The Hindu : Business : Taxation of gifts from non-relatives

Online edition of India's National Newspaper
Monday, May 09, 2005

Business

Business

Taxation of gifts from non-relatives

IN THE Hindu dated April 18, 2005 in Tax Forum under the title "Gift from non-relatives taxable" has brought to light the possibility of even such gifts for relieving serious illness of a non-relative may be taxable under the present law in the hands of the afflicted person. It is a serious matter for consideration of the Government. Help extended by good Samaritans and charitable institutions should not reduce the benefit to the sick and deserving beneficiaries. Probably, in such cases appeal may be made by the hospital in general terms without mentioning the name of the employee and receipt given by it so as to avoid possible liability. But, should not the Revenue itself make an exception in this law by bringing suitable amendment? I shudder at the possibility of taxation in case of individual assistance to Tsunami victims, if the inference which you have drawn in the above answer, is applied. There is urgency for making an exception for gifts in such circumstances. This matter needs urgent consideration of the Finance Minister now that the Finance Bill, 2005 is before the Parliament.

The above is the gist of a letter from K. S. V. S. Manian, F.C.A., of New Delhi, and many other readers. Such unintended results arise because of hasty legislations without considering all the implications of such a law intended to tackle some bogus gifts from non-relatives, which are best dealt with by investigation. There are bogus gifts from relatives as there could be genuine gifts from non-relatives. A presumption in respect of such gifts from non-relatives by placing the burden of proof of genuineness on donees should be sufficient for tackling bogus gifts. But then, that is the present position of law as well.

In fact, this provision is not likely to be effective in tackling bogus gifts which is its intention. A bogus gift can always be routed through a relative. Again reference to "any sum of money" is being understood that it does not have any application to gifts in kind like shares or bonds. Nothing is easier than converting cash into such bonds. Exception for gifts from relatives, with the definition of relatives being a wide one, not only offers a loophole, but is likely to mislead the assessing officers to accept bogus gifts merely because they are from relatives. This provision, therefore, needs review for more than one reason. It is one of the many provisions in our law meant to tackle tax evasion because of the misguided view that evasion can be tackled by law instead of investigation. Such provisions besides affecting many honest taxpayer often provide additional avenues for tax evasion.

Now that gift from non-relatives is taxable, will the gift received under a Will from a non-relative be taxable?

The very definition of gift is between two living persons. Hence any amount received under a Will cannot be treated as a gift within the purview of Sec. 56(2)(v), which makes gift from non-relatives taxable.

S. RAJARATNAM

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