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.

Income Tax Guide

HUF in Income Tax – Meaning, Formation, Tax Benefits and Rules

A practical guide to understanding Hindu Undivided Family (HUF), how it is formed, the tax benefits available, and the common mistakes families should avoid.

Hindu Undivided Family, commonly known as HUF, is a separate taxable entity recognized under the Income Tax Act. Many families use HUF as a tax planning tool because it allows a separate PAN, separate income, and a separate basic exemption structure from individual family members.

In simple terms, HUF can help a family manage common assets and income in a more organized way. If structured properly, it may also help in lawful tax planning. However, HUF is not suitable in every case. Before creating one, it is important to understand how it works, who can form it, what income can be taxed in its hands, and what practical benefits it actually offers.

This article explains the meaning of HUF, its formation, documents required, tax benefits, deductions available, and the key points families should keep in mind before using HUF for tax planning.

Quick Understanding of HUF

A Hindu Undivided Family is not created by contract. It is a family arrangement recognized by Hindu law and tax law. Once a HUF exists, it can obtain a separate PAN and file a separate income tax return.

This means the HUF can earn income in its own name and may claim deductions and exemptions separately, subject to the provisions of the Income Tax Act.

What is HUF under the Income Tax Act?

Under the Income Tax Act, a HUF is treated as a separate person for taxation. It can hold assets, earn income, maintain books if required, and file its own return of income.

A HUF generally consists of persons lineally descended from a common ancestor, along with their wives and unmarried daughters. The senior-most member usually acts as the Karta, who manages the affairs of the HUF.

It is important to note that HUF is most relevant for families governed by Hindu law, including Buddhists, Jains, and Sikhs. It is not simply a tax-saving device that anyone can create in the same way as a proprietorship or company.

Who Can Form an HUF?

An HUF is generally formed by a Hindu family. It comes into existence by family status and not merely by executing one document. However, for practical and tax purposes, documents are usually prepared to establish the existence of the HUF and to obtain PAN and bank account in the name of the HUF.

The HUF is ordinarily managed by the Karta. Earlier, the concept was usually associated with the senior-most male member, but legal developments have recognized that a daughter can also act as Karta in appropriate cases.

A family that intends to use HUF for tax planning should first understand whether there is genuine HUF property, ancestral property, family nucleus, or assets and income that can properly belong to the HUF. Without that, the idea remains only theoretical.

Important Practical Point

Merely opening a PAN in the name of HUF is not enough. The HUF should also have valid source of funds or assets that can legally be treated as HUF property. Otherwise, the tax benefit may be limited or the structure may not serve any real purpose.

How to Form HUF in India

Although HUF arises by family status, the following practical steps are usually taken to formalize it for income tax and banking purposes:

1. Prepare an HUF declaration or deed mentioning the name of the HUF, Karta, and members.
2. Apply for a separate PAN in the name of the HUF.
3. Open a bank account in the name of the HUF.
4. Transfer or receive funds or assets that can validly belong to the HUF.
5. Maintain proper records of transactions and income of the HUF.

Once these steps are completed, the HUF can start operating as a separate taxable entity and may file its own return if required.

Documents Required for HUF PAN and Bank Account

Usually, the following documents may be required:

• HUF declaration or deed
• PAN application documents
• Identity and address proof of Karta
• Photograph and KYC documents of Karta
• Proof of existence of HUF, where required by the bank
• Bank account opening form in HUF name

Different banks may have slightly different requirements, so it is advisable to confirm the checklist in advance.

Tax Benefits of HUF

The main attraction of HUF is that it is taxed separately from its members. This can create legitimate tax planning opportunities where family assets and income are structured properly.

Separate Basic Exemption

Since HUF is a separate taxable person, it gets a separate basic exemption limit just like an individual, subject to the applicable tax regime.

Separate Deductions

HUF may claim eligible deductions separately, such as certain deductions under Chapter VI-A, depending on the nature of income and investment.

Separate Income from HUF Assets

Income arising from assets validly belonging to the HUF may be assessed in the hands of the HUF instead of individual members.

Better Family Asset Management

HUF can also help in holding and managing certain family assets in a structured manner, especially where ancestral or family-owned assets already exist.

Example of HUF Tax Planning

Suppose a family has rental income from a property that validly belongs to the HUF. If the rental income is assessed in the hands of the HUF, the HUF may file a separate return and claim eligible deductions in its own capacity.

This can help distribute taxable income more efficiently, provided the ownership and facts genuinely support HUF treatment.

Deductions Available to HUF

HUF may claim certain deductions subject to the provisions of the Income Tax Act. Common deductions may include:

• Deduction under Section 80C for eligible investments
• Deduction under Section 80D for eligible medical insurance premium
• Deduction for home loan principal or other eligible payments, where applicable
• Other deductions depending on the nature of income and investments

The actual availability of deduction depends on the investment or expense being incurred by the HUF and meeting the legal conditions under the relevant section.

Common Mistakes in HUF Tax Planning

Creating HUF Without Real Assets or Income

Many people form HUF only for tax saving but do not have any genuine HUF asset or source of income. In such cases, the structure may not provide any meaningful benefit.

Mixing Personal and HUF Transactions

Personal funds and HUF funds should not be mixed casually. Proper record keeping is important to avoid confusion and tax issues.

Improper Transfer of Assets

Not every asset can simply be transferred to HUF for tax benefit. Clubbing provisions and legal ownership issues should be considered carefully.

Wrong Assumptions About Tax Saving

HUF is useful in some cases, but it is not a universal tax-saving solution. The benefit depends on facts, existing family assets, and the nature of income.

Frequently Asked Questions on HUF

Can HUF have a separate PAN?

Yes, HUF can apply for and obtain a separate PAN in its own name.

Can HUF file a separate income tax return?

Yes, if the HUF has taxable income or is otherwise required to file a return, it can file a separate income tax return.

Is HUF useful for tax saving?

It can be useful in appropriate cases, especially where there are valid HUF assets or income streams. But the benefit depends on facts and proper compliance.

Can salary income be transferred to HUF?

Salary earned by an individual generally remains taxable in the hands of that individual. HUF planning should be done carefully with proper understanding of clubbing and ownership rules.

Need Help with HUF Formation or HUF Tax Planning?

If you want to understand whether HUF is suitable for your family, or need help with HUF PAN, HUF deed, tax planning, or return filing, professional advice can help avoid mistakes.

N C Agrawal & Associates assists clients with HUF formation, tax planning, compliance, and income tax matters.

📞 Call Now: +91 9718046555 WhatsApp Now: +91 9718046555

Income tax plays a crucial role in a country’s revenue generation and is an important aspect of financial planning for individuals. In recent years, the Indian income tax system has undergone significant changes, with the introduction of the new tax regime. This article aims to provide an overview of the income tax structure under the old and new regimes, compare the tax slabs, and discuss factors to consider when determining which regime is better suited for an individual taxpayer.

The Old Tax Regime: Under the old tax regime, the income tax structure consists of multiple tax slabs with progressive rates. The tax rates for individual taxpayers for the financial year 2021-22 are as follows:

• Up to INR 2.5 lakh: Nil
• INR 2.5 lakh to INR 5 lakh: 5%
• INR 5 lakh to INR 10 lakh: 20%
• Above INR 10 lakh: 30%

Additionally, a cess of 4% called the Health and Education Cess is levied on the total tax liability. Taxpayers can avail various deductions and exemptions under different sections of the Income Tax Act to reduce their taxable income and lower their tax liability.

The New Tax Regime: The new tax regime, introduced in the Union Budget 2020, offers reduced tax rates with fewer deductions and exemptions. It aims to simplify the income tax structure and provide taxpayers with the option to choose between the old and new regimes based on their individual circumstances. The tax rates for individual taxpayers for the financial year 2021-22 under the new regime are as follows:

• Up to INR 2.5 lakh: Nil
• INR 2.5 lakh to INR 5 lakh: 5%
• INR 5 lakh to INR 7.5 lakh: 10%
• INR 7.5 lakh to INR 10 lakh: 15%
• INR 10 lakh to INR 12.5 lakh: 20%
• INR 12.5 lakh to INR 15 lakh: 25%
• Above INR 15 lakh: 30%

It is important to note that under the new regime, taxpayers cannot claim various deductions and exemptions, including the standard deduction, house rent allowance (HRA), deductions under Section 80C, 80D, etc.

Determining the Better Option: Deciding which tax regime is better for an individual depends on several factors, including the taxpayer’s income, age, investments, and financial goals. Here are some key considerations:

1. Income Level: For individuals with lower income levels and limited investments, the new tax regime may be beneficial, as it offers lower tax rates without the need to claim deductions. However, individuals with higher incomes who can avail substantial deductions under the old regime may find it more advantageous.
2. Deductions and Exemptions: Under the old regime, taxpayers can claim deductions and exemptions, such as those available under Section 80C for investments in instruments like provident fund, National Savings Certificate, etc. If a taxpayer has significant deductions that substantially reduce their taxable income, the old regime might be more beneficial.
3. Investment Preferences: Individuals with specific investment preferences may find the old regime more advantageous. For example, taxpayers who invest in life insurance policies, health insurance, or have home loan interest payments can claim deductions under the old regime, reducing their tax liability.
4. Simplicity: The new tax regime offers a simpler structure with lower tax rates and eliminates the need to track and claim various deductions. For individuals who prefer simplicity and do not have significant deductions, the new regime

Conclusion:

Choosing between the old and new income tax regimes depends on various factors and requires a careful assessment of one’s income, investments, and financial goals. While the new regime offers lower tax rates, it comes with reduced deductions and exemptions. The old regime provides the benefit of claiming deductions but involves a more complex structure. It is advisable for taxpayers to consult with tax professionals, such as chartered accountants or tax advisors, to analyze their specific circumstances and make an informed decision that optimizes their tax liability and aligns with their financial objectives.

If you are looking for income tax reply services in Kochi, then you can refer our income tax notice – Kochi 

Applicability & Analysis Section 206AB and 206CCA of Income Tax Act, 1961

The Finance Bill 2021, has inserted two new sections in Income Tax Act 1961, which are related to TDS which are Section 206AB and Section 206 CCA which are applicable from 1^st July 2021.

Brief about Section 206AB

According to these provisions of the income tax act, TDS will be required to be deducted at higher of the following: –

1. At Twice rate of the TDS as specified in the relevant provision of the act; or
2. Twice the rate in force; or
3. At the rate of 5%

Applicability of the Section 206AB

This provision applicable on “Specified Persons”. Specified Persons means: –

• Person who has not filed the Income Tax Return (ITR) for 2 previous years immediately before the previous year in which tax is required to be deducted;
• The time limit of ITR filing under sub-section (1) of Section 139 is expired; and
• The aggregate tax deducted at source (TDS) or tax collected at source (TCS), is Rs. 50,000 or more in each of the 2 previous years.

What is the person does not have PAN not filed Income Tax Return

Sub-section (2) of Section 206AB states that if both Section 206AA and 206AB are applicable i.e. the “specified person” has not submitted the PAN and not filed the return; TDS is deducted at the higher rates amongst Section 206AA and 206AB.

Non-Applicability of 206AB of the TDS: –

1. The section 206AB is not applicable in case of TDS on Salary (192), TDS on Premature withdrawal from EPF (192A), TDS on Lottery(194B), TDS on cash withdrawal in excess of 1 crore (194N), TDS on Income in respect of investment in securitization trust (194LBC), TDS on Horse Riding (194BB)
2. Both Section 206AB/206CCA are not applicable to a non-resident who does not have a permanent establishment in India.

Example: –

M/s GEM Delhi LTD made a contract payment of Rs.80 lakhs to Mr. Akhsay Sinha for 3 consecutive years i.e. FY 2018-19, FY 2019-20 and FY 2020-21 and tax under Section 194C was deducted (Rs.90,000 every year) and remitted by GEM Delhi Ltd. Mr. Akshay Sinha however, did not file his Income Tax Return (ITR) for any of the years. Then, in the financial year 2021-22, From July Onwards GEM Delhi LTD, (the payer) must deduct tax at source (TDS) at the higher rates given above.

How can Tax Deductor/ Collector can identify such persons: –

Since tax deductor/collector is responsible for deducting/collecting TDS/TCS, it becomes their responsibility to identify the specified person of whom TDS at the higher rate is required to be deducted. In the absence of proper mechanism, CBDT has issued Circular No. 11 of 2021 F. No. 370133172021-TPL dated 21st June 2021  Wherein a new functionality “Compliance Check for Section 206AB and 206CCA” is made available through reporting portal of Income Tax department.

Additionally, Deductee/Collectee can give self-declaration to their respective tax deductor/collector about the non-applicability of Section 206AB/206CCA upon them. Format of the same is given below: –

 

Undertaking pursuant to Section 206AB and Section 206CCA of the Income Tax Act, 1961

TO WHOMSOEVER IT MAY CONCERN

Dear Sir/Madam,

Subject: Declaration confirming filing of the Income Tax Return for immediate two preceding years.

I,                                                                           (Authorized person name)in capacity of

Authorized Signatory of                                         (Company Name) having                                     PAN

And turnover or Rs.10 cr. or more _______________________(YES/NO)                 

Registered office at                                                                                                                             _ do

hereby declare, we have filed Income Tax Returns for Two previous years immediately prior to the previous year in which tax is required to be deducted for which due date filing of return of income under sub section(1) of section 139 of the Income Tax Act, 1961 has expired, the details of which are givenunder:

Financial for which Income Tax Return was due u/s 139(1)	Date of Filing	ITR Acknowledgement No.	TDS + TCS is greater than           Rs. 50000/- (Yes/No)
F.Y.2020-21 (If applicable on this date of declaration)
F.Y. 2019-20
F.Y. 2018-19

I hereby undertake to indemnify the entity for any loss/liability fully including any Tax, interest, penalty, etc. that may arise due to incorrect reporting of above information.

                                                                                                  For   (CompanyName)

Signature (Including Companyroundstamp)       :                                                       _________

Place                                                                    :                                          _______________

Date                                                                     :                                          _______________