Under the provisions of the Income Tax Act, it is obligatory for a person responsible for paying any interest, dividend, salary, etc. to deduct income tax at source in certain cases. One such provision in Section 194A of the Income Tax Act, applies to a person responsible for paying any interest, other than “interest on securities” to residents. He has to deduct income tax at source at the rates of tax in force. The income tax has to be deducted either at the time of payment thereof in cash, by cheque or draft etc., or, at the time of credit of such interest income to the account of the payee, whichever is earlier. However, there are certain situations as laid down in the said section, where no income tax deduction has to be made. One such important condition is that where an individual or a Hindu Undivided Family, receives loans or incurs borrowings and pays interest to any resident person, he or it should not deduct any income tax thereon in respect of interest so paid or credited. This is a very useful concession available to a Hindu Undivided Family. Hence, from the point of view of tax planning, the HUE can be utilised by tax payers in arranging loans or borrowing, either in one’s own name or in the name of the Hindu Undivided Family, so that the various legal formalities connected with the deduction of income tax at source on interest and the furnishing of various statements and returns in respect thereof are avoided. The convenience and time saved ultimately result into tax saving as well. In case the HUF is subjected to Tax Audit, then it would be duty bond to deduct tax at source on interest income and other incomes subjected to TDS. Thus, another advantage of separate HUF is not the same come be utilised to pay interest on loans without the prediction of TDS. |
