Purchasing property from a Non-Resident Indian (NRI) involves several tax implications, including the deduction of Tax Deducted at Source (TDS). This article explores the nuances of TDS on property transactions involving NRIs and the process for applying for a lower TDS deduction.

Table of Contents

1. Introduction
   • Importance of Understanding TDS in NRI Property Transactions
   • Overview of Relevant Tax Laws
2. TDS on Property Purchase from NRI
   • Applicable TDS Rates
   • Calculating TDS on Property Purchase
   • Payment and Reporting of TDS
3. Lower TDS Deduction
   • Concept of Lower TDS Deduction
   • Eligibility Criteria for Lower TDS Deduction
   • Application Process for Lower TDS Deduction
4. Documentation and Compliance
   • Required Documentation for TDS Deduction
   • Ensuring Compliance with Tax Laws
5. Practical Scenarios and Examples
   • Scenario 1: Standard TDS Deduction
   • Scenario 2: Lower TDS Deduction
6. Penalties for Non-Compliance
   • Consequences of Incorrect TDS Deduction
   • Penalties and Legal Implications
7. Conclusion
   • Recap of Key Points
   • Final Thoughts on TDS Management in NRI Property Transactions

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Introduction

Importance of Understanding TDS in NRI Property Transactions

When purchasing property from an NRI, buyers must adhere to specific tax regulations, particularly concerning TDS. Understanding these requirements is crucial to avoid penalties and ensure a smooth transaction.

Overview of Relevant Tax Laws

According to the Indian Income Tax Act, TDS must be deducted when a buyer makes a payment to an NRI for the purchase of immovable property. This is to ensure that taxes due on the capital gains from the sale are collected at the source.

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TDS on Property Purchase from NRI

Applicable TDS Rates

The TDS rates on the purchase of property from an NRI are higher compared to transactions involving resident Indians. The rates are as follows:

• Long-Term Capital Gains: If the property is held by the NRI for more than two years, a TDS of 20% (plus applicable surcharge and cess) is levied.
• Short-Term Capital Gains: If the property is held for two years or less, a TDS of 30% (plus applicable surcharge and cess) is applicable.

Calculating TDS on Property Purchase

TDS is calculated on the sale consideration or the capital gains, whichever is higher. The buyer must obtain the details of the capital gains from the NRI seller to ensure accurate TDS deduction.

Payment and Reporting of TDS

The buyer is responsible for deducting TDS at the time of making the payment to the NRI seller. The deducted amount must be deposited with the government using Form 27Q within 30 days from the end of the month in which the deduction is made. The buyer must also provide a TDS certificate (Form 16A) to the seller.

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Lower TDS Deduction

Concept of Lower TDS Deduction

In some cases, the NRI seller may be eligible for a lower TDS deduction if their actual tax liability is less than the standard TDS rate. This can be due to lower capital gains or applicable deductions and exemptions.

Eligibility Criteria for Lower TDS Deduction

To qualify for a lower TDS deduction, the NRI seller must demonstrate that their total income, including capital gains from the property sale, warrants a lower tax liability than the prescribed TDS rate.

Application Process for Lower TDS Deduction

1. Application to Assessing Officer: The NRI seller must apply to the Assessing Officer (AO) in their jurisdiction using Form 13 for a certificate of lower TDS deduction.
2. Submission of Documents: The application should be supported by documents such as the sale agreement, computation of capital gains, proof of purchase price, and other relevant financial details.
3. Issuance of Certificate: Upon review, the AO may issue a certificate specifying the lower TDS rate applicable to the transaction.
4. Informing the Buyer: The NRI seller must provide the lower TDS certificate to the buyer to enable them to deduct TDS at the lower rate specified.

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Documentation and Compliance

Required Documentation for TDS Deduction

To ensure compliance, both the buyer and the NRI seller must maintain the following documents:

• Sale agreement or deed
• PAN details of both parties
• Form 13 (if applying for lower TDS)
• Lower TDS certificate (if applicable)
• Proof of TDS payment (Form 27Q)
• TDS certificate issued to the seller (Form 16A)

Ensuring Compliance with Tax Laws

Compliance with tax laws involves accurate calculation, timely deduction, and proper reporting of TDS. Non-compliance can result in penalties and interest charges.

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Practical Scenarios and Examples

Scenario 1: Standard TDS Deduction

Example: Mr. A, an NRI, sells a property to Mr. B for ₹1 crore. The property was held for three years, resulting in long-term capital gains.

• Sale consideration: ₹1 crore
• TDS rate: 20% + surcharge and cess
• Total TDS: Approx. ₹22.88 lakh (assuming 20% TDS + 4% cess)

Mr. B deducts ₹22.88 lakh as TDS and deposits it with the government.

Scenario 2: Lower TDS Deduction

Example: Mr. A, an NRI, estimates his capital gains tax liability to be lower due to indexed cost of acquisition. He applies for a lower TDS certificate.

• Sale consideration: ₹1 crore
• Lower TDS rate approved: 10%
• Total TDS: ₹10 lakh

Mr. B deducts ₹10 lakh as TDS based on the lower TDS certificate and deposits it with the government.

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Penalties for Non-Compliance

Consequences of Incorrect TDS Deduction

Incorrect or non-deduction of TDS can lead to severe penalties, including:

• Interest on the amount not deducted/paid.
• Penalty equivalent to the TDS amount not deducted.
• Disallowance of the expense in the computation of taxable income.

Penalties and Legal Implications

Non-compliance may also result in prosecution under the Income Tax Act, leading to additional financial and legal consequences.

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Conclusion

Recap of Key Points

1. Higher TDS Rates: Property purchases from NRIs attract higher TDS rates (20% for long-term and 30% for short-term capital gains).
2. Lower TDS Deduction: NRIs can apply for a lower TDS deduction if their tax liability is less than the standard rate.
3. Compliance: Accurate calculation, timely deduction, and proper reporting are essential for compliance.

Final Thoughts on TDS Management in NRI Property Transactions

Understanding and managing TDS in property transactions involving NRIs is crucial for both buyers and sellers. Ensuring compliance with tax regulations, maintaining proper documentation, and seeking professional advice when necessary can help facilitate smooth and lawful transactions.

1. NRI Meaning:

• Non-Resident Indian (NRI) refers to an Indian citizen or a person of Indian origin who resides outside India for employment, business, or any other purpose indicating an indefinite stay abroad.

2. NRI Status Calculation Process:

• NRI status is determined based on the individual’s physical presence in India during a financial year (April 1 to March 31).
• If an individual stays in India for less than 182 days in a financial year, they are considered an NRI for that year subject to meet out other conditions of status determination

3. Income Tax Applicable to NRIs:

• NRIs are taxed on income earned or accrued in India, such as income from property, capital gains, interest, dividends, etc.
• Income earned outside India is generally not taxable in India for NRIs.
• The tax rates applicable to NRIs are the same as those for residents of India.

4. Interest in NRE and NRO Accounts:

• NRE (Non-Resident External) accounts: Funds in NRE accounts are freely repatriable (can be transferred abroad) and are exempt from Indian taxes, including interest earned.
• NRO (Non-Resident Ordinary) accounts: Funds in NRO accounts are not freely repatriable, and the interest earned is subject to Indian taxes.

5. Double Taxation Avoidance Agreements (DTAA):

• DTAA aims to prevent double taxation of income in two countries.
• NRIs can benefit from DTAA provisions by claiming tax credits or exemptions in one country for taxes paid in the other country.

6. High-Value Transactions to be Kept in Mind by NRIs:

High-value transactions for NRIs can include various activities or financial transactions that involve significant sums of money or assets. Here are some examples of high-value transactions that NRIs should be mindful of:

Property Transactions:

• Purchase or sale of real estate: NRIs investing in or disposing of property in India should be aware of the high value associated with real estate transactions. This includes buying, selling, or gifting property.
• Rental income: NRIs earning rental income from properties in India should keep track of the high-value transactions associated with rental payments, lease agreements, etc.

Investments:

• Stock Market Investments: NRIs investing in the Indian stock market may engage in high-value transactions through buying or selling shares, mutual funds, or other securities.
• Fixed Deposits and Financial Instruments: Investments in fixed deposits, bonds, debentures, and other financial instruments may involve significant sums of money.

Banking and Remittances:

• Transfer of Funds: NRIs transferring large sums of money to or from India for investment, business, or personal purposes should be aware of the high-value nature of these transactions.
• Foreign Currency Accounts: Opening or closing foreign currency accounts, especially NRE and NRO accounts, involves high-value transactions that NRIs should monitor.

Loans and Borrowings:

• Loans and Mortgages: NRIs obtaining loans or mortgages from Indian banks or financial institutions for property purchase or other purposes may involve high-value transactions.
• Repayment of Loans: NRIs repaying loans or mortgages to Indian lenders also constitutes high-value transactions.

Business Transactions:

• Setting up Business Entities: NRIs establishing businesses or investing in Indian companies may engage in high-value transactions related to company formation, capital infusion, etc.
• Commercial Contracts: Business agreements, contracts, and transactions involving significant monetary values should be carefully documented and monitored.

Tax Payments and Compliance

• Payment of Taxes: NRIs fulfilling their tax obligations in India, including payment of income tax, property tax, or other levies, may involve high-value transactions.
• Compliance Reporting: Meeting reporting requirements for high-value transactions, such as filing tax returns, disclosing foreign assets, and complying with regulatory norms, is essential for NRIs.

7. Tax Filing for NRIs:

• NRIs are required to file income tax returns in India if their total income exceeds the basic exemption limit.
• Even if income is below the taxable threshold, filing a return may be necessary to claim a refund of taxes withheld at source or if certain types of income (like capital gains) are involved.
• Timely filing of tax returns and compliance with reporting requirements are crucial for NRIs to fulfill their tax obligations in India.

For personalized advice and assistance with tax matters, NRIs should consult with qualified tax professionals or chartered accountants familiar with Indian tax laws and regulations pertaining to NRIs.

When U.S. stocks are given to an employee in India, taxation can be complex due to the international nature of the income and the need to consider tax regulations in both the United States and India. Here’s a simplified overview of how taxation generally works for such cases, keeping in mind that tax laws are subject to change and can vary based on specific circumstances. Always consult a tax professional for advice tailored to your situation.

1. At the Time of Granting Stock Options:

In general, if the stock options are granted to the employee but not vested, there is no immediate tax implication in India. The taxation event occurs at the time of exercise.

2. At the Time of Exercise:

When an employee exercises their stock options (i.e., buys the stock), the difference between the exercise price and the fair market value (FMV) of the shares is taxed as a perquisite (a benefit in addition to salary) under the head “Salaries.” This is subject to income tax according to the individual’s income tax slab rates in India.

3. At the Time of Sale:

When the employee eventually sells the stocks, the gain from the sale is subject to capital gains tax. The tax rate depends on whether it’s a short-term or long-term capital gain:

• Short-term Capital Gains (STCG): If the stocks are held for less than 24 months from the date of exercise, the gain is considered short-term and is taxed according to the individual’s income tax slab rates which is applicable.
• Long-term Capital Gains (LTCG): If the stocks are held for more than 24 months, the gain is considered long-term and is taxed at 20% with indexation benefits, which adjust the purchase price for inflation to calculate the gain.

4. Double Taxation Avoidance Agreement (DTAA):

India has a DTAA with the U.S., which means taxpayers can avoid being taxed twice on the same income. If taxes are paid in the U.S. on the income from the sale of stocks, you may be eligible for a credit for those taxes against your tax liability in India. The specifics depend on the DTAA provisions and should be reviewed carefully.

5. Tax Filing in India:

It’s important for the employee to disclose international assets and foreign income in their Indian tax return if they qualify as a resident for tax purposes in India.

If you receive the RSU of a foreign company, you must disclose it under the Foreign Asset Schedule (FAS). If you paid taxes at vesting by selling shares, those shares wouldn’t be mentioned in FAS. While selling your RSU holdings, you pay tax only on the profit made and not the entire value of the shares. This also helps in avoiding double taxation

Non-disclosure can lead to penalties and interest and further Scrutiny by the tax department

6. Documentation:

Maintaining detailed records of the dates of grant, exercise, sale, and the amounts involved is crucial for calculating taxes accurately and for compliance with both U.S. and Indian tax laws.

This overview is a simplification, and the actual tax implications can vary greatly based on individual circumstances, specific types of stock options (e.g., ESOPs, RSUs), and changes in tax laws.

We will recommend to Consult with a tax professional who has expertise in cross-border taxation to navigate these complexities.

Income Tax Department Uncovers HRA Fraud Through Unauthorized PAN Usage Identifies 10,000 Instances Exceeding Rs 10 Lakh Each; Employees to Face Consequences

Severe Penalties Await Those Found Guilty of Fabricating Deductions or Rebates. The news has been published in Times of India and full news is hereunder-

“The income tax department has detected a fraud involving unauthorised use of permanent account numbers (PAN) by individuals to claim house rent allowance when they were not even tenants. So far, at least 8,000-10,000 high value cases have been detected with amounts running into Rs 10 lakh or more.
The cases first came to light when authorities found alleged rent receipts of around Rs 1 crore by an individual.

When confronted, the individual whose PAN reflected the “rental income” denied any knowledge. Further probe revealed that the individual indeed did not receive the rent that was shown against his name.

The case prompted the income tax department to further investigate the matter and it turned out that there was rampant misuse of PANs by unscrupulous individuals to claim tax deduction from their employers. So much so that officials have now come across cases where employees of certain companies have used the same PAN to claim tax deduction.

Tax officials said the department is now going after those employees, who have made bogus claims to recover the tax. It is unclear if legal action is also planned against them. The case reflects another instance of PAN being misused without the holder actually knowing about it. In this case, what has complicated the matter is that currently TDS (tax deducted at source) is applicable only for monthly rent of over Rs 50,000 or annual payment in excess of Rs 6 lakh. So, a lot of employees have been misusing the benefit to avoid paying tax on rental income.
“Most of the financial transactions are linked to PAN. With use of latest technology and automated processes and data analytics, it is not very difficult for tax authorities to track fake claims. This may not only entail tax payments later but also will result in levy of penal interest, penalty and even lead to prosecution in extreme cases. Where rent is paid to the parent, the rent should be paid through cheque or by way of electronic transfer (and not through cash) to demonstrate the genuineness of the transaction and that parent too needs to report that rental income in his or her return,” said Kuldip Kumar, partner at Mainstay Tax Advisors.
Tax officials said the fault entirely lies with the employee and the employer cannot be held liable even if multiple individuals quote the same PAN for rent payment. “Employers are not expected to make a deep investigation, but the onus is also on them to have reasonable checks and balances, while obtaining the proof of rent paid to allow HRA exemption. In fact, in some of the cases, employers have their policy that where any employee is caught having submitted a fake claim for HRA or LTA etc, such employee may be terminated from employment,” said Kumar.

Souce:- Times of India

https://timesofindia.indiatimes.com/business/india-business/tax-department-detects-hra-fraud-with-illegal-usage-of-pans/articleshow/108885147.cms

Notice under Section 133(6):

Under Section 133(6) of the Income Tax Act, tax authorities have the authority to issue a notice to any person or entity to furnish information or documents relevant to a tax assessment or inquiry. This notice empowers tax officials to gather necessary information to verify the accuracy and completeness of the taxpayer’s financial records.

Section 133(6) in The Income- Tax Act, 1995–

(6) require any person, including a banking company or any officer thereof, to furnish information in relation to such points or matters, or to furnish statements of accounts and affairs verified in the manner specified by the Assessing Officer, the Deputy Commissioner (Appeals), the Deputy Commissioner or the Commissioner (Appeals), giving information in relation to such points or matters as, in the opinion of the Assessing Officer, the Deputy Commissioner (Appeals) the Deputy Commissioner of the Commissioner (Appeals) will be useful for, or relevant to, any inquiry or proceeding under this Act.

For failure to comply with notice u/s 133(6)

Section 133(6) notice is given to tax payer or related parties seeking certain details of transaction done during the year under consideration. Failure to comply with notice can ead penalty of Rs10,000 u/s 272A.

Key Points of Notice under Section 133(6):

1. Purpose: The notice is issued to gather specific information or documents that may be crucial for assessing the taxpayer’s tax liability or conducting an inquiry into their financial affairs.
2. Scope: It can cover a wide range of information, including financial statements, account books, bank statements, transaction records, agreements, contracts, and any other documents relevant to the tax assessment.
3. Timeline: Taxpayers are typically required to respond to the notice within a specified timeframe, usually within a few weeks from the date of receipt.

Response to Notice under Section 133(6):

1. Understanding the Requirements: Upon receiving the notice, the taxpayer should carefully review the requests outlined in the notice to understand the specific information or documents sought by the tax authorities.
2. Gathering Documents: The taxpayer should gather all the requested information or documents mentioned in the notice, ensuring that they are accurate, complete, and organized for submission.
3. Preparation of Response: It’s essential to prepare a clear and concise response addressing each request in the notice comprehensively. If any information or documents are not readily available, the taxpayer should provide a valid explanation for the delay or inability to furnish them.
4. Submission to Tax Authorities: The response, along with the relevant documents, should be submitted to the designated tax authority within the stipulated timeframe mentioned in the notice. It’s advisable to maintain copies of all documents submitted for future reference.

Importance of Compliance:

• Legal Obligation: Responding to the notice under Section 133(6) is a legal obligation, and failure to comply with the notice can result in penalties, fines, or further scrutiny by tax authorities.
• Facilitating Tax Assessment: By providing the requested information or documents in a timely and accurate manner, taxpayers facilitate the tax assessment process, ensuring transparency and compliance with tax laws.

Conclusion:

A notice under Section 133(6) of the Income Tax Act empowers tax authorities to gather essential information or documents relevant to tax assessment or inquiries. Taxpayers should respond promptly and diligently to such notices, providing the requested information or documents to ensure compliance with tax laws and facilitate the tax assessment process.

Under the Income Tax Act of India, various financial transactions are subject to reporting requirements to the Income Tax Department. These transactions, which exceed specified thresholds, are reported by the respective entities to the Income Tax Department, and the details of these transactions are compiled into the Annual Information Statement (AIS) for individual taxpayers. Here are some common transactions and their respective thresholds that are reported under the AIS:

1. Bank Transactions:

• Cash deposits or withdrawals aggregating to Rs. 10 lakh or more in a financial year in one or more savings account of a person maintained with the same bank.
• Payment made by any mode (other than cash) for credit card bills aggregating to Rs. 10 lakh or more in a financial year.
• Purchase of bank drafts or pay orders with cash aggregating to Rs. 10 lakh or more in a financial year.

1. Mutual Fund Transactions:

• Redemption of units of mutual fund for an amount exceeding Rs. 10 lakh.

1. Stock Transactions:

• Sale or purchase of shares of a company listed on a recognized stock exchange exceeding Rs. 10 lakh in value per transaction.

1. Property Transactions:

• Purchase or sale of immovable property valued at Rs. 30 lakh or more.
• Receipt of rent exceeding Rs. 2.40 lakh per annum.

1. Credit Card Transactions:

• Payment made by any mode (other than cash) for credit card bills aggregating to Rs. 10 lakh or more in a financial year.

1. Foreign Exchange Transactions:

• Purchase of foreign currency or traveler’s cheque exceeding Rs. 10 lakh or more in cash.

1. Fixed Deposit Transactions:

• Fixed deposit with banks or post office aggregating to Rs. 10 lakh or more.

1. Cash Transactions:

• Cash deposits aggregating to Rs. 10 lakh or more in a financial year in one or more saving account of a person maintained with the bank.
• Cash deposits aggregating to Rs. 50 lakh or more in a financial year in one or more accounts (other than current account and time deposit) maintained with the bank.

Reporting and Compliance:

• Annual Information Statement (AIS): The details of these high-value transactions are compiled into the Annual Information Statement (AIS) for individual taxpayers and are made available for download through the Income Tax Department’s e-filing portal.
• Verification and Compliance: Taxpayers are required to verify the accuracy and completeness of the high-value transactions reported in their AIS. Any discrepancies or omissions should be rectified promptly to ensure compliance with tax laws.
• Income Tax Return Filing: Taxpayers must accurately report all high-value transactions in their income tax returns and ensure compliance with tax laws. Failure to disclose these transactions may attract penalties or scrutiny by tax authorities.

The Annual Information Return (AIR) serves as a crucial tool for the Income Tax Department to track high-value financial transactions and ensure tax compliance among taxpayers. When significant discrepancies are identified between the information reported in the AIR and the income tax returns filed by taxpayers, the Income Tax Department may issue a notice to investigate and resolve the discrepancies. Taxpayers are required to respond to such notices promptly and provide the necessary clarification or information to address the discrepancies and ensure compliance with tax laws. It’s essential for taxpayers to accurately report their financial transactions and income to avoid potential penalties or scrutiny by tax authorities

Tax Savy Tips for #Equity Investors

Your Investment is a Short Term if a period of holding is up to 12 Month otherwise it will be treated as Long Term

Short Term Capital Gain is Taxable @ 15%

Long Term Capital Gain is exempt up to Rs.1 lakh after that taxable @ 10 % (No Indexation)

Long Term Capital Loss can be set off against Long Term Capital Gain only

Short Term or Long Term losses can be carried forward up to 8 years if you have filed ITR on or before the due date u/s 139(1)

💡Tips💡
1:Book Long Term Capital Gain up to Rs.1 lakh during the year as it was exempt from tax

2:If you have already booked a short term capital gain then to save taxes book short term capital losses and repurchase the shares on next day so that such short term losses can get set off against your taxable short term capital gains and no effect to your portfolio

3:If you have already booked a long term gain of more then 1 lakh then to save taxes book short term capital losses or long term capital losses and repurchase the shares on next day so that such short term/long term losses can get set off against your taxable long term capital gains and no effect to your portfolio.

Basic of HUF:-

A Hindu Undivided Family (HUF) is a specific family unit recognized under Hindu law, primarily in India. It represents a unique legal entity distinct from its members, primarily for taxation purposes under the Income Tax Act, 1961. The concept of an HUF stems from Hindu customary law, which encompasses not just Hindus by religion but also those who are followers of Jainism, Sikhism, and Buddhism in India, as these religions are considered part of the Hindu legal framework in certain contexts

Definition and Characteristics

Legal Entity: An HUF is treated as a separate legal entity for the purpose of assessment under the Income Tax Act. This means it has a separate legal identity from its members and can hold property, enter into contracts, and sue or be sued in its own name.

Formation: An HUF is automatically formed by a Hindu family. A common misconception is that it requires a special ceremony or registration to be constituted, but in reality, it comes into existence the moment a Hindu individual gets married and starts a family. It includes all members of a family, including wives and unmarried daughters.

Karta: The head of an HUF is called the ‘Karta’, who manages the affairs of the family and the joint family property. Traditionally, the Karta is the eldest male member of the family, but recent legal judgments have allowed for women to become Kartas under certain circumstances.

Members: The members of an HUF include all persons lineally descended from a common ancestor, including their wives and unmarried daughters. Membership in an HUF is by birth, and in the case of females, through marriage into the family.

Legal Rights and Obligations

• Property Ownership: An HUF can own property in its name. The property owned by an HUF is deemed to be owned jointly by all members of the family.
• Bank Accounts and Financial Transactions: An HUF can operate bank accounts, invest in securities, and engage in other financial activities in its name.
• Liability: The liability of the Karta is unlimited, whereas the liability of other members is limited to their share in the HUF.
• Taxation: An HUF has its own PAN (Permanent Account Number) and is required to file tax returns separately from its members. It enjoys certain tax benefits under the Income Tax Act, which can lead to tax efficiency and savings for the family.

Formation

• Automatic Creation: An HUF is automatically created at the time of a Hindu marriage. The family, including spouses and children, become members of the HUF. The creation of an HUF does not necessarily require a specific ceremonial process. The essential requirement is that there should be a family that can come under the umbrella of HUF.
• Legal Recognition: For legal and tax purposes, however, it’s important to formalize the existence of the HUF. This begins with creating it formally with the help of a Tax professional

Saving tax through a Hindu Undivided Family (HUF) involves strategic planning and understanding of the income tax laws applicable to HUFs in India. An HUF is treated as a separate entity for taxation purposes, which means it enjoys its own set of exemptions and deductions, similar to an individual taxpayer. Here are several ways through which you can save tax by forming an HUF:

1. Tax Saving through HUF- Claiming Separate Tax Exemption

• Basic Exemption Limit: Just like any individual taxpayer, an HUF is entitled to a basic exemption limit (which is ₹2,50,000 for FY 2022-23; this may change with new financial budgets). This is beneficial if the family members individually fall into higher tax brackets.

2. Income Splitting

• By channeling income through an HUF, the overall tax liability can be reduced. For example, rental income from property owned by the HUF or business income that is attributed to the HUF can be taxed in the hands of the HUF, potentially at a lower rate due to the basic exemption limit and the slab rate applicable.

3. Investment in Tax-saving Instruments

• An HUF can invest in tax-saving instruments under Section 80C of the Income Tax Act, such as ELSS, PPF, NSC, life insurance premiums, and more. The limit for deduction under Section 80C is ₹1,50,000, which is over and above the deductions claimed by the individual members.

4. Deductions under Other Sections

• Health Insurance Premiums: Premiums paid for the health insurance of HUF members can be claimed as a deduction under Section 80D.
• Education Loan: Interest paid on an education loan taken for any member of the HUF can be claimed under Section 80E.
• Home Loan Interest: If the HUF has taken a home loan, the interest component can be claimed as a deduction under Section 24.

5. Paying Salary to Members

• If any HUF member is actively involved in the operations or management of the HUF’s business, a reasonable salary paid to them for their services can be claimed as an expense by the HUF. This reduces the HUF’s taxable income.

6. Creation of a Trust

• An HUF can also create a trust for a specific purpose, and the amount given to the trust can be claimed as a deduction under the applicable sections of the Income Tax Act.

7. Gifts Received

• Gifts received by an HUF from its members can sometimes be a tax-efficient way to increase the capital of the HUF without attracting gift tax, subject to the provisions and limits under the Income Tax Act.

Planning and Documentation

To effectively save tax through an HUF, proper planning and documentation are crucial. All transactions must be legal and justified, with clear demarcation of income and investment in the name of the HUF. It’s important to maintain transparent records and comply with all tax laws to avoid scrutiny and penalties from tax authorities.

Conclusion

The Hindu Undivided Family system offers a viable tax-saving mechanism within the framework of Indian tax laws. By leveraging the benefits available to an HUF, families can significantly reduce their tax liabilities while ensuring the efficient management and transfer of wealth across generations. However, it’s crucial to adhere to the legal stipulations and ensure proper documentation and compliance to fully benefit from the HUF structure. As with all tax-related strategies, consulting with a tax professional or financial advisor to understand the implications and benefits specific to one’s situation is advisable

Total 17 updates in the latest Income Tax Return (ITR) Forms for FY 2023-24! Here’s a detailed breakdown of the key changes:

1. Filing Deadlines: Taxpayers now have a new column in Forms ITR 3, 5 and 6 where they specify the deadline for filing returns.
2. Online Gaming Winnings Taxation: Schedule OS has been amended to include reporting of income from online gaming in form ITR 2, 3, 5 and 6.
3. Adjustment of Unabsorbed Depreciation: The new provisions allow for the adjustment of unabsorbed depreciation in Form ITR 3 and 5.
4. LEI Details: Legal Entity Identifier (LEI) disclosure is now mandatory for refunds exceeding INR 50 crores in Form ITR 2, 3, 5 and 6.
5. Political Party Contributions: Schedule 80GGC will require detailed disclosure of political party contributions in Form ITR 2, 3, 5 and 6.
6. Cash Receipts Reporting: A new column for cash receipts reporting has been added to claim an enhanced turnover limit in Form ITR 3, 4 and 5.
7. Start-up Deduction Details: New Schedules for claiming deductions under Sections 80-IAC and 80LA have been introduced in Form ITR 5 and 6.
8. Dividend Income Reporting: dividend income received from a unit in an International Financial Service Centre shall be taxed at a reduced tax rate of 10% instead of 20%. Schedule OS has been amended in new ITR forms to incorporate such change in Form ITR 2, 3, 5 and 6
9. ESOP Tax Benefits: Enhanced reporting requirements for Employee Stock Option Plans (ESOPs) needs disclosure of PAN and DPIIT Registration Numbers in Form ITR 2and 3.
10. EVC for Tax Audits: Individuals and HUFs under tax audits (ITR 3) can now verify returns using Electronic Verification Code (EVC). This simplifies the verification process and enhances ease of compliance.
11. Reasons for Tax Audit: Additional details are required from audited companies in Form ITR 3, 5 and 6 regarding the circumstances necessitating tax audits. This change enhances transparency and accountability in tax reporting.
12. Business Trust Sums Reporting: A new column under Schedule OS allows for reporting sums received by unitholders distributed by business trust to avoid non-taxation in Form ITR 2, 3 and 5.
13. Bank Account Disclosure: Taxpayers must now disclose all bank accounts held, except dormant accounts in Form ITR 2, 3 and 5.
14. CGAS Reporting: Detailed disclosure of deposits in the Capital Gains Accounts Scheme is now required in Form ITR 2, 3, 5 and 6.
15. Deduction under Section 80CCH: A new column is introduced to claim deductions under Section 80CCH for Agniveer Corpus Fund in Form ITR 1, 2, 3 and 4.
16. New Schedule 80U: Schedule 80U is added for claiming deductions for persons with disabilities, seeking detailed information in Form ITR 3.
17. Schedule 80DD: Similar to Schedule 80U, Schedule 80DD is added to claim deductions for maintenance and medical treatment of dependents with disabilities in Form ITR 2 and 3.

The GST Council concluded its discussion and held a press briefing at 3:30 P.M on October 7, 2023, to announce the following outcomes:

1. Regarding the formation of the GSTAT (Goods and Services Tax Appellate Tribunal), the Finance Minister stated that the council had previously made decisions. In this meeting, they recommended amending the law to set a maximum age limit of 70 years for the President and 67 years for members, with a minimum age requirement of 50 years. The age limit for members has been raised from 65 to 67, and for the President, it has been increased from 67 to 70 years. Additionally, advocates with up to 10 years of experience can now be appointed as judicial members of GSTAT.
2. Millet flour blended with other atta, comprising 70% millets under HS1901, will be subject to nil GST when sold unpackaged or in loose form, and 5% GST when pre-packaged or labeled.
3. Regarding the taxation of Extra Neutral Alcohol (ENA) used in alcoholic beverages, the Allahabad High Court ruled that states do not have the authority to tax ENA after the 101st Constitutional Amendment. The GST Council retains the right to tax ENA by law, but it has granted this right to states despite the court ruling.
4. The GST rate on molasses has been reduced from 28% to 5%, benefiting sugarcane farmers and lowering the cost of cattle feed.
5. Rectified spirit for industrial use will now have a separate HSN code, and an 18% tax will be applicable to ENA for industrial use.
6. To boost tourism, foreign-flagged/owned or foreign-going vessels will receive a conditional GST exemption of 5% if they operate in India’s coastal areas during the upcoming winter season.
7. An extension has been granted for the GST Amnesty Scheme, allowing appeals to be filed until January 31, 2024, with enhanced pre-deposit. An additional 2.5% pre-deposit will be charged for the extended period, payable from the electronic cash ledger.
8. Zari will be taxed at a 5% rate instead of 18% under GST.
9. Job work services related to the processing of barley into malt will attract a 5% GST rate for food and food products but 18% for the production of alcoholic beverages.
10. Exemptions have been provided to Government Authorities for services related to water supply, public health, sanitation, conservancy, solid waste management, slum improvement, and upgradation. This also applies to composite services involving up to 25% of the mentioned services. Clarification has been given regarding the eligibility of the District Mineral Foundation Trust (DMFT) for these exemptions.
11. All services provided by Indian Railways will be subject to forward charge, with Input Tax Credit (ITC) available for discharging liabilities.
12. The GST Rules will now specify a one-year time limit for the provisional attachment of property to avoid practical difficulties during property release from banks after one year.
13. The Finance Minister clarified that there were no discussions on GST rate rationalization or Input Tax Credit (ITC) recoveries.
14. Currently, 18 states have passed amendments to impose a 28% GST on gaming companies starting from October 1, 2023, along with corresponding GST Rules. Thirteen states are yet to pass such amendments.
15. The Revenue Secretary clarified that when a director provides a corporate guarantee to a company, it does not attract GST unless there is specific consideration. However, if a company provides a corporate guarantee to its subsidiary, 1% of the total guaranteed amount is considered as value and attracts an 18% GST.