Tax on Inheritance: India vs. USA

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Inheritance Tax in India

Currently, India does not levy an inheritance tax on assets received from deceased individuals. This means that beneficiaries are not required to pay taxes on the value of the assets they inherit. However, taxes may apply when selling inherited property, specifically immovable assets such as real estate.

Long-term Capital Gains Tax:

• Applicable Conditions: If the inherited immovable property is sold after three years from the date of inheritance.
• Rate: Long-term capital gains tax is applied at a rate of 20% with the benefit of indexation, which allows adjusting the purchase price with inflation to reduce taxable gains.

Inheritance Tax in the USA

In contrast, the USA imposes a federal estate tax on the transfer of assets from deceased individuals to their heirs. The estate tax applies to the total value of the deceased's estate before distribution to beneficiaries.

Key Points of USA Inheritance Tax:

• Estate Tax Exemption: As of 2023, estates valued below $12.92 million are exempt from federal estate tax.
• Tax Rate: For estates exceeding the exemption threshold, tax rates range from 18% to 40%.
• State Taxes: Some states in the USA also impose additional estate or inheritance taxes, which vary by state.

Comparison: India vs. USA

• Tax on Inheritance:India: No inheritance tax.USA: Federal estate tax with exemptions and varying state taxes.
• Capital Gains Tax on Inherited Property:India: Long-term capital gains tax of 20% if sold after three years, with indexation benefits.USA: Beneficiaries receive a "step-up in basis," which resets the property's value to its fair market value at the time of inheritance, potentially reducing capital gains tax upon sale.

Conclusion

The tax landscape for inheritance differs significantly between India and the USA. While India does not impose an inheritance tax, the USA has a structured estate tax system with exemptions. Understanding these differences is crucial for individuals with cross-border ties or those planning their estates.

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