Presentation on HUF – WHY AN HUF?
CA Sagar Kakkad
WHY AN HUF?
Because you can save up to INR 5 Million in Present Value Terms !!
Assumptions
- Your current age is 30 years and your life expectancy is 70 years
- Government increases the basic exemption limit by average INR 25 k per year and deductions by average INR 5 k per year with no other
significant change in tax rates or slabs (which is quite conservative) - Inflation / Post tax rate of return on investment is 7% p.a. for discounting purpose.
- You are able to utilize the full potential of savings available through HUF.
HOW IS IT POSSIBLE?
o An HUF is treated as a separate entity under the Income Tax Act, 1961;
o Basic Exemption Limit of INR 200 k;
o Benefit of slab rate of tax of 10% on incremental income up to INR 500 k and 20% on further incremental income up to INR 1 Million
o Deduction under section 80C of the Act of INR 150 k for certain investments in the name of its members (LIP, DAP, PPF, ULIP);
o Deduction under section 80D of the Act of INR 15 k for insurance on health of its members;
o Deduction under section 80TTA of the Act of INR 10 k for interest on savings bank account;
Section 8 of the CST Act stipulates the rate of tax in case of inter-state sale of goods covered by registration certificate of the purchasing dealer as 2%, subject to furnishing of declaration form issued by the purchasing dealer to the selling dealer. The selling dealer is required to submit the declaration form to the assessing authority, to get assessed at concessional rate of tax. The declaration required to be furnished is Form 'C' as per Rule 12(1) of the CST Rules, 1957.
Need for amendment to Section 8(3) of CST Act
CA K. Jitendra Babu
1. Section 8 of the CST Act stipulates the rate of tax in case of inter-state sale of goods covered by registration certificate of the purchasing dealer as 2%, subject to furnishing of declaration form issued by the purchasing dealer to the selling dealer. The selling dealer is required to submit the declaration form to the assessing authority, to get assessed at concessional rate of tax. The declaration required to be furnished is Form 'C' as per Rule 12(1) of the CST Rules, 1957. 2. The Purchasing dealer is entitled to procure at concessional rate of tax those categories of materials as prescribed in Section 8(3) of the CST Act as mentioned hereunder –
(i) Goods purchased by the dealer and meant for re-sale by him. This category covers the dealers who are basically traders and involved in buying and selling of goods;
(ii) Goods purchased by a manufacturer for use in the manufacture or processing of goods for sale;
(iii) Goods used in the telecommunication network;
(iv) Goods used in mining;
(v) Goods used in the generation or distribution of electricity or any form of power;
(vi) Packing materials used for packing of the goods for sale.
3. The pre-condition for availing the concessional rate of tax imposed on purchasing dealer is to get the goods included in his CST registration certificate before receiving the same on inter-state purchase.
4. The pre-condition of inclusion of materials in the CST registration certificate has been posing difficulties to purchasing dealers on account of various reasons mentioned hereunder:
(i)It is practically very difficult to keep track of thousands of the materials that are used in big process industries and include the same in the CST registration certificate before placing purchase order.
(ii) Even if the purchasing dealer is able to keep track of the materials to be included in the registration certificate, cost is involved for inclusion of every new material as he has to approach the sales tax department every time.
(iii) The department in general raises an objection that the materials which are sought to be included in the registration certificate are not related to manufacturing or processing or for the specified purpose, which may run into litigation and consumes lot of time and money. The purchasing dealer would be in a great fix whether he has to procure the materials at concessional rate of tax or not, during the period of litigation.
(iv) The department is not inclined to include the entry in general – say for ex., "all goods meant for use in cement manufacturing or processing". Departmental authorities insist to apply for material in specific.
(v) Purchasing dealers are saddled with huge penalties in case they fail to include the materials in the registration certificate by mistake, even if the materials are used in the manufacturing or processing or for the specified purpose.
5. In this context, kind attention of the professional colleagues, trade and industry is invited to the recent decision of the Hon 'ble High Court of Allahabad in the case of M/s.Hyundai Engineering & Constructio Co. Ltd. Vs. Commissioner of Trade Tax, UO [2014-VIL-386-ALH]. In this case, even though the dealer has included the materials as "Stores Materials, Consumables etc.", the matter has reached the High Court level. The dealer has purchased "Hut Material" which was not specifically included in the registration certificate. The dealer has issued 'C' form under the impression that the entry "Stores Materials, Consumables etc., covers all the materials used in the construction since the word etc., was used.
5.1 Department has levied penalty for issue of 'C' form without inclusion of the materials in the registration certificate. The dealer has to carry out the litigation till the High Court level, as he could not get the penalty set aside before the lower authorities.
5.2 The High Court observed that penalty is not leviable on the dealer, since he was under the bonafide impression that the word "etc" covers the materials for which he has issued 'C' Forms and penal provision cannot be applied in this case, as it cannot be said that the dealer was within the full knowledge of the falsity of the representation made in the declaration in Form-C issued by him.
6. In this context, comparision is drawn between the Section 8(3) of the CST Act and the CENVAT Credit Rules. In case of CENVAT credit also, earlier there was a provision under erstwhile Rule 57(G) that assessee has to declare the goods on which he intends avail CENVAT credit, before availing CENVAT credit. Lot of litigation got generated on this provision also, as department used to reject CENVAT credit in case of those materials not declared with the department, even though the materials are used in the manufacturing or processing. Taking cognizance of the unnecessary litigation, Union Government was kind enough to remove this requirement. Now, there is no requirement of filing any declaration by the assessee with Central Excise department for claiming CENVAT on any of the materials. Department would verify the use of the materials and take action of recovery in case the materials do not fit into the definition of inputs or capital goods.
7. In line with CENVAT rules, inclusion of materials in the registration certificate of the dealer shall be dispensed with under CST Act, which will give much sought after relief to the dealers and reduce litigation. The existing Section 8(3) shall be amended to read as:
(3) The goods referred to in sub-section (1) –
(b) are goods of the class or classes specified in the certificate of registration of the registered dealer purchasing the goods as being intended for re-sale by the purchasing dealer or subject to any rules made by the Central Government in this behalf, for use by him in the manufacture or processing of goods for sale or in the tele-communications network or in mining or in the generation or distribution of electricity or any other form of power;
(c) are containers or other materials specified in the certificate of registration of the registered dealer purchasing the goods, being containers or materials intended for being used for the packing of goods for sale;
(d) are containers or other materials used for the packing of any goods or classes of goods specified in the certificate of registration referred to in clause (b) or for the packing of any containers or other materials specified in the certificate of registration referred to in clause (c).
8. All the professional colleagues, trade and industry are requested to forward representations from their end for the proposed amendment.
(Author may be contacted onfcakoduri@gmail.com)
Download Text if the case- M/s.Hyundai Engineering & Constructio Co. Ltd. Vs. Commissioner of Trade Tax (Allahabad High Court), SALES/TRADE TAX REVISION No. – 1038 of 2005, Order Date :- 24.11.2014
THE assessee is an individual. He had filed his return declaring an income of Rs.3,54,480/-. The case of assessee was selected for scrutiny and notices u/s 143(2), 142(1) were issued. It revealed to the AO that the assessee along with his brother Mr. Nandish Reddy were the owner and in possession of 2 acres and 14 guntas of land. The AO found that both the assessee as well as Nandish entered into a joint development agreement with M/s Akme Project Ltd., wherein they had jointly received refundable deposit of Rs.1.00 crore for allowing the development on their land. The developer was to construct a saleable area of 3.00 lakh square feet at its own cost, wherein the assessee and his brother were entitled for 50% of the built up area. Thus, in the opinion of the AO, transfer of the land had taken place within the meaning of section 2(47)(v) and the assessees were assessable for long term capital gain (LTCG).
The issue before the Bench is - Whether in case of Joint Development Agreement, the transfer of land in lieu of developed area would crystallise only on the day the developer hands over the developed area. And yes is the answer of the Tribunal.
YESTERDAY, commenting on our Message Board, Advocate Gururaj said, In the past, when I had occasion to deliver talks in NACEN, Bangalore, I have posed this question to the departmental officers: "How much revenue is received routinely through self-assessment etc, and how much is received through recovery measures, demands etc?" Their consistent answer has been than more than 98% is realized routinely through self-assessment procedure. Though this is a ball park figure, it adds up when one compares annual indirect tax revenue receipts with the alleged revenue tied up in litigation. All the high drama of investigation, inquiry, SCNs, adjudications, appeals are only for realization of balance 2% or more .
Yesterday the CBEC released its Results Framework Document (RFD) for the Financial Year 2014-15, when there are just three months left in the Financial Year.
In the RFD, Board states that its target for Augmentation of revenue from Scrutiny of Assessment, Audit, Preventive operation, Anti-evasion operation, and Arrears recovery for the year on a best performance isRs.16550 crores. Board will be happy with even Rs. 14950 Crores.
Board hopes to collect an amount of Rs.6.23 lakh crores in the Financial Year 2014-15, out of which the collection through Assessment, Audit, Preventive operation, Anti-evasion operation, and Arrears recovery will be at best 16 thousand crores, about 2.5 percent as stated by Gururaj.
So all the hungama of audit, adjudication, notices, litigation, summons, hearings, visits, returns, reports and allied varieties of harassment is only to collect 16000 Crores. And for this we have an army of over 80,000 employees with over a hundred Chief Commissioners and hundreds of lower level Commissioners all of whom will cost the Nation about 6000 crores. The Net collection because of them would be Rs. 10,000 crores and even this amount might be under dispute and litigation. Revenue collection is obviously not the major task of the tax department. They are all busy with something else.
CBEC Results Framework Document (RFD)
SOME of the targets the CBEC has set for itself for the year are:
Implementation of Goods & Services Tax (GST) - Drafting of model CGST and IGST : As stated by the former Chairman, nobody consults CBEC on these matters; so they need not bother about this.
Appeals in CESTAT: Filing of early hearing application in cases involving revenue of more than Rs.5 crore and pending for more than one year or more as on 31-03-2014: This is another classic way of wasting time, money and paper. The CESTAT is busy clearing Stay petitions and not many matters are heard finally. How many cases can be heard early? But this is certainly a good method to keep the army employed.
Finalisation of acquisition, purchase and building plan for the new building of NACEN exclusively for probationers : Are they referring to Hindupur or Faridabad?
Prompt and friendly tax administration to encourage voluntary compliance : Board wants to/hopes to:
++ Dispose of a refund claim within 3 months of receipt of a complete claim++ Remit drawback within 7 working days of filing of manifest in the case of electronic processing of declarations, filing of a paper claim in the case of manual processing++ Clear the goods within 48 hours of filing of a complete & correct export / import declaration.++ Notify common forms for registration for Central Excise and Service Tax++ Draft model CGST and IGST law++ Improve satisfaction and efficiency of the indirect tax administration
CBDT notifies limit of 50% Govt. grant for deeming university/hospitals as substantially funded by Govt.
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