What Is Estate, Gift and Inheritance Tax - Kotak Bank
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What is an Estate Tax?

An Estate Tax is levied on your right to transfer property after your death. It comprises of an account of everything that you possess at the time of death. This kind of tax is calculated based on the net value of the property owned by a deceased person on the day of death. An estate tax, most of the time, is imposed on assets left to the heirs, and does not apply to the transfer of assets to a surviving spouse or family member.

What is an Inheritance Tax?

As the name itself suggests, inheritance tax, also better known as death tax is calculated based on who receives the deceased person’s property. The tax amount is based on the current value of the property received by the heir/ beneficiary and his actual relationship with the deceased person.In certain cases, heirs are exempt from inheritance taxes or face lower rates. However, distant relatives or friends of the deceased tend to face higher inheritance tax rates.

What is a Gift Tax?

A gift tax is the kind of tax wherein one individual transfers some valuable property to another individual. Since the name denotes ‘gift’, the receiver cannot pay the giver the full value for the gift, but they can pay an amount that is lesser than the full value. In a gift tax, it is mandatory for the individual who is passing on the gift to pay the tax.

Relationship Amongst All The Three Taxes

Estate Tax & Inheritance Tax

The basic difference between an estate tax and inheritance tax lies within the name itself. Estate tax is paid by the deceased individual’s estate before the money is transferred to the heir. Inheritance tax, on the other hand, is paid by the person who inherits the deceased person’s money/ assets. Since an estate tax is calculated on the estate, it doesn’t matter who the beneficiaries of the estate are, whereas for inheritance tax, the relationship between the person who died and the beneficiaries is of great importance.

Estate Tax & Gift Tax

An estate tax is imposed on an individual’s assets/ estate after death, whereas a gift tax is paid while the taxpayer is alive. Gift taxes are such that they prevent an individual from transferring all of their estate to the heirs during their lifetime so as to avoid paying estate tax. Estate and gift taxes are used to tax large transfers of wealth between individuals.

Gift Tax & Inheritance Tax

A gift tax was established to prevent individuals from transferring all their money/assets in order to avoid paying estate or inheritance tax.Inheritance tax is a tax that is paid by an individual who inherits the property of the deceased person. When it comes to a gift tax, the giver is responsible for reporting it, but only if the gift's value exceeds a certain amount. But for inheritance taxes, the receiver is responsible for reporting the inheritance.


Estate Tax

  • Even though the revenue that an estate tax generates in relatively lower from the total tax, it is still a substantial amount.
  • An estate tax will help in the dispersion of wealth instead of wealth being concentrated in the hands of a few, as it may prove to be dangerous.
  • Most individuals who are focused on putting maximum wealth into the hands of their heirs will certainly try and save more, if an estate tax is levied.
  • Believe it or not, but in many cases, it happens that wealthy people donate to charities as a method to reduce the taxes.
  • Individuals against estate tax exaggerate the costs of administering it and the costs incurred by taxpayers for estate planning, when compared to the amount of revenue from the tax. These costs have in the past usually been less than 10% of the revenue from the tax.

Inheritance Tax

  • By removing the increase of wealth from estates, while still protecting money in many ways, this kind of tax decreases the level of income inequality.
  • Similar to estate taxes, many wealthy individuals donate to charitable causes as a mean to reduce overall net worth. Such a technique reduces tax liabilities after death, but for a larger picture, it funds the social causes.
  • Even after the taxes levied, the estate still holds a great value when it is passed on to the rightful heir, for them to benefit.
  • In order to avoid any burden on the heir of an estate, there are special rules applicable for certain

Gift Tax

  • Gift taxes provide benefit to individuals in the form of tax savings. There is a vast potential for an estate and an heir to enjoy tax savings.
  • Some places still don’t have any gift taxes imposed, which means that individuals don’t have a limit on how much gift tax can be levied per year.
  • If a gift tax is given while the donor is alive, they can have a look at how the donor enjoys the gift or how they make the best use of it.

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This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empanelled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.