I am a retired employee and my total income is around ₹15 lakh per annum. That includes pension of ₹6 lakh, LIC pension of ₹1 lakh, rent from house property of ₹2.4 lakh and interest income from fixed deposit for the balance. I get advantage of an additional 1% being a former employee and 0.5% as a senior citizen. I am also getting 8.2% on Senior Citizen Saving Scheme. If I open a HUF (Hindu Undivided Family) account and transfer my fixed deposits to my HUF account, will I continue to get the extra benefit of 1.5%? Is it advisable to open an HUF account? If so, how should I bifurcate my income to claim tax benefits?
—Krishnan
Banks offer higher interest on fixed deposit to its former employees and the HUF cannot be treated on a par with that of an ex-employee of the bank so the same benefit will not be available to your HUF.
Gifts received by an individual or an HUF are not treated as income as long as the aggregate value of gifts from all sources does not exceed ₹50,000 in a year but once the threshold is crossed the full value of gifts are treated as income.
However, gifts received from specified relatives are not treated as income even if the value exceeds ₹50,000 in a year. Members of an HUF are treated as its relatives and therefore there will not be any tax liability at the time of transfer of fixed deposits transferred to your HUF.
Income earned on assets transferred by members to the HUF are clubbed in the hands of such member year after year till a full partition of the HUF assets takes place after which clubbing will apply in respect of share of such asset allotted on partition. The clubbing will continue to apply even if the asset is converted into any other asset.
So, by transferring your fixed deposit to your HUF, you will not be able to reduce your tax liability as the income arising to HUF will still be taxed in your hands. Please note that the clubbing provisions apply only in respect of income arising to the asset thus transferred and does not apply to income arising from the income invested further which has been already been clubbed. So, prima facie, it seems the purpose of saving tax will not be served by transferring the fixed deposit to your HUF. However, make gift of money to your adult children who are taxed at lower rate than yours.
Balwant Jain is a Mumbai-based tax and investment expert.
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Updated: 13 Nov 2023, 11:22 PM IST