The Gift tax was abolished with effect from October 01,1998. Thereafter, the practice of bogus foreign gifts itself had started with Government offering immunity for such gifts as part of disclosure scheme, but then the practice continues even after the amnesty period had expired. Unaccounted income found its way in many ways as in acquisition of immovable property, new constructions pretended borrowings and unreal gifts.

As per section 56(2)(vii)(c)(ii) of the Income-tax Act, 1961 (the Act) if an individual or a Hindu undivided family receives any property other than immovable property on or after 1 October 2009 for a consideration which is less than the Fair Market Value (FMV) of the property by an amount exceeding fifty thousand rupees then aggregate fair market value of such property exceeding such consideration will be treated as income of the receiver.

There is smarter lot of taxpayers who are nowadays trying to beat the May 31 deadline? The lot that’s partly fuelling an unusual spurt in cash deals in recent weeks. Deals to organise a mountain of cash to pay a builder for a home or to keep off a sticky-fingered bureaucrat. For some, these are the last and the easiest routes to transform currency notes stashed inside cupboards into legitimate bank deposits; while for many others, it’s a way to gift a friend without any tax hassles.

Clause (vii) has been inserted in section 56(2) by the Finance (No. 2) Act, 2009. Under this clause if an individual or a HUF receives on or after October 1, 2009 a gift (which falls in any of the following five categories), it is chargeable to tax in the hands of the recipients under the head “Income from other sources”.

Section 56(2) of the Income Tax Act, 1961 inter alia deals with receipts without considerations. Since most of such receipts tantamount to gifts, the provisions are popularly named as those of gifts and deemed gifts. Till 30 09 2009 only sum of money received without consideration was treated as income in the hands of the recipient being either an individual or a HUF.

Finance Minister Pranab Mukherjee took the first step towards implementation of the Direct Taxes Code (DTC) on Friday. While retaining the basic exemption limits for all income levels (as in the DTC), he increased the other slabs. For instance, while the basic exemption limit for individuals has been retained at Rs 1.6 lakh, the 10 per cent rate will now be applicable for the Rs 1.6 lakh-Rs 5 lakh bracket. Earlier, the 10 per cent rate was applicable for income of Rs 1.6-Rs 3 lakh. The hike in the slab means that the taxpayer is going to save Rs 20,600 for incomes up to Rs 5 lakh.

No. DC ( A & R) PWRJJC/2009/6(2)/ADM-6.—In exercise of the powers conferred by sub-section (5) of section 10 of the Maharashtra Value Added Tax Act, 2002 (Mah. IX of 2005), the Commissioner of Sales Tax, Maharashtra State, Mumbai, hereby amends the notification No. Sr. D. C. (A & R)/PWR/1006/2/Adm-3, dated 6th October 2007 as follows, namely:—

In this article, the proposed amendments by The Finance (No. 2) Bill, 2009 relating to sections 56(2), 57, 145A, 271(1) Explanation 5A and 281B, are briefly discussed. These amendments proposed in the Finance (No. 2) Bill, 2009, are aimed towards rationalizing the provisions of the Income-tax Act, 1961 (“the Act”) in order to bring out the true and correct intention of the legislature for enacting the above provisions.

The newly proposed section 56 [2][vii] in the Finance Bill, 2009 is no ‘rosagoola’. When the Hon’ble Finance Minister ‘pronounced’ his budget in the Parliament, there was not even a whisper of reference to this section in his speech. And in this silence, lurked a deadly Bengal Tiger called ‘section 56 [2][vii]’.

Until the amendment made by the Finance (No.2) Act, 2009, the gifts were taxed only on receipt of sum of money; i.e., cash or cheque or bank draft in excess of Rs.50,000 in a year by any individual or HUF. Now, gifts of immovable and certain movable properties will also be subject to tax if these are received without consideration or at inadequate consideration. In section 56(2), clause (vii) has been inserted w.e.f. 1-10-2009. The earlier provision was brought in with a view to curb bogus capital-building and money laundering through receipt of gifts. Though Gift Tax Act has been abolished way back w.e.f. 1st October, 1998, it has again come back in another form and find place in the Income-tax Act.