The Union Budget 2009-2010 presented by the FM Pranab Mukherjee proposes to bring a wide array of gifts in the tax net.

Existing law

Currently, under section 56(2)(vi) of the Income-tax Act, 1961 ("Act"), any 'sum of money' in excess of the prescribed limit of Rs 50,000 received without consideration by an individual or Hindu undivided family ("HUF") is chargeable to income-tax in the hands of the recipient under the head 'Income from other sources'. However, receipts from relatives or on the occasion of marriage or under a will and gifts received in kind having 'money's worth' is outside the purview of the existing provisions.

However, the genuineness of gift transactions (in cash and in kind) can be questioned and challenged by the Income-tax authorities by looking at the following three areas:

1) Capacity of the donor - own assets, wealth and/or income to give the gift;

2) Genuineness of the transaction - The intention behind giving the gift (purpose) whether by a relative out of natural love and affection or otherwise by unrelated persons for tax avoidance;

3) Identity of the donor - Existence, address, permanent account number ("PAN") and whereabouts of the donor should be traceable.

If the above key areas are not proved to the satisfaction of the Income-tax authorities and the transaction is found to be a sham, bogus or questionable, then it may be considered as income from undisclosed sources in the hands of the recipient and subject to income tax.

A wider tax net for gifts

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