Decoding Tax Complexities

Jayesh Dadia

Chartered Accountant

Decoding Tax Complexities 

"The gift received from HUF by you of `5 lakh as well as gift of `1 lakh received by your son from HUF is not taxable."

I am a member of HUF consisting of my wife, my two sons and one unmarried daughter. I have given a gift of Rs5 lakh to HUF. Is such a gift taxable in the hands of HUF? Further, the HUF gives gift of Rs1 lakh to my elder son who is also a member of HUF. Is the amount of Rs1 lakh taxable in the hands of my son?

Under Section 56(2)(x) of the Income Tax Act inserted with effect from April 1, 2017, a gift received from a relative is not taxable. An HUF is a “group of relatives”. From the plain reading of section 56(2) (vii), along with explanation to that section, it is very clear that gift received from “relative” irrespective of whether it is from an individual relative or from group of relatives, is exempt from tax under the Income Tax Act. The constitution of your HUF clearly shows that the members of HUF are relatives within the definition of explanation to section 56(2)(vii). Therefore, the gift received from HUF by you of Rs 5 lakh as well as gift of Rs 1 lakh received by your son from HUF is not taxable. The above view is also taken by the Bombay Tribunal in its latest judgement in the cases DCIT v/s Ateev V Gala 

I am an individual. I have taken a loan of Rs50 lakh from a bank for the purpose of pursuing higher education of my son. The loan carries interest at 10%. Kindly let me know whether I would get deduction of monthly instalment paid as well as interest paid to the bank while computing my taxable income

Yes, you are entitled for deduction of interest paid by you on the loan taken from bank while computing your taxable income under section 80E of the Income Tax Act. Since the loan is borrowed from a bank for the purpose of higher education of your son, you satisfy both the conditions laid down in Section 80E. However, under this section the principal amount of loan is not deductible as the loan is a liability and payable by you. 

Can you explain the amended provisions under the Income Tax Act relating to curb on cash transaction? 

A new Section 269ST has been inserted in the Income Tax Act w.e.f. April 1, 2017. The section provides that no person shall receive Rs2,00,000 or more, in the aggregate, from any person in a day or in respect of single transaction or in respect of transaction relating to one event or occasion in cash. In other words, all such transactions have to be made by account payee cheque, bank draft or in electronic mode. Some transactions are exempted such as amount received by a government, bank, post office, cooperative bank etc. This section applies to all persons whether he is an assessee or not.

Any default under this section would attract penalty of equal amount under section 271DA of the Act. Thus, an assessee who receives Rs2,00,000 or more in cash, which he shows as income and pays tax thereon is still liable to pay penalty of Rs 2,00,000, besides payment of normal tax under the Income Tax Act. 

I am an individual engaged in trading business having turnover of around Rs1.5 crore per annum. Can I get the benefit of presumptive taxation for assessment year 2017-18? Can you elaborate on what is presumptive taxation?

Under Section 44AD of the Income Tax Act, an individual engaged in trading business and having turnover of less than Rs2 crore can get the benefit of presumptive taxation. Under the provision of section 44AD you can offer to pay tax by estimating your income at 8% of your turnover. Further, in order to encourage digital transaction, this section is amended with effect from the assessment year 2017-18 (financial year 2016-17) to provide that profit must have been earned in such cases shall be 6% (instead of 8%) of the gross sales which are received by account payee cheque, bank draft or other electronic media during the financial year or before the due date of filing the return of income, i.e., July 31 in your case. Thus, if you receive part of sales by account payee cheque and part in other form, then you will be paying tax at 6% on the amount received through account payee cheque and on the balance turnover you will be paying tax at 8%. Under the presumptive taxation, you need not obtain Tax Audit Report.