As Sam Pitroda’s remark sparks row, what is the US Inheritance Tax?
The US federal government does not impose an Inheritance Tax. The tax is imposed only by six American states on the recipients of inherited assets
Sam Pitroda, chairperson of the Indian Overseas Congress, has sparked a political debate by calling the Inheritance Tax in the US an “interesting law”.
While the Congress has distanced itself from Pitroda’s comment, the BJP has got additional fodder to target the Opposition party even as controversy rages around Prime Minister Narendra Modi’s claim that the Congress, if it comes to power, will take people’s wealth and redistribute it among certain sections of society.
So, what did Pitroda say and what is the Inheritance Tax in the US?
Pitroda’s remark
Pitroda, in an interview to news agency ANI, mentioned that the Inheritance Tax, as it exists in the US, is an “interesting concept”.
“If one has $100 million worth of wealth, and when he dies, he can only transfer probably 45 per cent to his children; 55 per cent is grabbed by the government,” ANI quoted Pitroda as saying.
Pitroda characterized this law as a way of saying, “You, in your generation, made wealth, and now that you’re leaving, you must leave part of it for the public.”
He emphasized that such a policy sounds “fair” to him.
So, what is the Inheritance Tax in the US?
First of all, the US federal government does not impose an Inheritance Tax. The tax is imposed only by six American states on the recipients of inherited assets.
Unlike an Estate Tax, which is assessed on the estate itself before distribution, an Inheritance Tax is paid by the beneficiary of a bequest rather than the estate of the deceased.
Which American states impose Inheritance Tax?
Only six American states currently impose an Inheritance Tax. These are Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.
How much does a beneficiary pay in Inheritance Tax?
The taxation varies from state to state, and also depends on the value of the inheritance and the beneficiary’s relationship to the deceased. The tax rates typically begin in the single digits and rise to between 15 and 18 per cent.
Exemption
It must be noted that Inheritance Tax applies only to the portion of an inheritance that exceeds an exemption amount. Each beneficiary receives an exemption amount, which is a portion of the inheritance that is not subject to tax.
The exemption, too, varies by state and depends on factors such as the beneficiary’s relationship to the deceased and the value of the inheritance.
If a beneficiary’s inheritance is below the exemption threshold, s/he does not owe the state any Inheritance Tax.
In all six states, surviving spouses are exempt from Inheritance Tax. Children and other close relatives also receive favourable treatment in this respect.
