Same-sex couples should not have to pay extra tax on gifts between partners, simply because the law does not allow them to marryBefore Karnataka HC is a question that sounds trivial, yet not. Anurag Kalia and Akhilesh Godi, Bengaluru engineers who have been partners for over a decade, wish to exchange a gold bracelet worth a little more than Rs 1L. Had either of them a wife, the gift would pass free of tax. Because they are two men, Section 56(2)(x) of Income Tax Act treats the bracelet as the recipient’s income from other sources, taxable at his marginal rate.Section 56(2)(x) was never designed to police intimacy. Parliament enacted its predecessor in 2004, six years after abolishing the Gift Tax Act, to prevent unaccounted money from being routed through fictitious gifts. Gifts aggregating over Rs 50k in a year are taxed as income unless they come from a “relative”.Exemption for relatives, rests on a commonsense presumption that transfers within a family reflect affection, rather than disguised consideration. The statutory list is generous. It covers a spouse’s brother’s wife and a spouse’s lineal ascendants, persons who may owe the taxpayer nothing in law and know him barely. A partner of 11 years, at the very least, fits the presumption of affection as well. What excludes him is not the logic of the provision, but the definition of ‘spouse’, which presupposes a marriage the law does not permit him to enter.GOI’s response, in this case, and in the parallel petition before Bombay HC, is that “relative” is anchored in legally recognised marriage, that Supriyo vs Union of India (2023) declined to recognise same-sex marriage, and that the petitioners are asking courts to legislate. Each step of that argument stands refuted by Supreme Court’s decisions on tax exemption and constitutional equality.The most instructive precedent is Association of Old Settlers of Sikkim vs Union of India (2023). Section 10(26AAA) of Income Tax Act exempts income of ‘Sikkimese’ individuals, but a proviso stripped the exemption from any Sikkimese woman who married a non-Sikkimese man after April 1, 2008. No comparable disability attached to Sikkimese men.Justices MR Shah and BV Nagarathna struck the proviso down as violative of Articles 14, 15 and 21, holding that a woman is not chattel and that mere fact of marriage cannot extinguish her identity or her entitlements.Two points from that judgment bear directly on the Karnataka petition. First is that tax exemptions are not immune from fundamental rights scrutiny. Courts extend latitude to economic legislation, (RK Garg vs Union of India (1981)), and a legislature may draw lines when classifying taxpayers. But where a fiscal line tracks a ground, the Constitution specifically protects, the latitude ends. In the Sikkim case, that ground was gender. Here, it is sexual orientation, which Navtej Singh Johar vs Union of India (2018) recognised as a ground analogous to sex under Article 15.A definition of ‘relative’ that admits a spouse’s grandparent, but excludes a life partner, classifies on sexual orientation, because marriage is available to heterosexual couples as a choice, and unavailable to same-sex couples as a matter of law.The second proposition concerns remedy, and here Justice Nagarathna’s separate opinion is the model. On exclusion of old Indian settlers from definition of “Sikkimese”, she declined to rewrite the statute. Instead, she directed the Union to amend the Explanation to Section 10(26AAA), and held that until Parliament did so, every person shown to have been domiciled in Sikkim before the merger, would be entitled to the exemption.The method respects separation of powers without making constitutional rights wait on legislative convenience. The benefit flows immediately while the design remains with Parliament.Govt’s institutional objection is unsustainable. Majority in Supriyo held there is no fundamental right to marry, and left recognition of civil unions to the legislature. Fair enough. But this defeat for queer couples, rests on a bargain Centre proposed. No marital status, but their individual lives and relationships would still receive full protection.In pursuit, Solicitor General constituted a committee on entitlements in April 2024. Its progress has been modest. GOI’s affidavits in the present petitions, seek the benefit of the holding, while withholding the consideration.Karnataka HC could direct govt to consider amending the Explanation to Section 56(2)(x) and extend the exemption in the meantime to partners who establish a stable, long-term cohabiting relationship.Nor would such relief amount to judicial creation of marital status. Exemption in Section 56(2)(x) does not track mutual legal obligation. It tracks presumed intimacy, as inclusion of a spouse’s distant relations shows. Reading “relative” to cover a long-term partner changes the tax treatment of gifts such as bracelet.Law already knows how to identify such relationships. Section 2(f) of Protection of Women from Domestic Violence Act, 2005, recognises relationships “in the nature of marriage”, and Indra Sarma vs VKV Sarma (2013) sets out workable criteria of duration, shared household and financial arrangement.Taxation is subject to strict constitutional limitations. The Constitution acts as a firewall for the choice of a citizen’s partner from unreasonable and arbitrary state interference. When Karnataka HC decides whether a bracelet between two men is income, it will be deciding whether constitutional guarantees extend to ordinary economic incidents of a shared life.
Disclaimer: Views expressed above are the author’s own.
