Saturday, June 29, 2013

[aaykarbhavan] Tax Planning through H U F.



Copy of tax planning through huf Presentation Transcript

  • 1. TAX PLANNING THROUGH HUF
  • 2. HUF u/s 2(31)(ii) of the IT Act,1961 defines the word „person‟, which includes HUF. Therefore, an HUF is a separate assessable entity under the Income Tax Act,1961 and Wealth Tax Act,1957.
  • 3. BASIC CONCEPTS Who are considered Hindus? Those who are Hindus by Birth and Religion Jains and Sikhs Children whose both parents are Hindus Any child whose father or mother is a Hindu and who is brought up as a Hindu Those of certain Hindu Sampradayas (Arya Samaj, Swaminarayan, Brahma Samaj)
  • 4. WHO ARE NOT CONSIDERED HINDUS? Muslims Parsis Christians Those who have converted from Hinduism
  • 5. CREATION OF HUF Modes of creation of HUF are:1) By Gifts from Members;2) By Gifts from Non Member;3) By Will;4) By ancestral property;
  • 6. TAX SLABS Slab Rate of interest Up to 2,00,000 Nil 2,00,001-500000 10% 5,00,001-10,00,000 20% Above 10,00,000 30%Education Cess 2%Higher Education Cess 1%
  • 7. MEMBERS OF MR. "X" HUFAny individual up to 4th generation descendent
  • 8. KARTA OF MR. "X" HUFSenior Most Male Member Sr. No. Individual Karta 1. Mr. "X" Yes 2. Mrs. "X" No 3. Son "X" No 4. Daughter "X" No
  • 9. CO-PARCENER OF MR. "X" HUF Individual who can demand partition Sr. No. Individual Co-parcener 1. Mr. "X" Yes 2. Mrs. "X" No 3. Son "X" Yes 4. Daughter "X" Yes* (* w.e.f 9th September 2005)
  • 10. CO-PARCENERY OF MR. "X" HUFIndividual who can share property on partition of HUF Sr. No. Individual Karta 1. Mr. "X" Yes 2. Mrs. "X" Yes 3. Son "X" Yes 4. Daughter "x" Yes
  • 11. SEPARATE DEDUCTION U/S 80C, 80D, 80G, 80IA, 80IB
  • 12. SOME OTHER SEPARATE DEDUCTION Separate partnership share. Salary to Karta /Member. No T.D.S. on Interest. Separate Income-tax Deduction on Interest for self occupied House Property. Separate entitlements to exemption from capital gains u/s 54, 54EC, 54F etc.
  • 13. 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.
  • 14. HUF AS PROPRIETOR OF BUSINESS HUF can be a Proprietor of one or more than one Business concerns. Separate name can be kept of HUF business entity. No tax Audit of HUF business if Turnover within Rs. 1 crore. Business Income Computation @ 8% without books of account in case turnover is up to Rs. 1 crore – The Presumptive Basis
  • 15. ON 9TH SEPTEMBER 2005, THE HINDU SUCCESSION ACT, 1956 WAS AMENDED TO PROVIDE THAT
  • 16. Partition of HUF (1) (2)Total Partition Partial Partition
  • 17. 1. TAX IMPLICATIONS OF FULL PARTITION OF HUF All the properties of HUF is distributed amongst all the co-parceneries. HUF is discontinued.
  • 18. 2. TAX IMPLICATIONS OF PARTIAL PARTITION OF HUF Partial Partition Regards Persons Regards Property Any one or more co-parcener is Any one or more property is given his/her share distributed to all the co-parceneriesAs per section 171(9) of the Income-tax Act, 1961 the Partial Partition after 31-12-1978 is not recognized.
  • 19. 1. Mr. "x" HUF • Bank Fixed Deposit Rs 12, 00,000 @10% p.a. • Members Mr. "X", Mrs. "X", Son "X", Daughter "X" • Assume Mr. "X" Dies Old Rule (Survivorship) (M&M) Before Death After Death Interest Rs. 1,20,000 Interest Rs. 1,20,000 Taxed To Mr. "X" HUF Taxed To Deceased Mr. "X" HUF Co-Parcenery Co-Parcenery Mr. "X" = 1/3 Mrs. "X" = ½ Mrs. "X" = 1/3 Son "X" = ½ Son "X" = 1/3 Daughter "X" = M& M Daughter "X" = M& M
  • 20. New Rule (Succession) [Daughter Equal Right] After Death* Before Death 10% F.D Rs.12,00,000 Interest Total Rs.9,00,000 F.D 10% RS 1,20,000 Mr. "X" = ¼ Interest Rs.90,000 F.D Rs.3,00,000 Taxed to deceased Mr. "X" HUFTaxed to Mr. "X" HUF WILL NO WILL Mrs. "X" Son "X" Daughter "X" Co-Parcenery It will as per Mr. "X" = ¼ WILL Rs.1,00,000 Rs.1,00,000 Rs.1,00,000 Mrs. "X" = ¼ Son "X" = ¼ Taxed Mrs. "X" Taxed Son "X" Taxed Daughter "X" Daughter "X" = ¼
  • 21.  Computation of Income Aggregate of :- Income under the head House Property. Profits and gains from business & profession Income from capital gains Income from other sources Less: deduction under chapter VIA i.e., 80C, 80D,80DD, 80DDB, 80G, 80GGA, 80HHB, 80HHBA,80HHC, 80HHD, 80HHE, 80HHF, 80I, 80IA, 80IB,80L & 80O.
  • 22. CONTINUED..... Calculate Tax on Total Income Less: relief u/s 86, 90 & 91 Add: Interest u/s 234A, B & C Less: TDS & Advance Tax Less: Self Assessment Tax Balance Tax payable / Refund due
  • 23. RELATIVESr. No. Section Provision Relative 1. 40(a)(ii) Payment to relative – if Member – HUF – Relative Excessive - Disallowed HUF – Member – Relative 2. 56(2) Gift received from Member – HUF – Relative Relative of any amount HUF – Member – Non-relative is Exempt. 3. 64(2) Income on assets Member – HUF – Relative received in gift from HUF – Member – Non-relative relative is clubbed to transferor.
  • 24. Total Mr. "X" Mrs. "x" Son "X" Mr. "X" HUFTotal 44,60,000 11,15,000 11,15,000 11,15,000 11,15,000IncomeLess : 80C 1,00,000 1,00,000 1,00,000 1,00,000 1,00,000Less : 80 15,000 15,000 15,000 15,000 15,000D Taxable 42,85,000 10,00,000 10,00,000 10,00,000 10,00,000 IncomeBasic 2,00,000 2,00,000 2,00,000 2,00,000 2,00,000ExemptionTotal Tax 11,48,965 1,33,900 1,33,900 1,33,900 1,33,900LiabilityTax Saved = 6,13,365 [11,48,965 – (1,33,900 + 1,33,900 + 1,33,900 + 1,33,900)]
  • 25. Salient Features of HUFs and Landmark Rulings:1. A single member cannot be treated as 1. C. Krisnaprasad HUF. 97 ITR 493 (SC)2. HUF may consist of single male and 2. Gowli Buddana widows of deceased males, A single 60 ITR 293 (SC) male, his wife and daughters.3. Family may be formed by partition 3. N.V. Narendranath though not be survivorship. 74 ITR 190 (SC) 27
  • 26. 4. On partition of bigger HUF, a 4. Soth Tulsidas Bolumal coparcener and his wife can 170 ITR 1 (AP) constitute HUF. Krishnakumar 143 ITR 462 (MP)5. It is possible to constitute HUF 5. Premkumar on marriage of an individual 121 ITR 347 (ALL) male, if he has received asset on inheritance or partition.6. Took a contrary view to (5) 6. Vishnukumar above. 142 ITR 357 (ALL) 28
  • 27. 7. Individual property of father 7. Chander sen who dies after Hindu 161 ITR 370 (SC) Succession Act came into force (17-6-56) devolves on sons As individuals. Even the property held by a father received on partition, on death of father, on second partition, is Son‟s separate and individual property.8. For Right of a surviving female 8. Gurupada Khandappa relative, Sec. 6 of H.S. Act Madgam Vs. Hirabai (Explanation) lays down that 129 ITR 440 (SC) there will be deemed partition. 29
  • 28. 9. But HUF even then continues- 9. State of Maharastra Vs. Explanation: - merely helps to Narayan Rap 163 ITR 31 identify the share of female (SC) members and their Legal heirs.10. On death of sole male member 10. Smt. Nagarathnama 76 ITR after HS Act (17-656) females 352 (MYS) Knatilal Manilal heirs receive property as their 90 ITR 289 (GUJ) absolute property.11. HUF can consist of husband and 11. C.I.T. vs. Arunkumar wife only Jhunjhuwala 138 CTR 63 30
  • 29.  Important links http://wirc-icai.org/wirc_referencer/income%20tax%20&%20wealth%20tax/Taxation%20of%20Huf.htm


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