Direct taxes on expenditure are levied on specific types of expenditure or transactions rather than on income or profits. One of the notable examples of such a tax in India is the Gift Tax. Here’s a detailed explanation of direct taxes on expenditure, focusing on Gift Tax and other related taxes.
1. Gift Tax
Definition: Gift Tax is a tax levied on the transfer of wealth or property by one individual to another without consideration (i.e., without receiving anything in return). It applies to gifts exceeding a specified threshold value.
Key Aspects:
- Taxable Gifts: Includes cash, property, or other assets given without adequate consideration.
- Exemptions: Gifts received from certain relatives, such as parents, siblings, and spouses, are exempt from tax.
- Threshold: Gifts exceeding ₹50,000 in a financial year from non-relatives are taxable.
Current Status:
- Reintroduced as Tax on Gifts: Gift Tax was abolished in 1998 but was reintroduced in a different form under the Income Tax Act in 2004.
Example:
- Gift Received:
- If an individual receives ₹1 lakh from a friend as a gift, the amount exceeding ₹50,000 (i.e., ₹50,000) is taxable.
- This ₹50,000 is taxed as per the individual’s income tax slab rates.
2. Tax on Gifts Under the Income Tax Act
Definition: This refers to the taxability of gifts received under the Income Tax Act, where gifts exceeding the threshold are added to the recipient’s taxable income.
Key Aspects:
- Exemption Limit: Gifts received from relatives are exempt from tax, whereas gifts from non-relatives exceeding ₹50,000 are taxable.
- Tax Rate: The amount exceeding ₹50,000 is taxed according to the recipient’s income tax slab.
Example:
- Gift from a Non-Relative:
- A person receives ₹60,000 from a non-relative. The taxable amount is ₹10,000 (₹60,000 – ₹50,000), which will be taxed at the applicable income tax slab rate.
3. Wealth Tax (Abolished)
Definition: Wealth Tax was a tax on the net wealth of individuals, Hindu Undivided Families (HUFs), and companies. It was levied annually on wealth exceeding a specified threshold.
Key Aspects:
- Tax Rate: 1% on net wealth exceeding ₹30 lakhs.
- Assets Covered: Included immovable property, jewelry, bullion, etc.
Status:
- Abolished: Wealth Tax was abolished in 2015, and its focus was shifted to other forms of taxation.
4. Estate Duty (Abolished)
Definition: Estate Duty was a tax on the estate of a deceased person, levied on the value of their estate.
Key Aspects:
- Tax Rate: Varied based on the value of the estate.
- Assets Covered: Included all assets in the deceased’s estate.
Status:
- Abolished: Estate Duty was abolished in 1985. It has not been reintroduced, and inheritance is now handled through other means.
Summary
1. Gift Tax:
- Definition: Tax on the transfer of property or wealth without consideration.
- Threshold: Gifts exceeding ₹50,000 from non-relatives are taxable.
- Example: ₹60,000 received as a gift from a friend is partially taxable (₹10,000).
2. Tax on Gifts Under the Income Tax Act:
- Definition: Taxability of gifts received is added to taxable income.
- Example: Gift amount exceeding ₹50,000 from non-relatives is taxable.
3. Wealth Tax:
- Definition: Tax on net wealth exceeding a threshold.
- Status: Abolished in 2015.
4. Estate Duty:
- Definition: Tax on the estate of a deceased person.
- Status: Abolished in 1985.
Direct taxes on expenditure like Gift Tax aim to address issues related to wealth transfer and financial transactions. Although some of these taxes have been abolished or modified, they played a role in regulating financial activities and generating revenue for the government. The reintroduction of certain aspects under the Income Tax Act helps in aligning taxation with contemporary financial practices.
