Inheritance tax is illegal, immoral and a case of double taxation. The government must manage its finances better rather than create more compliance issues for the citizens and loot them. Revenues can be increased in many other ways. For instance, by introduction of flat tax and phasing out all other taxes. When tax has been paid on a certain income and an asset has been acquired from tax paid money, the government has no right to snatch away that money.
Inheritance tax was eventually abolished in 1985, due to the following reasons - It was deemed by many, to be too complex, owing to a slew of different valuation rules for different kinds of property. This in turn, led to several tax demands being subject to lengthy litigation. The collections from estate duty (around Rs 20 crore) were not commensurate with the high overt and covert cost of collections.
....More at Pitfalls of inheritance tax: Double taxation
Q: In your opinion, should India levy and collect an inheritance tax? A: No. With the Indian economy in a process of creating wealth, a bulk of which is in the form of real estate or shares in listed companies, the levy of an estate duty cause a liquidation of those assets and arrest economic development. The time is not right to plan for the introduction of an inheritance tax or an estate duty.
From the late 1950s to the early 1980s, estate duty was a part of the overall integrated direct tax system which comprised income tax, wealth tax and gift tax, besides estate duty. The whole objective was to ensure that the social objective of redistribution of income and wealth was achieved through these taxes, so that while income and wealth of a person was taxed, transfer of assets resulting in transfer of income or wealth by gift or legacies was also taxed to prevent such transfers to reduce the tax liability.
Lets not forget that estate duty flopped in India. Introduced in 1953, the law was complex and riddled with exemptions. It was scrapped in 1985. Curiously, the UPA government has offered reasons on why the tax was abolished. One, estate duty yielded small change despite a progressive rate schedule. The percentage of estate duty to gross tax collections slumped from 0.22 % in 1972-73 to 0.13% in 1981-82. Two, the levy entailed both high administrative costs for the exchequer and compliance costs for taxpayers. Three, wealth tax and estate duty were levied on the same property -- one was imposed before the person's death and the other after her death. Naturally, taxpayers were unhappy with the huge burden.