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Tax Column

| 02/01/2018 Thursday

Creation of multiple HUFs is not advisable as the Income Tax Department may take a view that multiple HUFsare created with the sole intention of misuse and abuse of provisions of the Act

My son left India on Nov. 15, 2017, for higher studies aboard for two years. What will be his status under the Income Tax Act for the current financial year 2017-18 and the next financial year 2018-19 ? Can you also throw some light regarding his status under FEMA? 

Under the Income Tax Act, if a person stays in India in any financial year for more than 182 days, he will be treated as resident during the financial year and his global income is taxable in India. Since your son had stayed for more than 182 days in India in the current financial year, he will be treated as resident for the financial year 2017-18. However, he will be a non-resident in the next financial year 2018-19 if he does not stay in India for more than 182 days. 

Under FEMA, your son will be resident in the current financial year, i.e. 201718,since he left India for higher studies aboard for two years. If he left for higher studies for uncertain period, then he will be treated as non-resident with effect from Nov. 15, 2017. However, for the next financial year, i.e. 2018-19, he will be treated as resident since he has stayed more than 182 days in the preceding financial year 2017-18. Therefore, under FEMA, your son will be resident for both the financial years.

What is Form 26AS under the Income Tax Act ? 

A taxpayer pays various taxes either by way of TDS, TCS, advance tax, self assessment tax and regular tax. The Income Tax Department maintains a database of the total taxes paid by the taxpayer. Form 26AS is an annual statement maintained under Rule 31AB of the Income Tax Rules disclosing details of the tax credit in a taxpayer’s account as per the database of the Income Tax Department. In other words, Form 26AS will reflect the details of the tax credit available against a particular assesseeunder his PAN as per the data of the Income Tax Department. On the basis of 26AS, a taxpayer can claim credit of taxes in his Return of Income. The Income Tax Department will generally allow a taxpayer’s claim of the credit as reflected in Form 26AS. 

Some time you may find discrepancies in the actual payment of tax in Form 26AS. This happens because of incorrect data entered such as mention of wrong PAN and failure on the part of deductor of tax at source to file TDS return at his end. If you observe any such discrepancy, you can contact the tax deductor with a request for rectification or filing of TDS return online so that the Income Tax Department can update Form 26AS 

Moreover, Form 26AS will also reflect taxpayer’s income which is subject to TDS and TCS. This will help the taxpayer to file his return with correct income. Further, the Income Tax Department keeps updating 26AS periodically. 

My family consists of my wife and my two major sons. Can I create my multiple HUFs? In one HUF,me and my wife are members and in another HUF,me, my wife and my sons are members. Will the Income Tax Department recognise multiple HUFs? 

In my opinion, as on today, creation of multiple HUFs is not advisable as the Income Tax Department may take a view that multiple HUFsare created with the sole intention of misuse and abuse of provisions of the Act. The General Anti-Avoidance Rules (GAAR) has already been implemented with effect from financial year 2017-18.

Moreover, HUF cannot be created,but it comes into existence by the operation of the law. In your HUF, your children automatically become members by birth. You cannot exclude them under the law. Therefore, in your proposed two HUFs, the members would be the same, i.e., yourself, your wife and your two sons. Hence, it can be established that multiple HUFs created by you are wholly and exclusively for the purpose of tax benefit. Under the circumstances, one of your HUFs would be held as impermissible avoidance arrangement. 

I am a resident Indian. Can I acquire immovable property outside India? If yes, then can you inform me about the requirements and the implications under the Income Tax Act and FEMA? 

Yes, a resident Indian can acquire property outside India. Under FEMA, an individual can avail Liberalized Remittance Scheme (LRS). An individual resident can send remittance upto USD 2,50,000 per financial year under the LRS for purchasing immovable property outside India. Moreover, under the LRS, clubbing of remittance is also permitted by other family members of resident individual. You have to approach your banker who should be an authorised dealer of the RBI who will allow you to remit the funds under automatic route for acquiring property outside India. 

Under the Income Tax Act, you are required to disclose the property acquired outside India in your annual Return of Income. Non-disclosure of such information may attract penalties and prosecution. Moreover, any income accrued on this property by way of rent need to be offered to tax in India. Under LRS, you can retain or reinvest the income earned on the foreign property. At present, you are not required to repatriate the funds or income generated out of investment made under LRS.

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