Indian Overseas Congress chairman Sam Pitroda has managed to stir up a political controversy by alluding to the inheritance tax in the United States as an "interesting law". This prompted the grand old party to defend its stance.
The BJP seized upon Pitroda's comments regarding the notion of inheritance tax in the US to bolster its critique of the Congress's alleged approach to wealth redistribution. Prime Minister Narendra Modi also alleged that the Congress aims to confiscate property passed down to children, characterising the party's philosophy as one of "looting," both during one's lifetime and after death.
Explaining the tax, Pitroda had said, "It says you, in your generation made wealth, and you are leaving now, you must leave your wealth for public, not all of it, half of it, which to me sounds fair."
What is inheritance tax?
The concept of using inheritance tax to mitigate income inequality through wealth redistribution is not novel. India formerly implemented an inheritance tax, referred to as estate duty, which was initiated in 1953 and subsequently abolished in 1985 during Rajiv Gandhi's tenure as part of government policy.
Inheritance tax is basically a levy imposed by the government on the estate (assets and property) of a deceased person before the assets are distributed to their heirs or beneficiaries. The tax is typically based on the total value of the estate and may vary depending on factors such as the size of the estate, the relationship between the deceased and the beneficiaries, and any exemptions or deductions provided by law.
It is important to note that various states in the US impose two distinct types of taxes: estate tax and inheritance tax. Estate tax applies to the total value of the deceased individual's estate, whereas inheritance tax is levied on the recipients who inherit assets or property from the estate.
Twelve states impose estate taxes, while six states—namely Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania—administer inheritance taxes.
Other countries which levy this tax, include, United Kingdom, France, Germany, Canada, Australia, Japan, Spain, Italy and South Korea.
Inheritance tax is only levied on the part of an inheritance that surpasses a set exemption limit, which is typically often starting at $1 million. Tax rates for amounts exceeding this threshold vary on a scale ranging from 1% to as high as 18%. Typically, individuals closely related to the deceased receive a higher exemption, resulting in lower tax payments.
The estate duty, which is no longer in effect in India, served as an inheritance tax with a starting threshold of Rs 1 lakh. It employed progressive rates, ranging from 5% to 40%, applied to the estate's principal value exceeding Rs 20 lakh.
According to a report from the Economic Times, India's inheritance tax was abolished in 1985 due to its failure to effectively reduce economic inequality or make substantial contributions. During the fiscal year 1984-1985, although the Estate Duty Act collected ₹20 crore in total taxes, the cost of collection was very high because the complex calculation structure which led to extensive litigation.
How have Congress and Pitroda reacted?
One day following the criticism directed at Pitroda, regarding his remarks concerning the US inheritance tax, he clarified his stance. The former adviser to Rajiv Gandhi stated that his comments had been misrepresented and were unrelated to the Congress party or their manifesto for the upcoming Lok Sabha elections.
Clarifying the statement, Pitroda said, “Who said 55% will be taken away? Who said something like this should be done in India? Why is BJP and media in panic?”
He further posted on X, "I mentioned the US inheritance tax solely as an example during a normal conversation on TV. Am I not allowed to reference facts?"
The Congress, while reacting to the controversy, said that “sensationalising his comments now and tearing them out of context are deliberate and desperate attempts at diverting attention away from Mr. Narenda Modi’s malicious and mischievous election campaign”.
In light of the matter, senior leader Jairam Ramesh said, “Mr Pitroda expresses his opinions freely on issues he feels strongly about. Surely, in a democracy an individual is at liberty to discuss, express, and debate his personal views. This does not mean that Mr. Pitroda’s views always reflect the position of the Indian National Congress. Many times they do not.”
In response to the BJP's "manufactured controversy," the Congress clarified on Monday that its manifesto does not mention the redistribution of wealth or inheritance tax, countering the claims made by Prime Minister Modi.
Former Union Minister Chidambaram also mentioned that the Congress' electoral manifesto has deeply impacted the public, particularly the poor and the middle class, unsettling the saffron party.
As per his viewpoint, regrettably for the BJP, the promise of 'Modi ki Guarantee' has completely disappeared, and as a result, the BJP has reverted to its previous tactics of distortion, spreading falsehoods, and resorting to abusive language.