Assets can be willed to any person outside a donor’s legal heirs without inviting tax. The tax system favours gifting to an unrelated individual only after the death of the donor. This can lead to unwarranted delay as the decision to give is almost always taken during the donor’s lifetime. The gift tax emerged as a regulatory backstop to curb avoidance in countries that have an inheritance tax. In the Indian context, it merely stymies gifting. GoI should consider expanding the definition of ‘family’ in the Companies Act and allow, say, three persons of the gifter’s choice, regardless of whether they fall under the straight and narrow category of ‘kith and kin’ or not.
High net-worth individuals face another set of constraints imposed by the Companies Act on transfer of assets beyond family members. Disclosures by board members on relatives leave no scope to include unrelated individuals who may become the beneficiaries of asset transfer. Corporate governance would be better served if directors are allowed to disclose their intent to transfer shareholding to beneficiaries beyond their immediate family. To the extent that this encourages wealth dispersion, the tax treatment of gifts can provide a lighter touch to regulation than a blunt instrument like an inheritance tax. Carve-outs have been provided for gifts to institutions. Individuals are the beneficiaries of gifts intermediated thus. Tax design should allow for interpersonal gifts beyond the tight term of ‘family’.
