TAX TALK
Income of HUF subject to tax as separate entity
PUNEET GUPTA
Posted: Tuesday, May 22, 2012 at 0352 hrs IST Source:Indian Express
: India is known for its big happy families. Be it our television serials or movies, we epitomise the large family structure. The income-tax law has an interesting provision that comes into play when someone gets married. The Hindu Undivided Family (HUF) is a separate tax entity that is automatically constituted when a marriage takes place. Unlike what the name suggests, it is also applicable to Buddhist, Jain or Sikh families, besides Hindus.
The senior-most male member of the family is ordinarily regarded as the karta of the HUF. The income of an HUF is subject to tax separately (not in the hands of members) and an HUF is required to obtain a separate Permanent Account Number. An HUF can earn income from all sources, except salary. It may invest in a business and earn profits or earn capital gains. Rental income can be earned on ancestral or other property held by an HUF. A partnership firm may be formed in which HUF is a partner through the karta. An HUF can receive gifts as well. However, gifts exceeding R50,000 per financial year — unless received as part of a will or inheritance — are subject to tax.
An HUF can claim admissible deductions under various Sections of Income-Tax Act, 1961. To name a few, Section 80C for various eligible investments, such as national savings certificate, public provident fund, mutual funds, fixed deposits for five years or more, life insurance; Section 80D for health insurance premium; Section 80G for donations, and so on. An HUF’s taxable income is subject to same tax slab rates as an individual taxpayer. For FY13, income below R2 lakh is exempt from tax and incomes between R2-5 lakh, R5-10 lakh and above R10 lakh are subject to tax at 10%, 20% and 30%, respectively. In addition, education cess of 3% is applicable on the amount of tax.
It is mandatory for an HUF having taxable income exceeding the exemption limit to file income-tax return (ITR). The ITR form will depend on the various sources of income of an HUF. If an HUF has income from house property, capital gains and/or other sources, ITR-2 should be filed. If an HUF is a partner in a partnership firm, ITR 3 needs to be filed. However, if the HUF has business income as well, ITR-4 would have to be filed.
For FY13, an HUF is required to file its ITR electronically if its taxable income exceeds R10 lakh. Additionally, if the HUF is a resident and ordinary resident in India, and has foreign assets, then it needs to file ITR electronically and disclose therein the prescribed details of such foreign assets. Foreign assets also include financial interest in any entity or signing authority in any account located outside India.
The writer is senior tax professional, Ernst & Young
The senior-most male member of the family is ordinarily regarded as the karta of the HUF. The income of an HUF is subject to tax separately (not in the hands of members) and an HUF is required to obtain a separate Permanent Account Number. An HUF can earn income from all sources, except salary. It may invest in a business and earn profits or earn capital gains. Rental income can be earned on ancestral or other property held by an HUF. A partnership firm may be formed in which HUF is a partner through the karta. An HUF can receive gifts as well. However, gifts exceeding R50,000 per financial year — unless received as part of a will or inheritance — are subject to tax.
An HUF can claim admissible deductions under various Sections of Income-Tax Act, 1961. To name a few, Section 80C for various eligible investments, such as national savings certificate, public provident fund, mutual funds, fixed deposits for five years or more, life insurance; Section 80D for health insurance premium; Section 80G for donations, and so on. An HUF’s taxable income is subject to same tax slab rates as an individual taxpayer. For FY13, income below R2 lakh is exempt from tax and incomes between R2-5 lakh, R5-10 lakh and above R10 lakh are subject to tax at 10%, 20% and 30%, respectively. In addition, education cess of 3% is applicable on the amount of tax.
It is mandatory for an HUF having taxable income exceeding the exemption limit to file income-tax return (ITR). The ITR form will depend on the various sources of income of an HUF. If an HUF has income from house property, capital gains and/or other sources, ITR-2 should be filed. If an HUF is a partner in a partnership firm, ITR 3 needs to be filed. However, if the HUF has business income as well, ITR-4 would have to be filed.
For FY13, an HUF is required to file its ITR electronically if its taxable income exceeds R10 lakh. Additionally, if the HUF is a resident and ordinary resident in India, and has foreign assets, then it needs to file ITR electronically and disclose therein the prescribed details of such foreign assets. Foreign assets also include financial interest in any entity or signing authority in any account located outside India.
The writer is senior tax professional, Ernst & Young
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