7.     How HUF Status in Income Tax Save You a Lot of Money

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There are many financial transactions where, persons buying or selling immovable property — residential, agricultural, commercial or industrial property or any movable property declare their status as that of Hindu Undivided Family or HUF. But a mere declaration by a Hindu buyer or seller of real estate, or any asset, that his status is that of HUF cannot be accepted in law because there are certain legal requirements for a true declaration of HUF status. In this tip we have explained the main aspects which are to be home in mind while dealing in movable and immovable property transactions and desiring to declare the status of HUF so that a good deal of money on income tax can also be saved.

Tax Benefits of HUF


The question of HUF status for Hindu buyer or sellers of any property assumes importance because of certain tax advantages attached with HUF under the income tax and wealth tax laws. Thus, if an individual has personal income and has also HUF income, he would be entitled to have an exemption of ` 2,00,000 for his individual income and another ` 2,00,000 for his HUF income for the F.Y. 2012-2013 (i.e., A.Y. 2013-2014). Besides, he would also be eligible to a further income tax deduction or exemption of ` 1 lakh under Section 80C in respect of LIP premia, PPF contribution, NSC, etc., both on individual and HUF income separately. Besides, under the Wealth Tax Act, 1957 also separate exemptions are available for individual property and HUF property. Thus, whereas the taxable individual wealth is eligible to a general exemption of `30 lakh, the HUF’s taxable wealth is also eligible to a further general exemption of ` 30 lakh. Hence, persons having immovable property and jewellery and motorcars under HUF status stand to gain from the extra exemption under Wealth Tax Act as well.

Full Partition of HUF


One important aspect of Income Tax Act, 1961 which is to be borne in mind while effecting partition of an HUF is that only complete partition of the HUF is permitted. This is because under Section 171 of the Income Tax Act partial partition of an HUF is not recognized in law. There are certain other incidental matters connected with HUF transactions which should also be taken care of.


Other Points to Keep in Mind


The bank account should be in the name of either the HUF or in the name of the Karta by specifically declaring that the account is that of the HUF only. Only the funds belonging to the HUF should be deposited in such an account. Normally, the Karta of the HUF is entitled to sign the bank transactions. He may, however, also permit the other adult members of the family to sign on behalf of the HUF. Another important thing that can be remembered in connection with HUF property is that where a person wants to transfer some property by Will to the members of his family, he can transfer the same for the specific purpose of the HUF of his son or sons so as to constitute the amounts so transferred through Will or so gifted by Will as the HUF property of the son(s) concerned. This would result into a good deal of income tax and wealth tax saving for the persons inheriting such property by Will as mentioned above.
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“Penalties” Under Income Tax Act. 1956
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Surveys for Checking Ostentatious Expenditure
Surveys for Enforcing Compliance with Provisions of TDS
“Summon” U/s 131 of Income Tax Act.
Investigation by Income Tax Department:
Appellate Authorities of Income Tax Department
Power to Call for Information U/s Sec. 133(6) of Income Tax Act.
Specific Surveys U/s 133A(1) of Income Tax Act.
Types Of Income Subject To TDS [Deduction Of Tax At Source]
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