Unified Credit

How the Unified Credit Works

As of 2025, the unified credit is ₹1,129 crore per individual, assuming a $13.61 million exemption at ₹83/USD. It applies to total lifetime gifts and inheritances that exceed the annual gift tax exclusion, which is ₹14.94 lakh per recipient (equivalent to $18,000 per person in 2025). For example, if someone gifts ₹8.3 crore ($1 million) during their lifetime, the exemption available at death is reduced by the same amount.

Why the Unified Credit Matters

One of the biggest benefits of the unified credit is tax savings. It shields wealth from the 40% U.S. estate and gift tax on amounts exceeding the exemption limit. The credit also provides flexibility, allowing individuals to use it during their lifetime for strategic gifting, such as funding irrevocable trusts, or preserve it for their heirs. Additionally, the portability feature allows surviving spouses to inherit any unused credit, effectively doubling the exemption for couples. In 2025, this would mean ₹2,258 crore ($27.22 million) of combined tax-free transfers for married couples.

Limitations of the Unified Credit

The current exemption is set to expire under the sunset clause in 2026, dropping to approximately ₹581 crore ($7 million) unless new legislation extends it. Any lifetime gifts exceeding the annual exclusion amount permanently reduce the available exemption at death. Additionally, managing large transfers requires careful tax planning, as mismanagement of overlapping trusts, generation-skipping transfer taxes, or state-level estate taxes can lead to penalties and increased liabilities.

Practical Tips for Managing the Unified Credit

To maximize tax efficiency, individuals should use the ₹14.94 lakh annual exclusion per recipient. This allows for tax-free wealth transfers without lowering the lifetime exemption. Irrevocable trusts, like Spousal Lifetime Access Trusts (SLATs) or dynasty trusts, can protect assets from future estate taxes. As the 2026 exemption reduction nears, making large gifts or funding Grantor Retained Annuity Trusts (GRATs) before the sunset date can secure the higher exemption. Also, coordinating with state-specific tax laws is vital, as some U.S. states have their own estate taxes in addition to federal ones.

Final Thoughts

The unified credit is a strong estate planning tool. It allows individuals to transfer wealth tax-efficiently while ensuring financial stability for future generations. With changes coming in 2026, proactive planning is crucial to maximize exemptions and avoid extra tax burdens. Consulting an estate planning professional can help structure wealth transfers and ensure compliance with tax laws.