes hands and would appear to lack any of the inequity seen in the other forms of taxation. But the opposition to this exists on quite notional ideas like such a taxation will be a disincentive to produce wealth.

To disort with licentiousness the words of poet Alexander Pope, ‘for forms of taxation let fools contest, whatever is best administered and fair, is the best’!

How far are we from introducing an inheritance type of tax?  We may not be very far as the present income tax law itself with little sweat and toil may make this happen!

Those not fully familiar with the topography of the present law, do read the language of section 56 of the law which has been extracted after eliminating the portions not relevant to the discussion.

The law permits any receipt of property or money or any valuable asset without consideration to be taxable. It has presently kept out such receipts arising from a relative(specified) or through a will or inheritance from being taxed.

It may take nothing more than just a simple eraser to remove the three exemptions and, ergo, the inheritances can be taxed as income of the recipients!!

How far can the tentacles of income tax law extend to tax items which are to the naked eye not income?

The definition of income specifically includes egregious items of the above nature and it may be a herculean task to convince a court otherwise. Anyway, the subject is for the tax experts to debate and disagree!

Whoever gets the chance to fiddle with the fiscal frontiers after 4^th June2024 and present the next budget is likely to use the phrase that Mr. V P Singh did in his 1985 budget speech, and repeated every time in some modified way when the first budget of a newly elected government is presented!