KARACHI: The Finance Act, 2021 has amended Income Tax Ordinance, 2001 to prevent tax avoidance on giving away gifts, official sources said on Friday.
The Federal Board of Revenue (FBR) while explaining the Finance Act, 2021 stated that tax law had provided a special mechanism for treatment of transfer of assets under certain transactions.
The non-recognition rules provide that no gain or loss shall arise on disposal of assets under certain special arrangements enumerated in sub-section (1) of section 79 of Income Tax Ordinance, 2001.
However, these rules did not apply if the recipient was a non-resident person. This was giving rise to anomalous situations in certain circumstances therefore, non-recognition rules have been extended in cases of disposal of assets between spouses under an agreement to live apart, inheritance and gift from a relative in case of non-residents.
Sub-section (4A) of section 37 provides valuation of assets received under certain transactions. However, this was manipulated to avoid tax therefore a proviso has been inserted whereby the commissioner has been empowered to undo such a tax avoidance scheme.
Gifts received from certain persons were made taxable in the hands of recipients. The provision has been broadened to exclude gifts received from relatives from this taxation in line with other provisions. Necessary changes have been made in clause (la) of sub-section (1) of section 39 of the Ordinance.
