Explained: What Is US Inheritance Tax Mentioned By Congress Leader Sam Pitroda?

The BJP has come down heavily on Chairman of Indian Overseas Congress Sam Pitroda's comments on "inheritance tax".

Prime Minister Narendra Modi has called Pitroda's remarks as the grand old party's "dangerous intentions" of snatching the assets and rights of people have come to the fore while the Congress has accused the BJP of twisting the remarks.

What Did Sam Pitroda Say?
Speaking to ANI, Pitroda highlighted about an inheritance tax in America, explaining that if someone possesses $100 million in wealth upon their passing, only around 45% can be transferred to their children, with the remaining 55% claimed by the government.

He found this law "interesting" as it signifies a societal expectation that individuals should not retain all their wealth for their descendants, but rather allocate a portion to the public-specifically, half-which he deems fair.

In contrast, Pitroda noted the absence of such a tax in India, where if someone worth 10 billion passes away, their children inherit the entire sum, leaving nothing for the public. He suggests these are crucial issues for debate and discussion.

"It says you in your generation, made wealth and you are leaving now, you must leave your wealth for the public, not all of it, half of it, which to me sounds fair. In India, you don't have that.

If somebody is worth 10 billion and he dies, his children get 10 billion and the public gets nothing...So these are the kind of issues people will have to debate and discuss. I don't know what the conclusion would be at the end of the day but when we talk about redistributing wealth, we are talking about new policies and new programs that are in the interest of the people and not in the interest of super-rich only," he told the news agency.

What are inheritance taxes?
Inheritance taxes are state-imposed levies on assets received by individuals as part of an inheritance. The regulations governing inheritance tax vary based on the beneficiary's relationship to the deceased, the value of the asset, and the state in which the deceased lived at the time of their passing.

Is there a federal inheritance tax?
No, there is no federal inheritance tax. In fact, only six states impose taxes on inheritances.

However, there is a federal estate tax, which is levied on the estate of the deceased. In 2024, the first $13,610,000 of an estate is exempt from estate tax.

Also, beneficiaries may be subject to capital gains taxes if they sell inherited assets, such as stocks, real estate, or valuables. The federal capital gains tax rate ranges from 15 per cent to 20 per cent, depending on the individual's tax bracket.

Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania are the states which impose an inheritance tax. However, Iowa is doing away with the tax in 2025.

How much taxes are imposed?
Six states currently - Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania - impose an inheritance tax although Iowa is eliminating its inheritance tax in 2025.

In each state, the tax rate and the individuals liable to pay it differ. The tax rate typically ranges from 1 per cent to 4 per cent. Exemptions are available for spouses, children, stepchildren, parents, grandparents, great-grandparents, grandchildren, and great-grandchildren. Additionally, charitable organizations are exempt up to $500. (Iowa intends to eliminate its inheritance tax by 2025.)

In Kentucky, the tax rate varies from 4 per cent to 16 per cent for assets exceeding $500 or $1,000, depending on the relationship to the deceased. Exemptions apply to spouses, parents, children, stepchildren, grandchildren, and siblings.

Whereas in New Jersey, the tax rate falls between 11 per cent and 16 per cent, determined by the asset value and the relationship with the deceased. Exemptions are granted to spouses, children, parents, grandparents, grandchildren, and charitable organizations. Siblings and sons/daughters-in-law are exempt up to $25,000.