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Huf?

mannu (1/2 CA) (589 Points)

06 February 2012

hi .i have only theoratical knowlede about HUF....

can u tell me. how we can use it as tax planning in practical world......

giv me examples of huf and their business~anything u know

pls share ur knowledge~

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Vignesh Killur (Articled Assistant) (1671 Points)
Replied 06 February 2012

Hi Mr Mannu!

HUF is a very useful tool in tax planning in the real world. Its really simple. First you have to apply for a PAN Card in the name of the Karta, usually the eldest male member of the family. You can submit documents such as Passport copy for identity proof/ Address proof and a copy of Ration card( for details of other members of HUF: it is not mandatory) Next you need to open a Bank account in the name of the HUF.

Now how can it be used a a tax planning tool is really interesting. If any member of the family has a business in his personal name, he will be assessed to tax in his individual capacity under his personal PAN. Now as soon as you open a bank account you have to make a cash deposit. You shold be able to porove that this money is from the family funds (to avoid clubbing of Income problems). Next you can make an unsecured loan/ Deposit from the HUF money to the Personal business of the any member. Now that member has to pay interest on Loan/ Deposit at 12% and deduct TDS thereon. Now this HUF has to just file the Return of Income and show this as its only income and make use of tits basic exemption to clain income tax refund.

Let me give an example as to how this happens:

X & Sons (HUF) opens a bank account and makes a Loan of Rs. 10,00,000 to Mr X (Member of HUF). Now X pays 12% i.e 120,000 as interest on Loan to the HUF (TDS @ 10% Rs. 12,000). Now this HUF has to file its return of Income and show Income of Rs. 120,000 & claim refund of Rs. 12,000. It will get back the full amount as it can make use of Basic exemption of Rs. 180,000. Now X can save tax upto Rs. 120,000*30%=36,000/- as he claims this Interest paid as business expense under the head Income from Business. (Assume X falls under 30% tax bracket.)

ABRACADABRA! HE HAS SAVED 36,000/-. Rs TAX.

Hope this was useful.

Regards,

Viggi

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CMA. CS. Sanjay Gupta ("PROUD TO BE AN INDIAN") (114230 Points)
Replied 06 February 2012

ALL YOU WANT TO KNOW ABOUT HUF

*Please see the attached zip file.

Attached File : 149668 924313 huf.zip downloaded: 290 times

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mannu (1/2 CA) (589 Points)
Replied 06 February 2012

hi viggi...it`s really amazing ...thanx for sharing~

even thanx is also small word

mannu (1/2 CA) (589 Points)
Replied 06 February 2012

viggi

what is the max limit of loan? and it is allowed in pgbp?

AO does`t disallow it.?

Vignesh Killur (Articled Assistant) (1671 Points)
Replied 07 February 2012

Hi mannu,

The loan should appear as a bonafide loan for valid consideration. There is no monetary limit. It is allowed in PGBP. The loan should be disclosed in the tax audit report. The AO cannot disallow it without valid grounds or reasons.

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CA GIRISH (Chartered Accountant) (1796 Points)
Replied 07 February 2012

My family is partitioning our HUF. We have moveable and immoveable property all located in Mumbai. I wish to know the correct rates for stamp duty for partitioning the HUF

Vignesh Killur (Articled Assistant) (1671 Points)
Replied 07 February 2012

Hi Mr Girish,

Stamp duty is a state subject. It varies from State to state. The rate of stamp duty is determined according to the State stamp Acts. Since you have mentioned that your property is situated in Mumbai, The Bombay Stamp Act of 1958 will apply. The Rates of Stamp duty currently in force for Stamp Duty is as below.

Where any property is partitioned, the largest share which is remaining after the partition is Exempted from Stamp Duty. Stamp Duty shall be paid on the remaining portiions of the property at the Rate of Rs. 10/- for every Rs. 500/- worth (Market Value) of Property.

For Ex: A Property which is Jointly held by X, Y, Z is partioned. The market value of the property is Rs. 1,00,00,000/- (1 Crore). X gets 40%, Y gets 35% and Z gets 25%. Thus the share of X is exempt. Since this is a larger share. On the other 60,00,000 (Share of Y &Z) Stamp duty is payable at Rs. 10/- for every Rs. 500. That is 60,00,000/500*10=Rs. 120,000/-.

I have attached the Shedules of Rates prescribed under Bombay Stamp Act. You have to use Non Judicial Stamp paper.

The above is from my personal research. So please verify before you take any decision on the above.

Please see attached. Refer Serial No. 46 for partition.

Thanks, VIGGI

Attached File : 490852 924917 bombaystampact1958sch 1.pdf downloaded: 211 times

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