What is Inheritance Tax In India?

When you work hard to build wealth, you want to ensure that your assets smoothly pass on to your loved ones. However, in many countries, large estates can face a substantial levy known as Inheritance Tax (IHT) or Estate Tax. This is a tax on the value of a deceased person's property, money, and assets. This brings up a crucial question for families in India: What is Inheritance Tax Insurance, and is it necessary here?

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Understanding Inheritance Tax in India

The first thing to understand is the current status of the tax itself.

Is There Inheritance Tax in India?

Currently, there is no Inheritance Tax in India.

A tax similar to the Inheritance Tax, called the Estate Duty Act, was abolished in India back in 1985 due to high administrative costs and low revenue generation. Since then, successive governments have avoided reintroducing a separate tax on inheritance in India.

This means that generally, when you pass on assets like property, fixed deposits, or mutual funds to your legal heirs or nominees, the assets themselves are not immediately subject to a large tax based solely on the transfer of ownership.

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What About Estate Tax in India?

The concept of Estate Tax in India is currently non-existent. While there are ongoing discussions in policy circles about potentially reintroducing some form of wealth transfer tax in the future (perhaps structured differently than the old Estate Duty), as of today, your beneficiaries do not have to pay a wealth transfer tax on the inheritance they receive.

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What is Inheritance Tax Insurance?

Since there is no Inheritance Tax in India, the term Inheritance Tax Insurance is largely a concept borrowed from countries like the UK or the US, where this tax is a major financial planning concern.

In those countries, Inheritance Tax Insurance is essentially a whole life insurance policy bought by the wealthy person. The policy is specifically structured (often placed in a trust) so that when the person passes away, the death benefit payout goes directly to the heirs.

What is the Purpose of Inheritance Tax Insurance?

The entire goal is for the large, tax-free insurance payout to cover the huge Inheritance Tax bill that the heirs would otherwise have to pay to the government before they can access the rest of the inherited assets.

Because the insurance payout is usually tax-free (due to insurance rules), it acts as a perfect, liquid fund to deal with the illiquid tax liability.

Reasons Government May Reintroduce the Inheritance Tax

The primary driver for considering the reintroduction of an estate tax in India is social and economic necessity. Governments worldwide use wealth transfer taxes to achieve specific goals:

To Reduce Wealth Inequality: This is the biggest reason. Taxing large estates upon transfer is seen as a way to reduce the concentration of wealth in a few families. It promotes a fairer society by ensuring a portion of massive, accumulated wealth contributes back to public services.
To Generate Significant Revenue: Taxes on inheritance and large estates can be a substantial source of revenue for the government. This money could be earmarked for large-scale public spending projects, infrastructure development, or funding essential social welfare and financial education programs.
To Encourage Philanthropy (Indirectly): In countries with inheritance tax, there are usually exemptions for assets donated to charities. This incentivizes wealthy individuals to donate more during their lifetime or through their wills, helping the financial literacy nonprofit sector.
Global Alignment: Many major developed economies including the US, UK, France, and Japan have some form of tax on inheritance. Reintroducing it could align India with global tax norms for advanced economies.

Challenges If Inheritance Tax Is Reintroduced

Reintroducing inheritance tax in India could create several challenges, especially given that many Indian businesses are family-owned. Such a tax might discourage entrepreneurship and slow down economic growth, as business owners could consider changing their residency or shifting assets abroad to avoid the tax. Moreover, critics argue that imposing an inheritance tax would be unfair since the assets being passed on have already been taxed through income or wealth tax leading to double taxation.

Therefore, the idea of bringing back an estate tax in India is not straightforward. While it could help reduce wealth inequality and boost government revenue, its implementation and enforcement pose major challenges. Policymakers would need to carefully analyze the risks of double taxation, its potential impact on family businesses, and the possible outflow of capital before considering such a move. This is where term insurance becomes a critical tool for financial planning, as it provides tax-free liquidity to cover those potential estate tax liabilities, ensuring the family business or assets do not have to be sold to pay the government.

However, life insurance remains absolutely essential—especially for HNIs, NRIs, and anyone with dependents or debt.

Scenario	Why Life Insurance is Essential
Debt Coverage	If you have outstanding loans (like a home loan, personal loan, or business debt), the insurance payout pays off those debts immediately. This ensures your family inherits assets, not liabilities.
Income Replacement	This is the primary role. The payout replaces your lost income, allowing your family to maintain their lifestyle, pay for education, and meet daily expenses without touching the inherited assets.
Liquidity for Estate Expenses	While there is no IHT, your family still needs cash for immediate expenses, such as funeral costs, legal fees, or probate. The insurance provides this quick, liquid cash flow.

Wrapping Up!

In conclusion, focus your financial planning not on avoiding an Inheritance Tax that doesn't exist, but on securing your family's financial stability through adequate term or whole life insurance.

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FAQs

Q: How much inheritance is tax free in India?

Ans: There is no inheritance tax in India. Assets passed on to their legal heirs are gifts and received with no consideration.
Q: How to avoid inheritance tax in India for NRI?

Ans: There is no tax on inheritance of property, though, any income such as rental income attributable to that property shall be subjected to tax. In case of selling immovable property, it is essential to consider the capital gains tax.
Q: How to avoid gift tax on 1 crore in India?

Ans: You can’t avoid gift tax on Rs 1 crore in India. However, if this gift is received from a family, relative, or inheritance, or received in marriage, then you don’t have to pay any taxes.
Q: How to declare inheritance on a tax return?

Ans: Inheritance is not taxable in India, so you do not “declare” the inherited asset such as property or cash on your tax return as taxable income.

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˜The insurers/plans mentioned are arranged in order of highest to lowest Sum Assured(SA) offered by Policybazaar’s insurer partners offering term insurance plans on our platform, as per ‘first year premium of life insurers as at 31.03.2025 report’ published by IRDAI.

Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. For complete list of insurers in India refer to the IRDAI website www.irdai.gov.in

Rs. 400/month is starting price for a 1 crore term life insurance for an 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age, rounded off to nearest 10.

Rs. 400/month (Rs.13/day) is starting price for a 1 crore term life insurance for an 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age.

+Rs. 230 is starting price for a 50 lakhs term life insurance for an 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age, rounded off to nearest 10.

+Rs. 8/day is starting price for a 50 lakhs term life insurance for an 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age, rounded off to nearest 10.

+Rs. 12/day is starting price for a 75 lakhs term life insurance for an 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age, rounded off to nearest 10.

+Rs. 497/month is starting price for a 1.5 crore term life insurance for an 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age.

+Rs. 487/month is starting price for a 2 crore term life insurance for an 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age.

+Rs. 626/month is starting price for a 3 crore term life insurance for an 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age.

+Rs. 905/month is starting price for a 5 crore term life insurance for an 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age.

+Rs. 1,267/month is starting price for a 7 crore term life insurance for an 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age.

*The full refund of premium is available on availing the one-time option of refund of premium. Total premium paid for policy (paid for add-ons) will be the special exit value, payable on availing the one-time option of refund of premium if you wish to completely exit the policy.

+Rs. 447/month is starting price for a 1 crore term life insurance for an (NRI) 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age.

+Rs.679/month is starting price for a 2 crore term life insurance for an (NRI) 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age.

+Rs. 910/month is starting price for a 3 crore term life insurance for an (NRI) 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age.

+Rs. 1,374/month is starting price for a 5 crore term life insurance for an (NRI) 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age.

+Rs. 1,924month is starting price for a 7 crore term life insurance for an (NRI) 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age.

Women

+Rs. 400/month is Starting price for a 1 crore term life insurance for an 18 year-old Female, non-smoker, with no pre-existing diseases, cover upto 30 years of age, rounded off to nearest 10.

Rs. 461/month is the starting price for a 1 crore term life insurance for an 24 year-old female, non-smoker, with no pre-existing diseases, cover upto 54 years of age.

1,642/month is the starting price for a 1 crore term life insurance for an 44 year-old female, non-smoker, with no pre-existing diseases, cover upto 74 years of age.

Prices offered by the insurer are as per the approved insurance plans | #All savings and online discounts are provided by insurers as per IRDAI approved insurance plans | Standard Terms and Conditions Apply | **Tax Benefits are subject to changes in tax laws.| Policybazaar Insurance Brokers Private Limited

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