The Gift-tax Act, 1958
π The Gift-tax Act, 1958
π· Overview
The Gift-tax Act, 1958 was enacted by the Parliament of India to levy a tax on gifts of movable and immovable property made by individuals or other entities. The objective was to prevent tax evasion through gifts and to bring such transfers into the taxation net.
This Act applied to the whole of India and governed all taxable gifts made by persons during a financial year.
βοΈ Background and Status
Enacted: 1st April 1958
Administered by: Income Tax Department
Repealed: The Gift-tax Act was abolished in 1998 with effect from 1st October 1998.
However, gifts are now taxed under Section 56(2) of the Income-tax Act, 1961.
πΉ Objectives of the Gift-tax Act, 1958
To prevent avoidance of tax liability through the device of gifting assets.
To tax the transfer of wealth without consideration.
To bring parity between income and wealth transfers in tax laws.
To serve as a companion law to the Wealth-tax Act, 1957.
π Key Definitions (Section 2)
Gift: Transfer by one person to another of any existing movable or immovable property, made voluntarily and without consideration.
Donee: The person receiving the gift.
Donor: The person making the gift.
Property: Includes both movable and immovable property, shares, securities, jewellery, paintings, etc.
π§Ύ Scope and Charge of Gift Tax (Section 3)
Gift tax was charged on the value of taxable gifts made by a person during a financial year.
Applied to individuals, HUFs, companies, firms, and associations.
Tax was levied regardless of whether the gift was made in India or abroad, if the donor was a resident.
π° Rate of Gift Tax
Initially, a flat rate of 30% was applied.
Later, the rates were modified and aligned with income tax slabs.
By the 1990s, gift tax became almost ineffective due to exemptions and high thresholds, leading to its abolition in 1998.
π Exemptions from Gift Tax (Section 5)
Certain gifts were exempt from gift tax, including:
Gifts to relatives in certain cases.
Gifts received on marriage of the individual.
Gifts to charitable trusts or institutions.
Gifts under a will or by inheritance.
Gifts to the government or approved educational institutions.
Gifts below the prescribed monetary threshold.
ποΈ Valuation of Gifts (Sections 6β7)
Fair market value (FMV) was used to determine the value of the gift.
If consideration was received but was inadequate, the difference between FMV and consideration was considered a gift.
π Filing of Returns and Assessment (Sections 13β16)
The donor was required to file a return with the Gift-tax Officer.
The Officer could assess the gift and issue demand notices.
Penalties and interest could be levied for non-compliance.
β οΈ Penalties and Offenses (Sections 17β23)
Penalty for failure to furnish returns.
Fine or imprisonment for willful concealment or falsification.
Prosecution for tax evasion related to gifts.
π§Ύ Repeal and Post-1998 Situation
Abolished by the Finance Act, 1998 (effective 1st October 1998).
Gifts are now governed by Section 56(2)(x) of the Income-tax Act, 1961.
Gifts exceeding βΉ50,000 (aggregate) are taxable in the hands of the recipient.
Exceptions still exist for gifts from relatives, on marriage, inheritance, etc.
π Important Case Laws under the Gift-tax Act, 1958
1. CGT vs. N.S. Getti Chettiar
Citation: AIR 1971 SC 2410
Issue: Whether a transfer of property to a trust without consideration was a gift.
Held: Supreme Court held that transfer to a trust without consideration was a gift under the Act and taxable.
Significance: Defined the scope of "gift" as including transfers to trusts.
2. CGT vs. T.M. Louiz
Citation: 2000 (243) ITR 416 (Ker)
Issue: Whether transfer of shares to family members at face value when FMV was higher is a taxable gift.
Held: Yes. The difference between FMV and sale price was considered a gift.
Significance: Affirmed the concept of inadequate consideration being partly a gift.
3. CGT vs. Basanti Devi and Sons
Citation: AIR 1968 SC 620
Issue: Whether partition in a Hindu Undivided Family amounts to a gift.
Held: Partition among HUF members is not a gift because it is a legal right and not a voluntary transfer.
Significance: Distinguished family partitions from gifts.
4. CGT vs. R.S. Gupta
Citation: 1987 (165) ITR 41 (Delhi)
Issue: Whether waiver of loan amounts to a gift.
Held: Voluntary waiver of a legally enforceable debt without consideration constitutes a gift.
Significance: Expanded the definition of "property" to include debt obligations.
π Summary Table
| Feature | Details |
|---|---|
| Enacted | 1958 |
| Repealed | 1998 |
| Taxable Event | Transfer of movable/immovable property without consideration |
| Taxpayer | Donor (person making the gift) |
| Exemptions | Marriage, relatives, charitable trusts, inheritance |
| Valuation | Based on Fair Market Value (FMV) |
| Penalty for Default | Interest, fine, and possible prosecution |
| Current Law | Gifts now taxed under Income-tax Act, Section 56(2)(x) |
β Conclusion
The Gift-tax Act, 1958 was a comprehensive law aimed at preventing tax evasion through gifts. Over time, due to its ineffectiveness and administrative burden, it was repealed. However, its legacy continues in a more refined form under the Income-tax Act, which now taxes gifts in the hands of the recipient, rather than the donor.
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