Receiving gift produces happines but Budget 2009 does not promise so!

By TIOL News Service

NEW DELHI, JULY 07, 2009: RECEIVING a gift yields happiness. There is hardly a soul on this planet which can claim that gifts do not lend elements of pleasure and happiness. The concept of gift is also the epicentre of modern marketing stratagems. The entire pharma, FMCG, automobile sectors of the economy pin their high hopes for sharp increase on sales only on giving away some sort of gifts. However, for the exchequer, taxing a gift always proved elusive and a tough nut to crack, particularly after the Gift Tax was abolished by former FM, Mr Yashwant Sinha in 1998. Mr Sinha perhaps wanted to put in place a new donee-based Gift Tax Act. However, it did not materialise.

In 2004, in UPA-I’s first budget, monetary gifts received from non-relatives were deemed to be the income of the recipient if the total value of such gifts exceeded Rs 25,000 in a year. There was a howl of protest at that time. To begin with gifts in kind were kept out of the purview of such deemed income.

In 2006, the limit was increased to Rs 50,000 but the provision was made applicable to gifts received in the aggregate during a year.

It is in fitness of things that in UPA-II’s first budget, the route of receiving gifts in kind has also been plugged. From now on, the value of any property received without consideration or without inadequate consideration will also be included in the total income of the recipient as income from other sources. The provision has been further extended to gifts received by a HUF also.

The troubling aspect of the proposed legislation is however a creeping introduction of the concept of deemed gifts which were such a troubling feature of the erstwhile Gift-tax Act.

It would be equally interesting to recall the high-decibel drama involving Bahenji from Delhi's neighbouring State. Taxpayers may find a tax-compliant person in Bahenji as she has turned out to be one of top taxpayers in the recent years. But if one goes to some of the decisions of the Tribunal which raised thick clouds of political dust over the fact that Bahenji received huge number of gifts from her followers and the case now finally rests with Delhi HC.

Taking a cue from the magntitude of possible misuse of the gift route, the policy makers this time have acted wiser and included even a gift in kind under the I-T Act. In other words, even if one receives a car as gift or a house as gift or the same is 'gifted' at a concessional price, the fair market price of the same may come under the scanner of demming provisions and the price foregone may be added to the income receipts of the taxpayers.