What Is Inheritance Tax

Inheritance Tax

What Is Inheritance Tax

An inheritance tax is levied on the assets received by heirs after someone’s death, calculated based on the net value of the deceased’s estate (assets minus debts).

Inheritance Tax

An inheritance tax is levied on the assets received by heirs after someone’s death, calculated based on the net value of the deceased’s estate (assets minus debts). Inheritance refers to the collection of assets and entitlements passed on to heirs upon a person’s death. When a tax is imposed on this transfer of assets and paid to the government, it is known as an inheritance tax. This tax applies when assets and/or rights are transferred from one individual to another, specifically upon the death of the transferor, known legally as “mortis causa,” or without charge.

The Inheritance and Gift Tax, as outlined in tax legislation, operates under several principles:

1. Progressive: The tax rate increases with the greater amount inherited.
2. Personal: The recipient of the inheritance is responsible for paying the tax.
3. Direct: The tax is levied on the taxpayer’s assets rather than their consumption.

The inheritance tax rate varies by country, with some nations imposing a maximum rate of up to 55%. This tax typically applies to legal heirs such as children, siblings, and spouses.

In India, inheritance tax is also referred to as estate tax or succession duty. However, there is no specific national-level inheritance tax in India. Inheritance tax is more commonly associated with foreign countries like the USA.

Inheritance Tax

Calculation of Inheritance Tax

Inheritance tax is determined by assessing the value of assets after deducting any applicable exemptions or deductions. Its primary aim is to generate revenue for the government while also supporting wealth redistribution.

What is the Inheritance Tax Rate in India?

India eliminated the inheritance Tax in 1985.

India did have an inheritance tax once in 1953, but later it was abolished in 1985 by Rajiv Gandhi.

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Recently, Sam Pitroda, Chief of the Indian Overseas Congress, emphasized the significance of wealth redistribution policies, illustrating his point with a reference to the inheritance tax system in the United States.

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Understanding Form 10F: Purpose, Scope, and Mandatory Conditions

Form 10F

Understanding Form 10F: Purpose, Scope, and Mandatory Conditions

Form 10F is a self-declaration tax form for non-resident (NR) taxpayers to claim DTAA benefits when their Tax Residency Certificate (TRC) is incomplete.

Form 10F

Earn income from India while living abroad? You might qualify for lower tax rates through a Double Taxation Avoidance Agreement (DTAA). Non-residents can benefit from DTAA, where income is taxed only once. India has these treaties with many countries, helping dual citizens avoid double taxation. But to claim these benefits, you need Form 10F.

Form 10F

Form 10F is a self-declaration tax form used by non-resident (NR) taxpayers to claim benefits under DTAA (Double Taxation Avoidance Agreement) when their Tax Residency Certificate (TRC) lacks essential details required for this purpose.

  • NR taxpayers: Individuals or entities whose main income source is not from India.
  • Double Taxation Avoidance Agreement (DTAA): Agreements between India and other countries to prevent double taxation on income earned in both jurisdictions.
  • Tax Residency Certificate (TRC): A document issued by the NR taxpayer’s home country confirming their tax residency status, which is essential for claiming DTAA benefits.

Purpose of Form 10F

If the Tax Residency Certificate (TRC) lacks necessary information required by the Double Taxation Avoidance Agreement (DTAA), non-resident (NR) taxpayers must provide additional details using Form 10F.

Form 10F

To benefit from a tax treaty, NR taxpayers are required to submit both the TRC and Form 10F (if specific details are missing from the TRC) under Section 90(5) of the Income Tax Act. The TRC should include essential information such as the taxpayer’s name, foreign address, Tax Identification Number (TIN), and taxpayer status. If the TRC lacks these details, the taxpayer must electronically file Form 10F.

The requirement of Form 10F also enables Non-Resident Indians (NRIs) to claim tax exemptions and deductions on their income earned in India.

Requirements for Form 10F

To benefit from DTAA advantages, individuals must submit a self-declaration using Form 10F along with their Tax Residency Certificate (TRC) from their country of residence. Form 10F is mandatory for non-resident Indians (NRIs) who lack complete TRC details.

Submitting Form 10F enables NRIs to avoid Tax Deducted at Source (TDS) on their income earned in India, which is particularly beneficial since all their Indian income is subject to TDS. Furthermore, without a PAN (Permanent Account Number), TDS is deducted at a higher rate.

Previously, NRIs without a PAN had to file Form 10F online. This necessitated PAN registration for all taxpayers, as access to the income tax filing portal was unavailable without a PAN. However, for the fiscal year 2023, the Central Board of Direct Taxes (CBDT) granted one-time relief to taxpayers without a PAN. They were permitted to file the form manually by March 31, 2023.

Documents Needed for Submitting Form 10F

Below is a comprehensive list of documents required for filing Form 10F:

  • Permanent Account Number (PAN) card
  • Proof of residential address in your country of residence
  • Period of residential status as mentioned in the Tax Residency Certificate (TRC)
  • Taxpayer status (e.g., individual, company, firm, trust, etc.)
  • Proof of nationality (for individuals) or territory of incorporation/registration (for companies and firms)
  • Tax Identification Number (TIN) or any other unique tax identification number in your country of residence
  • Digital signature certificate to validate the information provided in Form 10F

Consequences of Non-Compliance

  • Failure to file Form 10F may result in the withdrawal of DTAA benefits.
  • Non-compliance leads to higher TDS rates.
  • Non-filing may categorise non-residents as ‘assessee in default’, complicating remittances.

Benefits of Filing Form 10F

  • Lower Tax Deduction at Source (TDS): Avoid higher tax rates on income like dividends, interest, and royalties.
  • Compliance with Indian Tax Regulations: Fulfills legal requirements to claim DTAA benefits.
  • Faster Processing of Tax Returns: Ensures accurate tax assessment and avoids delays.

How to File Form 10F Online?

Step 1: Log in to the official e-filing portal with with your PAN or the user ID. Register if you do not have an account. 

Step 2: On the dashboard, navigate to the ‘e-File’ menu and select ‘Income Tax Forms’. 

Step 3: Click on ‘File Income Tax Forms’.

Step 4: On the next page, select the 3rd tab ‘Person not dependent on any source of income’. 

Step 5: You will find the option to file Form 10F in the last column on this page. Click on ‘File Now’.

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Step 6: Enter your PAN and select the assessment year from a dropdown menu. Click on ‘Continue’.

Step 7: Go through the given instructions and click on ‘Lets get started’.

Step 8: Enter the required details, including your name, father’s name, Section 90/90A, country of registration/residence, TIN, etc.

Step 9: Next, select the period for which you obtained the TRC and your address outside India.

Step 10: After filing the other details, you need to attach a copy of your tax residency certificate. 

Step 11: Signing of the form can be done via digital signature or electronic verification code.

Step 12: Click on ‘Preview’ to review the details and submit the form. 

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5 Heads Of Income Tax

5 Heads Of Income Tax

As per the Income Tax Act, individuals’ incomes are categorized into five heads for tax purposes. Properly classifying your earnings under these heads at the end of each financial year is crucial for accurate tax assessment. Understanding which earnings belong to each category is important for effective tax planning. Read on to gain a comprehensive understanding of these income heads.

5 Heads of Income

Income from Salary

Income earned from services provided under an employment contract is subject to taxation under this category. This encompasses salary, advance salary, benefits, gratuity, commissions, annual bonuses, and pension received.

The Income from Salary is governed by the following sections:

  • Section 15 addresses the tax treatment of income from Salary.
  • Section 16 outlines the deductions available for salary.
  • Section 17 details the components of Salary, including monetary compensation, perquisites, and other elements.

Under this tax category, certain exemptions are also applicable:

House Rent Allowance (HRA): Salaried individuals residing in rented accommodations can claim House Rent Allowance for partial or complete tax relief.

Transport Allowance: Employees who are blind, deaf and dumb, or orthopedically handicapped can claim an allowance of Rs 1,600 per month for tax benefits.

Income from House Property

Income earned from an individual’s house property or any land connected to such property is categorized under the head of income from house property for taxation purposes. Simply put, this head covers the taxation of rental income derived from owned properties.

Income from House Property is broadly classified into three categories:

  • Self-Occupied Property
  • Let-Out Property
  • Deemed Let-Out Property

If an individual owns more than two self-occupied houses, only two are treated as self-occupied, and any additional properties are considered deemed let-out for taxation purposes. This taxation applies to income generated from both commercial and residential properties.

Income from Profits and Gains from Business or Profession

Income derived from any business or profession is subject to taxation under this category. You can deduct your business expenses from your total income to determine the taxable amount.

The types of income chargeable under this head include:

  • Profits from the sale of licenses
  • Gains during an assessment year
  • Profits earned by organizations
  • Cash received from government export schemes
  • Business benefits received
  • Profits, bonuses, or salaries from partnerships with firms

Individuals or Hindu Undivided Families (HUF) earning income from business or profession must file either ITR-3 or ITR-4 for income tax returns.

Income from Capital Gains

Income derived from the sale or transfer of an asset held for investment purposes is taxed under the head of income from capital gains. Various assets such as gold, bonds, mutual funds, real estate, and stocks are considered capital assets.

Capital gains are further categorized into:

  • Short-term capital gains
  • Long-term capital gains

The table below outlines the holding period and corresponding tax rates for different asset classes:

tax

The table below outlines the holding period and corresponding tax rates for different asset classes:

Nature of Asset

Holding Period

Short-term tax rate

Long-term tax rate

Immovable Property

24 months

Slab Rates

20% after Indexation

Unlisted equity shares

24 months

Slab Rates

20% after Indexation

Listed Equity shares or Equity oriented mutual funds

12 months

15%

10%

Other Capital assets

36 months

Slabs rate

20% after indexation

Non-Equity Mutual funds (Debts funds) – Purchased after 1st April 2023

Not Applicable

Slab rates

Slab rates

Details of capital gains must be disclosed in Schedule CG of your Income Tax Return (ITR) form. If you are an individual, you will need to use either ITR-2 or ITR-3 to report this information.

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Income from Other Sources

Within the five heads of income tax, this category encompasses any additional income not covered by the preceding four heads. Such income is defined under Section 56(2) of the Income-tax Act and includes earnings from dividends, interest, rental income from plant and machinery, lottery winnings, bank deposits, gambling proceeds, card game winnings, sports prizes, and similar sources.

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