Hotmail’s Sabeer Bhatia wants 55% inheritance tax in India: What happens to your savings and wealth?
Published by India Today
Abhishek Kumar's role: Quoted
Abhishek Kumar said a high exemption threshold linked to inflation would be needed to protect middle-class families, and cautioned that a steep rate could force heirs to sell business assets and discourage long-term saving.
What Abhishek Kumar said
What could an inheritance tax achieve in India?
On paper, an inheritance tax could help curb extreme concentration of wealth and keep big inherited family fortunes from deepening the gap between rich and poor. It could also give the government extra revenue for infrastructure, healthcare, education and welfare. It targets the gaps between generations that income tax and capital gains tax do not catch. Even so, I think pairing a moderate inheritance levy with tighter enforcement of the capital gains and compliance rules we already have would be more balanced than leaning heavily on one tax.
How could middle-class families and their homes be protected under such a tax?
Protecting the middle class would need a high starting exemption, so that families with modest estates, ordinary savings and a primary home are not taxed at all. I would link these limits to inflation and property prices, so families passing on a single house are not forced into distressed sales to pay the tax. I would also add generous tax-free allowances, specific relief for primary homes, and deferred payment or instalment options so heirs need not sell an inherited asset immediately.
What would a steep inheritance tax mean for family businesses?
A steep rate could severely disrupt small and medium-sized businesses. Such a business may be valuable on paper but may not have the cash to pay a large tax bill, so the heirs could have to sell off or wind down the assets at the heart of the business only to pay the liability. That is a real cost for families who run their own enterprises, and it is one reason why the design of any such tax matters so much.
Could a high inheritance tax backfire?
Yes, it could. While it may make things fairer by cutting the head start that inherited wealth gives, it could also discourage long-term saving and entrepreneurial drive. Ultra-wealthy families would likely restructure their wealth using trusts, charitable foundations and company holding structures to avoid personal estate transfers. Some could also shift their money, or even their residence, abroad to places that tax them more lightly.
In our words, from what he said in the piece. General information, not personal advice.
More of Abhishek's views on money management
Following Hotmail co-founder Sabeer Bhatia's suggestion of a 55% inheritance tax in India, the article examines what such a tax could mean for families. It looks at exemption thresholds, the family home, family businesses, succession planning by wealthy families, and how an inheritance tax would differ from existing income and capital gains taxes.
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Hotmail’s Sabeer Bhatia wants 55% inheritance tax in India: What happens to your savings and wealth?