Generation-skipping tax

Generation-skipping tax (GST) is a federal tax imposed on transfers of assets to beneficiaries who are two or more generations below the donor, such as grandchildren. This tax is levied in addition to any estate or gift tax that may apply

Example 1: Grandparent to Grandchild Transfer

Scenario:

• Grandparent transfers a trust worth ₹5 crore to a grandchild.

• Estate tax would normally apply if passed through the parent (child of grandparent).

• GST applies directly to this transfer to ensure taxation.

Outcome:

• GST is calculated on the transfer amount above the exemption limit.

• Ensures the government collects taxes that would have applied if the wealth passed through the skipped generation