Saving Tax through Hindu Undivided Family (HUF)

What is an HUF? 
If you are a Hindu, Jain, Sikh or Buddhist, you can have an HUF as a separate tax entity and have tax benefits under wealth tax and income tax. The concept of HUF is based on the joint family system. This family comprises of male members that are blood relatives, female members who are either married, mothers, unmarried daughters or widows etc along with the children and grandchildren, sometimes extending to five generations, putting up under the same roof.

This arrangement of HUF highlights that there is a separate entity called "Family" that has its source of income, its set of liabilities and assets and fall under the taxation slab. Formation of HUF gives you an opportunity to save tax and gain tax benefits under Income Tax and Wealth Tax.

Few years back individuals used to have multiple Pan Cards in order to gain tax rebates by showing that they are different persons. It goes without saying that this is an illegal practice and punishable offense and thousands of individuals may be doing so even now. However, the right way for them could be forming an HUF and applying for a Pan Card in name of the HUF.

Account of HUF - The manager of the HUF is generally the senior most person of the family who is referred to as 'Karta'. The family members under HUF share business, properties, wealth, income and also hold common accounts which are managed by the 'Karta'. This means that 'Karta' becomes the authorized signatory of these accounts.

The common corpus gets created when all family members pool in their incomes in the accounts. This is managed by the 'Karta' and the division of corpus can be made on the basis of agreement between every coparcener of the family. Tax benefits can also be availed under various sections and heads by formation of an HUF.

Documentation - Following is the list of documents that are generally required in order to open an HUF account. The documentation may, however, differ from bank to bank or from one financial institution to the other.

• Identity Proof of Karta
• Address Proof of Karta
• Pan Card of Karta
• Pan Card of HUF
• A declaration is also provided by each member of the family where they declare the name of Karta and also state that -
  i) Karta has the authority of the accounts vested in his hand
  ii) That the members are the only members of the HUF
  iii) The Karta holds the right to govern all the transactions of the HUF accounts on behalf of the members.

Tax Benefits to Hindu Undivided Family (HUF) - If you wish to avail benefits and save taxes you can achieve this through Hindu Undivided Family account. The following are the benefits that can accrue to you through HUF.

• Gifts that you receive up to Rs 50,000 are exempt from tax under an HUF. One can avail tax benefits for higher amounts in a way that the father who owns an HUF can give property or higher amount of money as gift to his son who owns a small HUF and can avail exemptions under Section 64(2) and Section 56(2) but that has to be in the name of HUF and not an individual.

As HUF is treated as a separate entity, the following exemptions are also applicable -

• Section 80 D - This section becomes applicable when HUF is paying a medical premium on behalf of its members. Deduction up to Rs 15,000 can be claimed under this head and deduction up to Rs 20,000 can be claimed if the member is a senior citizen.
• Section 80 DD - This section enables the HUF to claim a deduction of up to Rs 50,000 under the head of medical expenses incurred, expenses incurred for training, maintenance and rehabilitation of a disabled member of the HUF.
• Section 80 C - Apart from the standard deduction, the deduction under Section 80 C is also applicable to HUF. This section enables HUF to invest the income earned from sources like business, property, salary or through business in any of the Section 80 C permissible investments like PPF, NSC, LIC premiums, ELSS etc.
• Wealth Tax - An exemption of up to Rs 30 Lakhs can also be claimed under wealth tax by HUF.
• Capital Gains on House Property - According to the standard rule if an HUF sells some property and gets capital gains then it would be in a position to save on the capital gains by reinvesting the money into some other property within 2 years of such sale or by investing the proceeds in order to construct a new property within 3 years of such sale. The capital gains can also be reinvested in REC or NHAI bonds for a lock in period of three years but the interest earned through this investment is taxable for HUF.

Things to Know about HUF

• Any HUF can receive gifts from a bigger HUF and can also receive gifts from members of the HUF as assets. If a stranger gives any gift to the HUF then that should not be exceeding Rs 50,000.
• The Karta of the family is entitled to receive remuneration from HUF in order to carry forth the expenditure and in interest of the family.
• One needs to be married for creating an HUF. Having children for this purpose is not mandatory.
• Daughters are entitled to be a Coparcener even after their wedding. Daughters also enjoy the right of being co-parancers in two HUFs.

Government enforces KYC norms on retail purchase of gold

Finance Minister P Chidambaram's relentless drive to curb India's staggering current account deficit (CAD) by curbing rising gold imports is finally gaining speed. The government, in a masterstroke to curb gold imports, has made an amendment to extend the purview of the Prevention of Money Laundering (PML) Act to enforce Know Your Customer norms for retail purchases of gold and precious stones.

Since a significant proportion of gold trade is executed in cash, thereby facility easy hoarding and conversion to black money, the government, has expanded the ambit of the Prevention of Money Laundering Act, with the Parliament passing an amendment effective February 15 2013.

Now all dealers in precious metals and stones will have comply with Know Your Customer (KYC) requirements and establish the identity of the owner in each leg of trade above the threshold amount.

Although the threshold amount has not been specified as yet, market understanding says that since KYC norms for banks have set the threshold limit as Rs 50,000 the same could be applicable to gold and precious stone purchases. Currently, retail jewelers comply with KYC norms when the transaction value is above Rs 5 lakhs to facilitate the deduction of 1 percent TDS. Additionally, traders will have to maintain records for five years and retrieve the information as and when required by the regulatory authority.

Anybody found guilty of money laundering shall be liable for imprisonment which shall not be less than three years, but which may extend to seven years, and will also attract a fine.

Analysts believe this amendment will significantly curtail the unreported cash transaction in bullion trade and curtail overall imports, which on a five year average, have stood at 71 percent of the country's CAD. While retail jewellers say they expect some resistance from customers.

CBEC extends the date of submission of the Form ST-3 to 15th April 2013

F.No.137/99/2011-Service Tax 

Government of India 

Ministry of Finance 

Department of Revenue 

Central Board of Excise & Customs 

*** 

New Delhi, dated the 6th March, 2013 

 ORDER NO: 1/2013-Service Tax

 In exercise of the powers conferred by sub-rule(4) of rule 7 of the Service Tax Rules, 1994, the Central Board of Excise & Customs hereby extends the date of submission of the Form ST-3 for the period from 1st July 2012 to 30th September 2012, from 25th March, 2013 to 15thApril, 2013. 

The circumstances of a special nature, which have given rise to this extension of time, are as follows: 

a) The Form ST-3 is expected to be available on ACES around 20th March, 2013. 

b) This will result in all the assessees attempting to file their returns in a short time period, which may result in problems in the computer network and further delay and inconvenience to the assessees.

Himani Bhayana 

Under Secretary (Service Tax) 

Central Board of Excise and Customs