Personal Finance

Your Taxes

Sudhakar Sethuraman | Updated on November 15, 2020 Published on November 15, 2020

It was mentioned in Business Line dated September 21, 2020 that if an individual transfers an amount (or gives interest- free loan) to his wife, the income earned on the same will be added to the income of the individual. What if a karta of an HUF transfers an amount (or gives interest-free loan) to his wife or parents? How is the income earned on that amount treated?

MG Suraj

As per Section 56(2)(x) of the Income Tax Act, any sum of money received in excess of ₹ 50,000 (without consideration/for inadequate consideration) is taxable, except where the donor is a relative or where the money is received in specified circumstances.

Under the I-T Act, as the term ‘relative’ does not include ‘HUF’ (Hindu Undivided Family), it appears that the gift received by individual HUF members (in excess of specified limits) from the HUF shall be chargeable to tax in the hands of individual members.

However, there are Tribunal rulings pronounced in the past, wherein such gifts have been treated as tax-free in the hands of the members on the premise that HUF is a group of relatives and, therefore, any amount received is a gift from the relative and is not taxable

There ought not be any tax implications on providing interest- free loan by karta (HUF) to his spouse, provided it can be established as a genuine transaction supported by adequate documentation.

The interest income earned on the money transferred to your wife’s account from the HUF shall be taxed in the hands of your wife only as the clubbing provisions are not applicable in case of HUF.

Further, if your parents are not members of your HUF, transfer of amount by way of gift from your HUF to your parents shall be covered under 56(2)(x) of the I-T Act and, accordingly, the whole aggregate sum of money received by your parents in a financial year (FY) shall be taxable in their hands as income from other sources, if the aggregate sum of money received exceeds ₹50,000 in a financial year. Further, the interest earned on such sum of money is taxable in their hands.

You may note that as per Section 10(2) of the I-T Act, any sum paid out from the income of the HUF to its members is exempt from tax. For the purpose of the above, we have assumed that payment is out of corpus of the HUF and not from its income.

I had invested in an FD in a Bengaluru-based cooperative bank and earned interest of ₹3.5 lakh in FY2019-20. Upon maturity of the FD, the interest and principal amount was credited to my savings bank a/c with the said bank. But unfortunately, the bank was sealed by the RBI due to some fraud committed there and huge NPA, and no business is being transacted by the bank. The RBI has also set a limit on withdrawals of not more than ₹1 lakh. Revival of bank is progressing. I want clarifications on a few points as I want to file ITR for FY2019-20 and pay tax. As my SB a/c is limited, is there any relief given to taxpayers, viz the above circumstances as I am unable to withdraw my money to pay tax. Can I file ITR without paying tax? Can I defer the tax payment?

HS Muralidhar

An individual can file tax return with tax liability and subsequently discharge the taxes.

Until FY2015-16, tax return filed with outstanding liability was regarded as defective return. With the amendment to tax laws, effective FY2016-17, filing tax return with tax payable is not regarded as defective return.

However, the taxpayer should be mindful that he would be regarded as assesse-in-default and thus may be subject to penal consequences besides interest implications.

Hence, it is recommended to discharge the taxes first before filing the tax return.

However, in case you choose to pay the taxes post filing of your tax return, such taxes, along with applicable interest, will have to be settled at a later date.

The due date of filing income tax return for FY2019-2020 is December 31, 2020. In the event the tax return is not filed within the said date, belated return can be filed on or before March, 2021, with additional interest and late payment fees.

Besides this, losses (except house property loss) cannot be carried forward if the return is not filed within the due date.

The writer is Partner, Deloitte India. Send your queries to taxtalk@thehindu.co.in

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Published on November 15, 2020
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