Inheritance Tax

Is There an Inheritance Tax in India?

The short answer? No. India does not have an inheritance tax. But that wasn’t always the case.

Until 1985, inherited wealth was subject to the Estate Duty Act (1953), which taxed movable and immovable assets passed down after death. The highest tax rate? A staggering 85%. The objective was simple: curb wealth concentration and promote economic equality. However, the law proved inefficient, riddled with administrative hurdles and resistance from wealthy families. Ultimately, it was abolished.

Does That Mean Inherited Wealth Is Tax-Free?

Not exactly. While there's no direct inheritance tax, the income earned from inherited assets is very much taxable.

• Income Tax – If you inherit property that generates rental income or bank deposits that yield interest, that income is taxable under “Income from Other Sources.”
• Capital Gains Tax – If you decide to sell an inherited asset, you could be liable for capital gains tax. If the asset is held for over 24 months, long-term capital gains tax applies, typically at 20% with indexation benefits.

So while inheriting assets doesn’t attract tax, what you do with them afterward might.

Should India Bring Back Inheritance Tax?

This debate has two sides.

Supporters argue that inheritance tax could reduce wealth inequality by redistributing excessive wealth and funding public welfare programs. They believe that inherited money should not create generational financial dynasties and that individuals should earn their wealth rather than simply inherit it.

But the other side sees it differently. Critics highlight administrative challenges, high enforcement costs, and the risk of double taxation—where assets are taxed both during acquisition and inheritance. Moreover, wealthy families often find legal loopholes to minimise tax burdens, making enforcement difficult.

How Can You Manage Inherited Assets Effectively?

Even though India doesn’t impose an inheritance tax, managing inherited assets wisely is crucial to avoid unnecessary tax liabilities.

• Declare Your Income – If you earn rent or interest from inherited assets, report it correctly under the right tax head.
• Plan Your Capital Gains – If you’re selling an inherited property, holding it for over two years ensures you qualify for lower long-term capital gains tax rates.
• Document Transfers Properly – Legal documentation such as wills or succession certificates can prevent disputes and ensure a smooth transition of assets.

Final Thoughts

While inheritance tax in India is history, taxation on inherited assets isn't. Understanding these nuances can help you stay compliant and make informed financial decisions.