99.9% would pay no inheritance tax if bar set at Rs 10 crore: Study

World Inequality Lab says tax gains could raise health, education expenditure

By imposing wealth and inheritance tax on the ultra-rich, India can boost its tax revenues while impacting less than one per cent of the population, a new study has suggested.

Inheritance tax was at the centre of a raging debate recently when Sam Pitroda suggested a discussion around it while citing the US example.

A baseline variant -- levying a wealth tax of 2 per cent and inheritance tax of 33 per cent on those with a net wealth and estates exceeding Rs 10 crores, respectively -- would generate 2.7 per cent of gross domestic product (GDP) as tax revenues, according to a new study titled ‘Towards tax justice and wealth redistribution in India: Proposals based on latest inequality estimates’ by the World Inequality Lab published on Friday.

A wealth tax is imposed on existing personal assets, while inheritance tax is applicable on inherited assets.

The analysis by authors Nitin Kumar Bharti of New York University, Lucas Chancel of Harvard Kennedy School, Thomas Piketty and Anmol Somanchi of the Paris School of Economics based on 2022-23 figures highlights that 0.04 per cent of the population or 370,000 adults would be subjected to this tax, leaving 99.96 per cent unaffected (chart 1).

In the moderate variant, wealth tax increases to 4 per cent and inheritance tax rate to 45 per cent to those with wealth or estates exceeding Rs 100 crores.

In the ambitious variant, the wealth tax rate is 3 per cent to 5 per cent and 45 per cent to 55 per cent for inheritance.

Under the moderate and ambitious variant, tax revenues would amount to 4.6 per cent and 6.1 per cent of the GDP, respectively (chart 2).

Additional revenues can help in increasing spending on social sectors.

Under the baseline variant, the revenues from wealth and inheritance tax account for 130 per cent of expenditure on health. It would be equivalent to 94 per cent of existing education expenditure by the centre and states for 2022-23. Numbers would be higher under the moderate and ambitious versions of the tax plan (chart 3).   

Over the years, the income inequality gap has widened with the top 1 per cent earning 22.6 per cent of national income compared to 15 per cent by the bottom 50 per cent in 2022.

The wealth is also largely concentrated with the top 1 per cent accounting for nearly 40 per cent of the national wealth compared to 6.4 per cent by the bottom 50 per cent in 2023, according to a previous report by the World Inequality Lab. 

Many peers, such as Brazil, South Africa, the United States, and the United Kingdom have an inheritance or estate tax. Other economies like France, Spain and Pakistan have a wealth tax, according to the data from PwC.

India had an inheritance or estate tax earlier, which was repealed in 1985 due to insufficient tax collections relative to the high cost of administration.