TAX PLANNING THROUGH HUF
By
SUBHASH LAKHOTIA
Tax & Investment Consultant
Tax Guru – CNBC Awaaz
Lakhotia College of Taxation & Management
S-228, Greater Kailash Part-2, New Delhi-110048
Ph. 011-29215434, 29215420
E-mail: slakhotia@satyam.net.in
Website: www.lakhotiacollege.com
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1.
Tax Saving through HUFs
1(1). Tax Saving a reality with HUF.
A. Survivorship principle.
B. Partition of HUF.
C. Special Gift by the father to the HUF.
D. Special Gift to HUF pot.
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Please remember HUF Tax Advantages
1. Separate exemption limit under Income-tax Law
of Rs. 1,60,000
2. Separate deduction u/s 80G, etc.
3. Separate deduction u/s 80C.
4. Separate deduction u/s 80CCF
5. Separate partnership share.
6. Salary to Karta /Member,
7. No T.D.S. on Interest.
8. Separate Income-tax Deduction on Interest for
self occupied House Property
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3.
Capital Gain Exemption Benefits for
HUF’s
1. Cost Inflation Index benefit available to
Calculate Cost of the Asset.
2. Tax benefit of 20% Tax on Long-term
Capital Gains
3. Saving Tax on Long-term Capital Gain
possible by investing in Capital Gains Bonds
of NHAI / REC
4. Long-term Capital Gains Saving by
investing in Residential Property
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4.
1.
2.
3.
4.
5.
Stock Market, Mutual Funds &
HUF’s
HUF can have a separate Demat Account.
Make money by investing in shares of
companies :(a)
Primary Market
(b)
Secondary Market
Enjoy Tax Free Income for Long-term Capital
Gains by holding shares for more than one year
Enjoy lower tax rate of 15% on Short-term
Capital Gains.
HUF can also invest in Mutual Fund.
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5.
Wealth-tax & HUF’s
1. Separate exemption of Wealth-tax
for HUF’s upto Rs. 15 lakhs
Wealth.
2. One House Wealth Tax Free
3. Productive assets of HUF fully
exempt for Wealth-tax
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6. HUF as Proprietor of Business
1. HUF can be a Proprietor of one or more
than one Business concerns.
2. Separate name can be kept of HUF business
entity.
3. No tax Audit of HUF business if Turnover
within Rs. 60 lakhs.
4. Business Income Computation @ 8%
without books of account in case turnover is
upto Rs. 60 lakhs – The Presumptive Basis
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7.
Real Estate in the name of HUF
1. Self occupied one Residential House &
the tax gain specially by way of Interest
on Loan & Repayment of Loan
2. Special 30% deduction on Rental Income
also to HUF.
3. Exemption from Wealth-tax the real
estate of HUF (Commercial / Rented
Residential)
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8.
1.
2.
3.
Tax exempt Income of member
received from HUF
As per section 10(2) of the Income-tax Act, 1961
any sum received by an individual from Hindu
Undivided Family of which he is member is
exempt from tax.
Amount received not as a member of Joint Family
but in pursuance of some statutory provision, etc.
would not be exempted in this clause.
Member of joint family living apart from the
other members does not effect his/her position in
law to claim the right as per section 10(2).
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9.
Taxation of money received by
HUF without consideration
1. Provisions
of section 56(2)(v)
applicable even to HUF if any sum
of money is received by the HUF
exceeding Rs. 50,000 p.a.
2. Items received in kind subjected to
the provisions of s. 56(2)(v)
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10. Deductions under Chapter VIA
to HUF
1.
2.
3.
4.
5.
6.
7.
Deduction available to HUF as per section 80C. [Insurance
Premium can be paid on the life of any member]
Deduction u/s 80CCF upto Rs. 20,000 on investment in
Infrastructure Bonds
Section 80D deduction available on Mediclaim Policy on the
health of any member of the family.
Section 80DD deduction for maintenance including medical
treatment of a dependant who is a HUF member.
Section 80DDB in respect of Medical treatment for any member
of the HUF.
Section 80G Donation to recognised Charity Trust.
Sections 80IA / 80IB for New Industrial undertakings.
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11. Coparcenary & the Hindu
Undivided Family
Hindu Undivided Family not specifically defined
under the Income-tax Act but as per Hindu Law
a joint Family consists of male members
descended lineally from a common male
ancestor, together with their mothers, wives or
widows and unmarried daughters bound by
fundamental principals of family relationship.
2. As per the Hindu Succession (Amendment) Act,
2005 the Hindu Mitakshara Coparcener shall be
deemed to include a daughter of a coparcener.
1.
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12. Daughter & the HUF - Now
On and from the commencement of the Hindu Succession
(Amendment) Act, 2005 in a Joint Hindu Family governed by
the Mitakshara law, the daughter of a coparcener shall :(a)
(b)
(c)
by birth become a coparcener in her own right in
the same manner as the son;
have the same rights in the coparcenary
property as she would have had if she had been a
son;
be subject to the same liabilities in respect of the
said coparcenary property as that of a son,
- New Section 6 of the Hindu Succession Act 13
13. Partition of a Hindu Undivided
Family
The Partition of HUF can be:1. Partial Partition
2. Full Partition
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14. Tax Implications of Partial
Partition of HUF
1. As per section 171(9) of the Income-tax
Act, 1961 the Partial Partition after
31-12-1978 is not recognised.
2. Even after Partial Partition the income
of the HUF shall be liable to be
assessed under the Income-tax Act as if
no Partial Partition had taken place.
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15. Tax Implications of Full Partition
of HUF
1.
2.
As per s. 171(9) of the Income-tax Act, 1961 partition
means: (i)
where the property admits of a physical
division, a physical division of the property, but a
physical division of the income without a
physical division of the property producing the
income shall not be deemed to be a
partition; or
(ii) where the property does not admit of a physical
division, then such division as the property admits
of, but a mere severance of status shall not be
deemed to be a partition;
Assessment after Partition as per s. 171 & order to be
passed by the Assessing Officer.
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16. Gift of HUF Property
1.
2.
3.
4.
5.
6.
Elementary proposition that Karta of HUF cannot gift or alienate
property except to the extent recognised under the Hindu Law,
namely necessity etc –
CGT v. P. Hanumanthappa 68 ITR 363,
K.P. Gupta v. CIT 233 ITR 456
Reasonable limits depends upon facts - CGT v. B.V.
Narasimharaju 101 ITR 74
Karta can make reasonable gifts to daughters – Sushil Kumar &
Sons v. ITO 234 ITR 98
Gift on Marriage Occasion is valid – S. Lakshmamma v. Kotayya
AIR 1936 Mad. 825.
Gift of immovable property should be for pious purpose – CIT v.
Ram Gopal Rajgharia 123 ITR 693
Gift to Strangers void – Guramma v. Mallappa AIR 1964 SC 510.
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17. Gift by a member of HUF
As per section 64(2) a gift by a member
of a Hindu Undivided Family after
31-12-1969 would attract Clubbing of
Income in the hands of the member and
as such the income from the converted
property shall be deemed to arise to the
individual & not to the family.
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18. Judicial Decisions Relating to
Hindu Undivided Family
(a) Son is not necessary to constitute HUF under Mitakshara
law -Gowali Buddanna v. CIT (1966) 60 ITR 293 (SC).
(b) Unequal partition of HUF - No gift -CIT v. NSG chettiar
82 ITR 599 (SC)
(c) Father could form the HUF of son. Intention in Deed is
important - MPP Chettiar v. CIT (1975) 99 ITR 1 (SC).
(d) HUF with husband and wife only - Prem Kumar v. CIT
121 ITR 347 (Allahabad H.C.).
(e) Remuneration to karta of HUF can be followed J. K. Baldeo Sahai v. CIT 63 ITR 238 (SC).
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19. Judicial Decisions Relating to
Hindu Undivided Family – Contd.
In order to be acceptable or recognizable partition
under section 171 the partition should be complete
with respect to all members of HUF and in respect of
all properties of HUF and there should be actual
division of property as per specified shares allotted to
each member. – Mohanlal K. Shah (HUF) v. ITO 1
SOT 316.
(g) Setting apart certain assets of HUF in favour of
certain coparceners on the condition that no further
claim in properties will be made by them is nothing
but a partial partition and not a family arrangement
not recognised in view of s. 171(9) – ITO v. P.
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Shankaraiah Yadav 91 ITD 228.
(f)
20. Judicial Decisions Relating to
Hindu Undivided Family – Contd.
(h) Where members of HUF become the partners in a
firm by investment of family funds & not because of
any Special Services rendered by them, then the
income will belong to HUF – D.N. Bhandarkar v.
CIT 158 ITR 724.
(i) Property purchased with the aid of joint family
funds, howsoever small that may be, still the
property would be HUF income and cannot be
income of the individual with major portion of
purchase price – S. Periannan v. CIT 191 ITR 278.
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