The Hindu Business Line : Gifts and income tax

The Budget proposal to tax receipts of moveable and immoveable property is in step with the Government intent to expand constantly the notion of what constitutes income.

The Budget proposal to tax receipts of moveable and immoveable property in the garb of a gift is in step with the constantly expanding notion of what constitutes income. Thus, along with profits accruing from a business and salary earned in a job, the law has gone on to bring within the ambit of taxation receipts that are manifestly of a casual or a one-time nature. Thus winnings from horse racing or lotteries are taxed. Indeed, even surpluses from what may be regarded as purely one-off ventures are brought to tax as business profits because they possess the character of what the law regards as an ‘adventure that is in the nature of trade’. There is no reason, therefore, to exclude transactions that are essentially in the nature of gifts from the purview of taxation as they are clearly in the nature of windfall for the recipients. The exception clause provided under law should address public concerns that the stipulations of this nature may limit the monies available for genuine research.

The Budget proposal might have been prompted by instances of tax payers passing off incomes as gifts to avoid tax. Much as tax payers are exhorted to eschew tax avoidance devices on the ground that the benefits that they confer are not enduring, the lure of saving on taxes seems irresistible. The result is a constant battle of wits between the tax payer and the revenue authorities in which the former exploits every available loophole under law while the latter scrambles to plug them through legislative amendments.

The Government compounds its problem by viewing tax laws as a substitute for meaningful action in the realm of public administration. For instance, it is well recognised that the Government has the primary responsibility to create proper physical and social infrastructure in which industrial investments can be expected to thrive. It sees in its failure a case for incorporating into the tax code a multitude of incentives and concessions for private capital to step in and fill the breach caused by public inaction across a wide range of activities. This naturally also calls for building in safeguards into the tax structure so that concessions are not claimed by those who have not done enough to earn them. The net result is a tax code that is not only a cornucopia of incentives and concessions for all manner of things for private capital to engage in but is also one that is riddled with loopholes for some unscrupulous tax payer to exploit. The gift loophole that is now sought to be plugged is neither the first nor indeed would it be the last.

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