On January 20, Azim Premji, the founder of the IT to consumer goods conglomerate WIPRO, handed out 1% of the shares of WIPRO Technologies Ltd, valued at ₹500 crore roughly to his two sons Rishad and Tariq without being burdened by any worries of tax liability either on himself or on his beneficiary offsprings.
With this, the first family members of Wipro own 4.43% shares in the company. While Premji owns 4.12% of the shares, his wife Yasmeen owns 0.05%. Both their sons own 0.13% each. Three partnership firms namely Hasham Traders, Prazim Traders and Zash Traders —all family firms— own 58%. The Azim Premji Philanthropic Initiatives and the Azim Premji Trust own 0.27% and 10.18%. So, at the end of the day, the founder has not exposed his company vulnerable to a takeover. Be that as it may.
Gifts are left completely exempt from income tax
This is rather strange given the fact that this exemption gives enormous elbow room for tax evasion on the glib assertion that what is being targeted for tax by the department is nothing but a gift. Cricketers explained away the proceeds of their benefit matches as gifts. Politicians who were handed over purses at rallies by their so-called followers explained away their black money as gifts. Marriages provided an excellent opportunity for money laundering by benevolent patriarchs and matriarchs by arranging gifts to the bride/grooms.
From 1958 till October 1998, gifts were taxable in the hands of the donors under the assumption that donors made manoeuvres to split their income so as to get into the lower slab rates. On its abolition, the tax evaders and money launderers started having a field day with gifts being taxable neither in the hands of the donors nor in the hands of the donees.
This loophole was sought to be closed in 2006 by making gifts in excess of ₹50,000 received taxable in the hands of the recipients. But once again inexplicably even this donee-based gift tax regime built into section 56(2)(v) of the Income Tax Act was abolished from April 2017. It was not as if the donee-based gift tax regime was a harsh one as it exempted donees, who are the relatives of the donors, from income tax.
In the event, we are back to square one — gifts let off completely from the tax net. There is no estate duty or inheritance tax either so much so that the only direct tax to bother taxpayers is the income tax. Remember we bade goodbye to wealth tax in 2015.
Tax planning
The point is absence of any tax on gifts tantalises people into both manoeuvres and tax planning. Dying intestate leaves behind a lot of bad blood among the siblings in the family of the deceased. In addition, even legal wills are contested in messy and prolonged court battles. So, as far as possible family patriarchs and matriarchs see merit in gifting their properties to their near and dear ones during their lifetime.
Parenthetically, it may be mentioned that many of the states in the US tacitly encourage gifts inter vivos by imposing heavy estate duty or inheritance tax. Resultantly, we saw the likes of Warren Buffett of Berkshire Hathaway fame and Bill Gates of Microsoft fame gifting away a substantial part of their wealth to their near and dear ones during their lifetimes.
In India, on the other hand, the deceased don’t have to squirm uncomfortably in their graves about having left behind a rich estate to be feasted upon by the tax authorities. But the absence of gift tax emboldens and encourages them to gift away a good sliver of their wealth to their near and dear ones during their lifetimes. Making offsprings wait for the death of their parents to inherit is not a very pleasant experience. Gifting here and now leaves everyone in the loop infinitely happier.
Azim Premji has done precisely that. Offsprings are more energetic. They can watch over the family wealth better.
—The author, S Murlidharan, is a Chartered Accountant and financial columnist. The views expressed are personal.
With this, the first family members of Wipro own 4.43% shares in the company. While Premji owns 4.12% of the shares, his wife Yasmeen owns 0.05%. Both their sons own 0.13% each. Three partnership firms namely Hasham Traders, Prazim Traders and Zash Traders —all family firms— own 58%. The Azim Premji Philanthropic Initiatives and the Azim Premji Trust own 0.27% and 10.18%. So, at the end of the day, the founder has not exposed his company vulnerable to a takeover. Be that as it may.
Gifts are left completely exempt from income tax
This is rather strange given the fact that this exemption gives enormous elbow room for tax evasion on the glib assertion that what is being targeted for tax by the department is nothing but a gift. Cricketers explained away the proceeds of their benefit matches as gifts. Politicians who were handed over purses at rallies by their so-called followers explained away their black money as gifts. Marriages provided an excellent opportunity for money laundering by benevolent patriarchs and matriarchs by arranging gifts to the bride/grooms.
From 1958 till October 1998, gifts were taxable in the hands of the donors under the assumption that donors made manoeuvres to split their income so as to get into the lower slab rates. On its abolition, the tax evaders and money launderers started having a field day with gifts being taxable neither in the hands of the donors nor in the hands of the donees.
This loophole was sought to be closed in 2006 by making gifts in excess of ₹50,000 received taxable in the hands of the recipients. But once again inexplicably even this donee-based gift tax regime built into section 56(2)(v) of the Income Tax Act was abolished from April 2017. It was not as if the donee-based gift tax regime was a harsh one as it exempted donees, who are the relatives of the donors, from income tax.
In the event, we are back to square one — gifts let off completely from the tax net. There is no estate duty or inheritance tax either so much so that the only direct tax to bother taxpayers is the income tax. Remember we bade goodbye to wealth tax in 2015.
Tax planning
The point is absence of any tax on gifts tantalises people into both manoeuvres and tax planning. Dying intestate leaves behind a lot of bad blood among the siblings in the family of the deceased. In addition, even legal wills are contested in messy and prolonged court battles. So, as far as possible family patriarchs and matriarchs see merit in gifting their properties to their near and dear ones during their lifetime.
Parenthetically, it may be mentioned that many of the states in the US tacitly encourage gifts inter vivos by imposing heavy estate duty or inheritance tax. Resultantly, we saw the likes of Warren Buffett of Berkshire Hathaway fame and Bill Gates of Microsoft fame gifting away a substantial part of their wealth to their near and dear ones during their lifetimes.
In India, on the other hand, the deceased don’t have to squirm uncomfortably in their graves about having left behind a rich estate to be feasted upon by the tax authorities. But the absence of gift tax emboldens and encourages them to gift away a good sliver of their wealth to their near and dear ones during their lifetimes. Making offsprings wait for the death of their parents to inherit is not a very pleasant experience. Gifting here and now leaves everyone in the loop infinitely happier.
Azim Premji has done precisely that. Offsprings are more energetic. They can watch over the family wealth better.
—The author, S Murlidharan, is a Chartered Accountant and financial columnist. The views expressed are personal.
First Published: Jan 26, 2024 7:00 AM IST
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