When, however, the bill was passed recently, the finance minister threw a bombshell - he not only sought to withdraw the donee-based gift tax, but also the donor-based gift tax. In other words, he withdrew gift tax altogether.

Tax professionals initially refused to believe it assuming that there was some misunderstanding. Further, since this was to come into effect only from October 1,1998, many felt that games were being played and, at the last moment, the lollipop will be sadistically taken away. Now that this date is just a week away, one needs to understand the implications ofthis amendment and the unbelievable tax savings (and consequent leakage in tax revenue) possible.

First, one must understand the stated purpose of this step. It was stated that gift tax had failed to generate revenue and the few crores raised were not worth the effort and the public be saved from a tax which yields minimal revenue.

This statement is highly misleading. Gift tax was never sought to be in an act to raise revenue - it was intended merely to ensure that other revenues such as income tax and wealth tax are not avoided by gifting away assets. In other words, gifts which could lead to loss of income tax were sought to be discouraged by gift tax.

As was stated in parliament at the time of introducing the gift tax in 1958, "Gift from one person to another provides a convenient means of avoiding or reducing the liability to estate duty, income tax, wealth tax and expenditure tax. The only objective method of checking such attempts at evasion or reduction of tax liability is by levying a tax ongifts."

Thus, it was not intended that even a few crores be raised as revenue by gift tax, rather the avowed purpose was to avoid loss of hundreds of crores of income and other taxes by discouraging gifts. Now that gift tax is abolished, tax practitioners will be refreshing their memories of the various tax-planning devices used before 1958 and practitioners of that era will be at a premium.

Let us know understand the implications of the abolition of gift tax. In a tax regime, where higher slabs of income show higher tax, it is very tempting to arrange tax affairs in such a way that each entity in a group is able to remain below the high tax slab. For example, in case of a father and son, as soon as the father's income crosses Rs 1,50,000, after which 30 per cent tax rate is levied, it would be tempting to show income in the hundreds. This could be done by gifting away income-yielding assets to the son.

However, the erstwhile gift tax of 30 per cent is a serious disincentive. But now, each individualand entity will freely seek to rearrange his asset and income structure by use of extensive gifts in such a way that substantial tax savings will be achieved. And the savings in tax will be at the cost of revenue which will certainly lose huge amounts of tax.

True, there are some provisions in the Income tax Act, such as section 64 which will act as a deterrent particularly for gifts to close relatives but these will not be much of a dampener and, in any case, ways and means will be found to overcome them.

In fact, gifts will also now be at a premium and there is possibility of wide spread tax evasion. At present, so called "gifts" from non-residents are common whereby known or unknown overseas parties shower gifts which, attract neither gift tax nor income tax, unless such gifts were found to be bogus. Now, such unscrupulous parties will not go off-shore, but will seek out local parties.

The year 1998-99 will thus be the record year of gifts. Parents will bestow large gifts to their major children, totheir daughters on marriage, there will be huge gifts at marriages, birthdays, Diwali and what snot. And, not by coincidence, such gifts will be received by persons who are either not paying tax or are in the lower tax slab or who otherwise need not pay tax.

Undoubtedly, the tax department and even the courts will take strict view particularly in sham cases but when the legislative teeth itself are taken away, their efforts may not have much effect.

Corporates will also be not far behind. Today, if assets, including even a running business, are transferred at under-value, gift tax has to be paid on the difference. This will no longer be the case opening up a number of opportunities. Clever shuffling and combination of loss making and profit making assets and businesses leading to minimal or no-tax will also be undertaken.

In fact, so mindboggling are some of the consequences that one once again pauses to wonder whether the amendment is well thought out or is a blunder which will not only the governmentto grief but also the assessee who will have to suffer if the amendment is reversed or amended. Till such time, cautious people might prefer to wait with their fingers crossed while the brave (or the foolhardy?) will gift with gay abandon.