Tax Provisions For HUFs And Gifts From Relatives

What is the legal status of a Hindu Undivided Family under the Income Tax Act, 1961? Also read about the provisions of taxation for cash gifts received from relatives.

Q 1) What is the meaning of HUF? What are the benefits of having an HUF?

- Sheetal Panigrahi

Reply – 

HUF means a ‘Hindu Undivided Family’. The concept of HUF has been extended to include not only parents and offspring, but also other relatives connected by blood and claiming descent from a common ancestor. Besides, the concept also covers the carrying out of an economic activity and the ownership of property by the family as a separate and distinct unit.

An HUF is included in the definition of a person under the Income Tax Act, 1961, and is considered as a separately entity under the Act.

The HUF is treated just like an individual for the purpose of determination of tax liability. The HUF of an individual who is a Hindu is considered as a separate entity/assessee under the said Act. Thus, the basic exemption of Rs 200000 that is available to an individual other than specified individuals is also available to such HUFs. Deductions under Chapter VIA of the said Act such as 80C for investments in LIC, PPF, NSC etc., and 80D for Mediclaim insurance premium besides the other deductions under that Chapter are available to HUFs.

All the provisions of the said Act for computation of income will be applicable while computing taxable income of the HUF.

Being a separate entity under the said Act is in itself an advantage.

Q 2) Are cash receipts from a blood relative either as a loan or a gift against the law?

- Joseph Kutty

Reply – 

Under Section 269SS of the Income Tax Act, 1961, no person can take or accept from any other person, any loan or deposit otherwise than by an account payee cheque or account payee bank draft if the amount exceeds Rs 20000. However, this provision is not applicable if the person from whom the loan or deposit is accepted and the person by whom such loan/deposit is taken both have agricultural income and neither of them has any income chargeable to tax.

Presently, if the aggregate of gifts received by an individual or a Hindu Undivided Family (HUF) exceeds a value of Rs 50000, the whole of such gifts are treated as Income from Other Sources [Refer Section 56(2)(vi) of the said Act] except in the following cases:

a) The money is received from a relative. For the purpose, the term ‘relative’ means:

    (i) Spouse of the individual
    (ii) Brother or sister of the individual or his/her spouse or his/her parents
    (iii) Any lineal ascendant or descendant of the individual or his/her spouse

b) On the occasion of marriage

c) Under a will or by way of inheritance

d) In contemplation of death of a payer

e) From any local authority, any recognised fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution

The gift should be preferably made by account payee cheque, or else for gift received in cash, the onus of proving that the gift is genuine will be on the recipient of the gift.

While receiving the gift or loan from the blood relative(s), one has to also take into the consideration the provisions of Clubbing of Income under Sections 60-65 of the Income Tax Act, 1961, which list the circumstances when income of some other person is included in the income of the assessee. Some of the circumstances are as follows:

1) Transfer of income without transfer of asset
2) Revocable transfer of assets
3) Income from assets transferred to one’s spouse or son’s wife, whether directly or indirectly
4) Income of minor child