What is estate duty?

In India, the ancestral property holds much importance in the lives of many successors. There are laws which have been defined clearly regarding the property’s distribution among the heirs. Another law which has been making rounds in the news for quite a while is the law related to estate duty. What is estate duty? Why is it important for hires to know its meaning? In this answer, I will cover everything around the estate duty meaning, its abolishment and reintroduction in the tax system of the country.

Estate duty is a type of tax which is calculated at the time of death of an individual whose property is going to be acquired by his/her successors. It is also called inheritance tax. It is a liability on the people who will inherit their parents property, they have to pay estate duty as a tax. 

• Estate duty is not a new term for Indians, it was introduced 1953 as Estate duty act later in 2019 this act became law. Under this law each person who inherits property is liable to pay tax.

• Estate duty or inheritance tax is paid in many countries and it is also known as death tax in London. 

• In the USA budget the estate tax is the most-efficient tax.

• Balance the gap between the rich and the poor.

• Economic growth.

• Discourage saving.

• People invest in property to secure the future of their generations. But when a person will think that their kids have to pay tax on the property, they will be discouraged to save a lot of wealth. This thought may step them back from investing in the real estate market.

This is all about estate duty. I hope your doubt is clear about estate duty meaning.

You must know that a person’s property  (such as ancestral properties) gets passed on to his legal heirs – kids, grandkids, or wards – after he passes away. In some countries, the heir has to pay Inheritance Tax to inherit any such property from their grandparents or parents or any other friend or relative. In India, the concept of levying tax on inheritance doesn’t exist now. The Inheritance Tax or Estate Tax or Estate Duties was abolished in 1985.

In case a person dies, his properties would pass on to his legal heirs. This event is a transfer of an account with no consideration in return. Hence, it can qualify as a gift for income tax purposes. However, the Income tax Act, 1961 excludes transfers under an inheritance or Will from the purview of gift tax.

Several times, inherited properties are a source of income – interest, rent, etc. – to the property owner. When such properties are transferred to the heir, he gets the income as well. In such cases, the new property owner is required to declare this income and pay taxes as well.

For instance, Om is the owner of a commercial property that is given for rent. He had incurred a cost of Rs. 60 lacs for building this property. He earns a monthly income of Rs. 50,000 from the property as rent. After his death, the property is transferred to his legal heir (son) Ved. Here, as the transfer is done by Will, it can’t be considered taxable. However, the rent of Rs. 50,000 will be taxable in the hands of Ved, as the income accrues to him.

After inheriting a property, you become its legal owner and you can sell it to whomever you want.  This way, the capital loss or gain too will accrue to you as the legal heir.

Moreover, the holding period (period of the deceased’s and your ownership) will determine if capital gains will fall under short-term capital gains tax or long-term capital gains tax.

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This is all on estate duties or inheritance tax.

Investing in real estate property for the future security for the next generation is a concept carried from years and is still in practice. Estate duty was introduced to minimize the gap between the rich and poor. Now you must be wondering what is estate duty in India 

Estate duty is also known as inheritance tax. This is a tax which is applicable on the property which you acquire from your ancestors. This tax is calculated only after the death of a property owner

on the total value of the property he/she owns.

• Estate duty was introduced in India in

  1953 but was abolished by the Rajiv Gandhi Government in 1985.

• For estate duty reamined as an act and again in 2015 this act became the law.

• The estate duty was abolished due to the double

  taxation for the heirs and people stopped investing in the real estate market.

• Improve the fiscal deficit 

• Reduce the gap between wealthy and low income people.

• To calculate the property so that real estate property does not become scares.

• Reduce the chances of holding illegal property by a person in the name of ancestral property.

This is all about Estate duty meaning and benefits.