I have a HUF of which I am the Karta. Say, I create capital through gift in my new HUF from non-members and then invest the amount in bank fixed deposits. After 2-3 years , I need money so I withdraw money from those FDs. Is withdrawal of cash from HUF bank account considered partition or not? Can a Karta withdraw cash freely from HUF bank account anytime?
—Name withheld on request
Under Hindu law, each co-parcener has joint rights in the property of the HUF and therefore, a Karta can withdraw cash freely from the HUF Bank account for the regular expenses and maintenance of the family.
However, if the cash withdrawals are not for the maintenance needs of the family (say, for investment by the karta in his personal capacity), such withdrawal may be treated as a receipt by the karta, and as a partial partition of the HUF.
Income tax provisions do not recognise partial partition and therefore, any income from the amount received by the karta on such partial partition will continue to be taxed in the hands of the HUF, even though the amount received on such partial partition will be exempt in the hands of the karta.
While creating the capital of the HUF, one also needs to keep in mind that gifts received by the HUF from non-members would be taxable in the hands of the HUF as Income from Other Sources, as the exemption applies only in case of gifts received from members.
What is the TDS on rent obligation for tenant in this scenario – there are two owners of the house and rent is received separately by both, which is less than ₹50,000 per month for each. But the total rent that the tenant pays on the house is more than ₹50,000 per month. Is TDS required to be deducted in this case as well, although the person paying rent and claiming HRA is only one?
—Name withheld on request
As the rent paid by the tenant to each owner does not exceed ₹50,000 per month, the requirement for TDS under section 194-IB does not apply. Section 194-IB refers to payment of rent to a resident, and therefore the monthly limit of ₹50,000 would apply vis-à-vis each recipient separately.
However, HRA exemption can be claimed on the entire rent paid to both the joint owners of the same property. While claiming HRA exemption, the tenant would need to provide the PAN of both the owners as the annual rent exceeds ₹1,00,000.
If the monthly rent paid exceeds ₹50,000 to any owner, TDS is required to be deducted by the tenant on payment to such owner at the rate of 2%. Such TDS is to be deducted from the rent of the last month.
Recently, notices have been issued to taxpayers who have claimed HRA without deduction of TDS. While one may need to substantiate the genuineness of the HRA claim, if TDS is applicable on the rent paid and not deducted, the consequences for non-deduction of TDS, including interest, may apply.
The above response is on the assumption that both the owners are residents. If either of the owner is a non-resident, TDS would need to be deducted on any payment made to such owner under section 195 at the rate of 30% plus applicable surcharge and education cess, even if the amount paid is less than ₹50,000 per month.
Mahesh Nayak, chartered accountant, CNK & Associates.
