WHICH INCOME COULD BELONG TO HUF?

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HUF

Query 1]

Sir, I would like to quit all my shares which I am holding during the next Bull Rally. All the shares are long term ones (i.e., having a holding period of more than one year). Whether any income tax liability on the profit made? I will not be holding any shares after sale. [np_anand7@rediffmail.com]

Opinion:

Long-term capital gain income arising on sale of shares on which securities transactions. Have been paid will be totally exempt from income tax u/s 10(38) of the Income Tax Act-1961.

Query 2]

I am an accountant & got certain queries which I shall be thankful if you can kindly enlighten on the following points:

  1. Is it compulsory to file the income tax return for individual/HUF/ Company/ Charitable Trust & partnership firm even if they don’t have the taxable income? Whether having a PAN makes the return filing compulsory?
  2. A person is working as an employee in one company & getting salary from that job. He will be starting his business also in the current year as a proprietary firm. Whether he will be required to file two separate income tax return (i.e., one for salary income or and the second one for business income)?
  3. Whether HUF can also claim deduction u/s 80C towards LIC premium payment of the members of the HUF?
  4. Also Whether an individual can transfer few of his assets like Bank FDR/ NSC/ Funds to HUF. So that the income could be treated as the income of the HUF and not that of Individual? Also please guide as to which income could be belong to HUF or which income could be treated as the income of the HUF?

[Jayantibhai Thakkar]

 

Opinion:

  1. Filing of income Tax Return- Whether Mandatory:

    a] For Individual/HUF/AOP:
    Individual/HUF/AOP are required to file the income tax return only. If their Income before allowing deduction under chapter VIA (i.e., section 80C, 80D, 80G etc). And exemptions u/s 10A, 10B or 10BA exceeds the exemption limit. If it is below the exemption limit, filing the return is optional for such assesses. Merely having a PAN doesn’t make filing compulsory for this category of assessee.
    b] For Partnership Firms & Companies:
    Partnership Firms & Companies are compulsorily required to file the income tax return whether or not they have any taxable income.
    c] For Charitable Trust/Institutions:
    Charitable Trust/Institutions are required to file the income tax return only if their total Income exceeds the maximum amount which is not chargeable to tax without giving effect to the provision of section 11 & 12.

  2. It may be noted that even if the return is not required to be filed mandatorily in few cases mentioned above. Even then an assessee may submit his return voluntarily. In case of assessee having loss under the head “Income from Business/Profession” or “Income from Capital Gain”. It is advisable to file the return before the due date of filing the return of income u/s 139(1) so as to have the benefit of carry forward of such loss for set off against the profit in subsequent years.
  3. An individual having income from salary as well as income from business would be require to file only one return of income.
  4. HUF can also claim deduction U/s 80C towards life insurance premium payment of the members of the family.
  5. If any member of the HUF transfer his own assets to HUF (i.e., throw his assets to the common pool). Income from such assets would be taxable in the hands of individual transferring the assets and not in the hands of HUF. In general, HUF can have following incomes:

    a] Income from the ancestral assets/properties belonging to the forefathers of the Individual or Income arising by investing. The sale proceeds of such ancestral assets.

    b] Income received from the assets received by a married individual on partition of a bigger HUF. i.e., HUF of a Father or a Grandfather.
    c] Any income arising out of the investment of HUF funds (like interest earned on loans given by an HUF) or on the utilization of HUF assets (like rent earned on letting out HUF property).

    It is important that the income is earn using HUF funds or property only to be categorize as an HUF Income. If the income arises on account of the personal exertions of the karta or any other members and not as a result of investment of HUF funds. Such income would GENERALLY be regard as the individual income of the karta or that member.

HUF


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