Same-sex couple challenges Income Tax provision that exempts gifts only between spouses

The Karnataka High Court has sought a response from the Union government on a petition challenging a provision of the Income Tax Act that exempts gifts between spouses from taxation but excludes same-sex couples from the benefit.

Justice B Shyam Prasad issued the notice while hearing a writ petition filed last year by Bengaluru-based software engineers and IIT alumni Anurag and Akhilesh, who have been living together for the past seven years. The matter is scheduled for further hearing on July 15.

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The petition stems from a 15-gram gold bracelet gifted by Akhilesh to Anurag. The gift, valued at more than Rs 1 lakh, was disclosed in the couple's income tax returns. Under the current law, such a gift is taxable because the exemption available to gifts received from a "relative" does not extend to same-sex partners.

Under Section 56(2)(x) of the Income Tax Act, any money or property worth more than Rs 50,000 received without consideration is taxed as "income from other sources." However, gifts received from a "relative" are exempt from tax. The definition of "relative" includes the "spouse of an individual."

The petitioners contend that the provision discriminates against same-sex couples by denying them the same tax exemption available to married heterosexual couples, thereby violating Articles 14 and 15 of the Constitution, which guarantee equality before the law and prohibit discrimination.

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They have argued that same-sex couples in long-term relationships should be treated on par with married heterosexual couples for the purpose of tax exemptions. According to the plea, excluding same-sex couples from the definition of "spouse" under the Income Tax Act results in unequal treatment and should be declared unconstitutional.

The petition specifically challenges the constitutional validity of the provision in the Income Tax Act, 1961, that exempts gifts exchanged between spouses from taxation while effectively excluding same-sex couples from its ambit.

In support of their case, the petitioners have cited Supreme Court rulings, including the Shiramabai vs OIC Records judgment, which held that long-term cohabitation gives rise to a strong legal presumption of a valid marriage. They argue that the principle should be considered while interpreting tax benefits for couples in long-term same-sex relationships.