Tax Planning through HUF & Family Arrangement - CRITICAL ASPECTS

Published on 02 May 2020 / In Company

Tax Planning through HUF & Family Arrangement - CRITICAL ASPECTS

 What is Tax Planning?

• Tax planning is a legal way of reducing your tax liabilities in a year. It will help you to utilize the tax exemptions, deductions, and benefits in the best possible way for minimizing your tax burden. However, it should be done in a legal manner.

• Tax planning allows a taxpayer to make the best use of the various tax exemptions, deductions and benefits to minimize their tax liability over a financial year.

•As per Hindu Law, an HUF is a family consisting of all lineal male descendants of a common ancestor and includes their wives and unmarried daughters.

• As per Hindu Law, Jains, Sikhs and Indian Buddhists are also included in the definition of Hindu and, therefore, the provisions relating to HUF also apply to them.

• As held by the Supreme Court in the case of `Gowli Buddanna v. CIT’ 60 ITR 293

• case of `CIT v. Veerappa Chettiar’ 76 ITR 467 (SC
• case of `CIT v. Arvind Jhunjhunwalla & Sons’ 223 ITR
• case of `CIT v. M. Balasubramanian’ 182 ITR ( 2:34)

 How do HUF does Business?

• If an HUF contributes fund to the capital of a partnership firm, profit and interest received (from the firm) by a partner who represents the HUF is regarded as HUF income.

•This is because the income in the partner’s hands arises on investment of the HUF’s funds. However, if the Karta is also paid a salary by the firm for efforts put in by him, such funds would be regarded as the Karta’s individual income.

•Commission cannot be taxable in hands of huf as it requires individual efforts. However, in case of delprede Agent or stock brokerage firm, commission can be recieved by Huf if guarantee is given from corpus of HUF.

 Daughter & the HUF – Now

• Hindu Succession (Amendment) Act, 2005 in a Joint Hindu Family governed by the Mitakshara law, the daughter of a coparcener shall :-
1. by birth become a coparcener in her own right in the same manner as the son;
2. have the same rights in the coparcenary property as she would have had if she had been a son;
3. be subject to the same liabilities in respect of the said coparcenary property as that of a son,-

 What is Family Arrangement

• In order to settle existing disputes or avoid any potential litigation among the family members, families arrive at a “family arrangement” either by way of a mutually agreed deed for family settlement or in the form of an arbitration award or a court decree.

 What are Type of Family Arrangement


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