Reduce inequality: The taxes on high net worth individual will reduce the inequality in income, which is currently prevalent in India.
Generation of revenue: The inheritance tax will increase the revenue source for the government to fund infrastructure and social schemes.
Will resolve the issue of regressive nature of taxes:The current high reliance on indirect tax as a mode of revenue generation is regressive because burden of taxes falls mainly on poor people. But this issue will be addressed in inheritance taxes.
Resolve the issue of black money: The inheritance tax will resolve the issue of black money where untaxed money is often invested in real estate sector.
Challenges
Loophole: Many people have found a way out of proposed tax by forming Family trusts. And in such cases inheritance tax will not apply because there is no transfer in ownership of assets, only a change in the trust shareholding. Thus it will encourage tax avoidance through creation of trusts and shell companies to hold the assets.
