Is it a total truth that you are too careful with your documents? Did someone recently asked for your PAN Xerox (extra) copy without any reason and you gave it without thinking much? Do you handover your Driving license or passport copies to some agent without giving it a second thought? If yes, you need to be careful because this can land you in trouble in big way. There has been a lot of cases reported on this blog by your fellow readers which you can learn from. Let me take some of them.
How one relative misused the pan card for taking loan
A lot of people handover their documents to their relatives without thinking much. They feel they are helping the other person, but you never know how the other person can misuse your documents and get you in trouble. Read this case
One of my cousion taken a two wheeler loan in 2005, and i had given my pan card duly self attested at the time of taken loan.
Now i had applied for 2 wheeler loan in 2010, it got rejected upon applied to CIBIL report i came to know that i m the coapplicant of the two wheeler loan taken by my cousion in 2005. But unfortunetly he died in 2010 . So i had made the complete payment including all bouncing charges as well as the principal amount dues on him. But as i am the co-owner as per the bank records my name also reflect as an overdues amount (Defaulter) in your CIBIL Report which is harming my credit Worthiness in the market. I just spoke to the HDFC CUSTOMER CARE DEPT they said your loan is clear and had been reported to CIBIL upon checking again with CIBIL ,now report shows as settled . I had made full payment still its showing settle please help me out what i need to do now Please note that i do not have any direct dealing with the bank in the above said loan i just made a mistake of giving my sign in the reference column for which i have paid a price of making payment of RS 6322 to bank. (source)
How one friend used friends reference to make his co-applicant
Friends are forever, until they take advantage of your trust. A lot of people give their documents to their friends for being a reference (guarantor), but they themselves don’t understand what does guarantor mean? Read this below case to know what happened with one person
One of my friends took a car loan from a nbfc 3 years back and he wanted a reference for this loan (i now realize there is no such thing as a reference for a loan) i obliged and gave him a duplicate copy of my pan card. For atleast 2 years i have been applying for credit cards and getting rejection letters from all the banks. I finally was fed up with this and decided to get my cibil report and was shocked to see that i was the co-applicant for the car loan my friend had taken 3 years back. He had defaulted on this loan which was reflecting on my cibil report and that being the main reason for me not getting any credit card.
Like i mentioned earlier i had given my friend a copy of my pan card but i had never signed any loan application form, so i followed up with my friend (who still claims that i was supposed to a reference for this loan) and also with the customer care at the NBFC (who i must say were extremely rude). I managed to get the loan application form from the NBFC and i’m a cent percent sure that my signature has been forged on the form. Now my friend (would not want to call him a friend anymore) claims that the person who gave him this loan never told him about me being a co-applicant and he always thought i was only a reference. (source)
How an agent used documents of someone to to take advisor license
We call a lot of agents to home to buy financial products ,we give them our financial documents without realising that it can be misused if we dont want to go for the product later , we never ask it back . Read the following case based on this.
It has come to my notice that an advisor license was taken in my name in MetLife, Asansol Branch under Sales Manager by the name Mr. Debrup Banerjee. This person had approached me for a Life Insurance policy and had some papers signed by me. The Policy never materialized, but the papers (EPIC, PAN Card, Photo) was used to take out a License in my name. In fact, I was working in Bihar Sharif when the IRDA Exam was taken. A more serious and criminal act on part of Mr. Debrup Banerjee was to open an account with the Axis Bank in my name using the same papers. SMS alerts from MetLife has brought these misdeeds of Mr. Debrup Banerjee to my notice. I would request you to take necessary steps to declare the Advisor License, taken by Mr. Debrup Banerjee for MetLife, null and void. (source)
Make sure you take care about whom you are handing over your financial documents to. People can misuse it and take advantage which can get you into trouble later and you will come to know about it only when things are out of control.
Do you want to get your LIC Policy Status and details by SMS ? If yes, now there is some good news for you , you can get basic information about your LIC policy very easily by sending an SMS. You can get general information like Bonus amount vested till date , details of nominations etc by just send one SMS t0 56677. This is a free service from life corporation of India (LIC)
ASKLIC <Policy No> PREMIUM/REVIVAL/BONUS/LOAN/NOM
where –
Premium – Instalment premium under policy Revival – If policy is lapsed, Revival amount payable Bonus – Amount of Bonus vested Loan – Amount available as Loan NOM – Details of Nomination
Example
AskLIC 8955940009 NOM
One can also get LIC pension related information by SMS
a) IPP Policy Status, (STAT)
b) Existence Certificate Due, (ECDUE)
c) Last Annuity Released Date, (ANNPD)
d) Annuity Payment thru (CHQ/ECS/NEFT) (PDTHRU)
e) Annuity Amount (AMOUNT)
f) Cheque Return Information (CHQRET)
What is Your LIC Policy Number?
The LIC policy number consists of nine digits and can be found at the top left hand corner of the schedule of your policy bond. Did you knew this information ? Kindly share if this worked for your LIC policy .
We recently saw few Non convertible Debentures coming into market like Shriram Transport Finance NCD, Muthoot Finance NCD and Manappuram Finance NCD. A lot of investors wanted to invest in these NCD’s and many did. But does each of the investors understand what NCD is and how it works? What are the risk factors associated with NCD in India? Let’s look at it…
To understand non convertible debentures, it would be a good idea to understand convertible debentures first. As the name says convertible debentures are those debentures which are converted to normal equity shares after a specified term. Till that time these debentures earn regular income in form for interest but once they are converted to equity shares, they are just like normal shares.
Hence non convertible debentures (NCD’s) are those debentures which are not convertible to equity shares. NCD in India more or less work like company fixed deposit, where you are lending a company to get some interest income and your money back after few years. You need to check the rating of that bond. Such debt bonds are normally rated by credit rating agencies like CRISIL. A good rating indicates reasonable assurance of safety and return of principal as well as interest.
Non convertible Debentures can be secured or unsecured
A NCD can be a secured NCD and unsecured NCD.
Secured Non convertible Debentures (NCD) are backed up by some assets which can be liquidated for paying off the bond holders incase something goes wrong. For this reason, the returns on secured NCDs are lower than unsecured NCDs. See a discussion on Tata Capital secured NCD on our forum
Unsecured Non convertible Debentures (NCD) are the ones which are not backed by any assets and incase company is in financial crunch, there can be an issue in paying back the bond holders. Only after the payment is made to every entity which has some security, the unsecured NCD bond holders have any chance of getting back their money. So that’s the reason why these NCD’s have high interest rates.
The transparency in NCD is another issue, a lot of companies have come up with NCDs to raise capital, but a common man does not have time and ability to study the NCD and how safe it would be. Look at the following comment:
Can an NBFC disburse all the money it raises? Investors also do not know how much the company has borrowed. The only document for analysis is a (dated) balance sheet. In addition to public offerings, NBFCs constantly tap the ‘private placement’ market for debt. So investors don’t know the total debt burden. There was a subsidiary of India Infoline which raised money through the NCD route. How could investors know that the proceeds were going to be utilised for a subsidiary? In the 1980s, there was a craze for fixed deposits from leasing companies, thanks to high interest rates and fancy incentives paid to investors and intermediaries. The lure was the promised rate of return and not credit quality. The same herd mentality is on display now. At some point, there will be some defaults. – via moneylife
Features of NCD’s
They are listed on stock exchanges. Hence, provides liquidity to holder.
The tenure of NCDs can be anywhere between 2 years and 20 years.
NCDs are rated by rating agencies such as CRISIL.
If you buy a NCD that pays interest then the interest will not attract TDS
The debentures are generally offered in four options: monthly, quarterly, annual and cumulative interest
Taxation on NCD
Taxation on NCDs is just like debt funds. If you sell your debentures before a year, the profits will be added to your income and you will pay taxes at the same rate as per your income tax slab. But for any profit made by selling it after a year, you will pay tax of 10%, if indexation is not done, or 20% if the indexation is done.
Did you invest in any NCD ? Did you knew how NCD worked ?
There is a new retirement plan in India designed through a mutual fund that is launched by Tata mutual funds called the ‘Tata retirement saving plan’. The company is trying to market it using a word 30-30 challenge which says that there are 30 yrs of our work life and then 30 yrs of retirement life and you need to plan for the next 30 yrs in the first 30 yrs. The plan is currently at NFO stage and will be open till 21st Oct 2011.
There have been some readers who enquired about this plan in our forum. Let me review the plan in this crisp article. Basically this plan has 3 different kinds of funds inbuilt which are called as 1) Progressive Plan, 2) Moderate Plan and 3) Conservative plan which all have different risk profiles (risky, balanced and safe). As per the asset allocation rules the investor’s money will be moved from one fund to another fund as per his age. So all investors who are below 45 yrs age will be in progressive fund (highest risk), then once they reach 45 yrs, their money will be moved to moderate plan and once they reach 60 yrs, they will be moved to the safest option called conservative plan. Once investor reaches 60 yrs of age, he will be getting pension from this plan in form of SWP (systematic withdrawal plan) which is nothing but a known way of withdrawing out of mutual funds systematically. There will be option of getting 1% of corpus monthly or 3% of corpus quarterly. Let’s see this auto switch and auto withdrawal options in a little detail.
Auto-Switch
There is an auto-switch facility in this plan, which means at each milestone you will be automatically be switched to the next fund without any exit load. So when a person reaches age of 45, he will be switched from Progressive plan to Moderate plan automatically and when he reaches age 60, he will be auto-switched from moderate plan to conservative plan. Note that one has to choose for auto-switch option at the time of buying the plan.
Switch between the funds manually
One can also switch between the funds manually whenever they want, but in that case if the switch is before 5 yrs from the date of enrolment, there will be exit loads applicable, but if 5 yrs has passed, then 3 exit load free switches will be allowed.
Auto systematic withdrawal plan (Pension)
A feature called Auto systematic withdrawal plan is there in this plan, which will start redeeming your funds and start giving you your money in the form of pension. There are two options in this. In the first option you can get 1% of your total corpus each month and in second option you can get 3% of your corpus each quarter, as decided by you. You will also have an option of not taking any pension amount through SWP route if you wish. So one can just leave his money in the fund and let it grow.
High Exit Loads
As this is a long-term investments tool, the early withdrawals are discouraged and the exit loads are high. There is no exit load if you withdraw your money after 5 yrs of investment, but if you withdraw your money before 5 yrs there are high exit loads. The exit load comes down by 1% each year till 5th year. So in first year, the exit load is 5%, in second year its 4%, in 3rd year its 3% and so on… At last after 5 yrs, there is no exit load.
Some other points
Minimum Investments for Lumpsum = Rs 5,000
Minimum Investments for SIP = Rs 500
There is only growth options under this fund , no dividend options
As per the plan mandate, fund manager can also take upto 10% positions in derivative products ,which can be quite risky.
Good points
These kind of plans are much better than regular pension plans as there is a good enough equity component which is good for long term.
The good thing about this plan as a retirement plan is that you get a known amount (in percentage terms) from your money, unlike the NPS
Not so good points
As this is a NFO , one can not be sure of its performance, features are ok, but the real thing would be the performance of the fund.
The exit loads are high in starting years, which makes exit not so attractive incase the fund performance is bad and one wants to get out of it.
The fund has features which will come into effect after many – many years. For a 25 yrs old, we are talking about 20-30 yrs from now when the auto switching will start happening. It’s quite early to comment on how it will turn out then, because there is not much history at the moment about the performance of mutual funds with such long durations.
For Jagoinvestor readers who are quite pro in themselves, the personal suggestion would be to make their own diversified portfolio and have a full control on what they can do with it. This fund look good from features point of view, but it’s mainly for non-DIY kind of investors.
What are pension plans and how do you identify the best pension plan in India? Is it the LIC pension plans or some pension plan policies from pvt companies or some unit linked plan from companies claiming to provide you with Rs. ‘X’ for ‘Y’ numbers of years once you retires? In this article we will see some of the disadvantages of pension plans in India and how they work.
A lot of investors think that retirement pension plans are the only way to go; and if they do not invest in these products today, then they will miss out on something. In this article let’s talk about pension products. Before I move ahead I would like to coin two terms used in Financial planning which are very easy to understand.
Accumulation Phase : Accumulation Phase is that period of your life, where you invest regularly each month and “accumulate” the Wealth. You start getting pension later in life. So when you invest your money in ULIP’s, Mutual funds, Direct Stocks or anything else you are into accumulation phase.
Distribution Phase : This phase refers to period when you start withdrawing money from your already accumulated wealth for consumption purpose. So at the time of your retirement or even before that, when you start taking out certain amount per month for next ‘N’ years, that’s called distribution phase.
Two major categories of Pension Plans
Let me start by taking about pension plans and their types. There are mainly two type of pension plans at broad level.
Deffered Annuity Plans : Most of the pension products in india are sold by LIC and all the private companies are deferred pension plans. These plans have accumulation phase inbuilt in itself and hence you first pay premiums for ‘X’ number of years. Once you retire, then you start getting pension income. You can see these types of plans all over the market. Some examples are LIC Jeevan Tarang, LIC Jeevan Nidhi, Bajaj Allianz Swarna Raksha ROC , New Pension Scheme (NPS)
Immediate Annuity Plans : These products are called immediate annuity plans because they start paying you the annuity right from day one once you make a lumpsum payment. So if a person wants a monthly pension and has huge lumpsum money, he can buy an immediate annuity plan and start getting pension. It’s a simple product which is not so much popular in India like deferred annuity plans. Some of the examples of immediate annuity plans are LIC Jeevan Akshay , ICICI Pru Immediate Annuity , HDFC Immediate Annuity .
4 reasons why you should not buy deffered annuity plans
Let me tell you 4 strong reasons why you should avoid buying pension plans in India .
1. There are better options for growth of your wealth
The accumulation of your wealth happens in a pension plan for many years, but it’s not the best way your money can grow, ultimately if you had to invest your money in equity (underlying asset class), you have simple and no-cost options like mutual funds, index funds. Also you can choose to put money in real estate. A regular SIP in an equity diversified mutual funds should give much better returns then accumulation in a pension plan (read unit linked products).
2. No predictable returns for annuity
The core function of a pension plan is to give you pension. But do you know how much returns you will get out of your pension plans when time comes for retirement? A lot of pension products do not give a clear idea on how much will you get at the end. What is the return earned is around mere 4%? What will you do? The same is true for NPS.
One major (I mean MAJOR) DRAWBACK is you have no clue what will happen once you finish the accumulation stage and go on to the withdrawal stage. Let us say you have accumulated Rs. 500 lakhs in a NPS account. They allow you to withdraw say 50% of the amount and the balance has to be invested BACK in an annuity. Let us say you ARE FORCED to invest Rs. 250 lakhs in an annuity which pays Rs. 11,000 per month as a pension…looks good? Well depends on what you are capable of doing with your own money!
At this point of time, the better alternatives would be old fashioned products like Post office monthly schemes , Fixed deposits with monthly payouts or even senior citizen savings scheme. these all give near inflation returns atleast .
3. Rigidness and no flexibiity
Almost all the pension products are rigid in taxation and what you can do with your money at the end. Under current laws you can withdraw only 1/3rd of your accumulated money tax-free, where as there is long term capital gains at the moment is 100% tax-free. Also it’s compulsory to buy annuity for the remaining money. What if I want all my money for some reason at the end? What if I don’t have a requirement for income later?
These problems won’t be there if you accumulate your money in plain vanilla mutual funds or PPF or other simple investment products.
4. High charges
Who does not know how ULIP’s and other similar products have charged so high costs for initial years without giving clarity to customers. These annuity plans also have high allocation charges many times and customers do not know about it and can’t do much later when he acknowledges it! So why do you want to pay high fees for these products?
Conclusion
It’s suggested that you invest in some instrument which does not have any rigidness on what can be done with your investments at some later stage, like Mutual funds, Direct Equity, PPF, Index Funds, Real estate or even old fashioned products like FD, NSC, KVP… You can create your own accumulation stage and when the time comes for “distribution phase” (pension), you can always buy some immediate annuity plans or create your monthly income through ways of renting out property, getting FD interest or plain dividends from stocks or any combination of these. I hope you have got a fair understanding of what are pension plans in India.
ICICI Prudential has launched their new online term plan called “I-Care”, which will replace its old term plan called the “i-Protect” (read iprotect review). This new i-Care term plan has some interesting features like no medical examination till the age of 50 and up to 1.5 crores of sum assured can be taken.
Features of I-Care Term plan
The biggest surprising feature of i-care term plan is that there is no medical examination for customers who are up to 50 yrs old. For all the health related information the company will depend on the declaration made by the customer as there won’t be medical tests applicable. This will make sure that the policy is accepted as soon as possible as there is no medical examination in between. Also there is something called “Policy acceptance” in i-care, which means that once you submit the application online and make the payment, it will be reviewed and finally it will be accepted, after which your insurance coverage will start. Some other features of i-care policy are as follows.
Additional features
There will be high cover available to those people who have active home loan in their name.
The premiums once declared will not be increased later, as there is no medical exam later.
Riders in i-care term plan
There is only one rider in i-care term plan just like iProtect had and its accidental death rider. So here are two options one can go for while buying i-care term plan.
iCare Option 1 – Sum Assured
If you take option 1, then you just have a basic sum assured cover which will be paid in case of death. Even if you die in accident you will still get the basic sum assured.
iCare Option 2 – Sum Assured + Accidental Death Benefit
In this option, if one dies due to accident, then the nominee receives extra money equal to sum assured (subject to maximum Rs 50 lacs). This means that; if a person has taken second option with sum assured of 80 lacs, then he will get 80 lacs on death if the death is due to anything other than by way of accident. But if the death is due to accident, then nominee will get Rs 1.3 crores (80 + 50)
Below are the indicative premiums for both the options.
Note : Please make sure you read the terms and conditions properly (mentioned in the 5th and 6th page of the embedded doc above).
Do you know how you can use Hindu Undivided Family (HUF) to reduce your overall tax liability? In this article I will give you tips and real life examples on how you can use HUF to save taxes legally.
Before that let’s understand what HUF is.
The concept of HUF says that apart from individuals there is another separate entity called “Family” which can also have its own assets and liabilities and even regular source of income, which should be taxed separately.
For example :
If an ancestral residential property is rented out, then the rent arising would be considered as Family’s income and not as income of individual. In real life this rent is shown as income of one individual and he pays the tax on it, however a HUF can be formed and the rent can be shown as the whole family income (HUF) and it can be taxed separately.
Until a few years, many Indians used to keep multiple PAN cards and used to show Income under different PAN cards and used these tricks to avail the benefit of slab rates by showing themselves as different persons. This however is illegal by law and is a punishable offence as one person cannot have more than 1 PAN Card.
But, one legal way of obtaining an extra PAN Card is to form an HUF. As the Income of an HUF is taxable in the hands of HUF and not in the hands of any Individuals, a separate PAN Card is issued for an HUF and the benefit of income tax slab rates can be availed on this PAN Card.
Formation of HUF
A false impression amongst people is that HUF needs to be created whereas the truth is that an HUF comes automatically into existence at the time of marriage of an Individual and no formal action needs to be taken for the same.
However, in case a person who wants to specifically register for creating an HUF, he can furnish a creation deed on a stamp paper (The Format of Creation Deed can be downloaded from here).
As HUF is governed by the Hindu Law and not by the Income Tax Act, individuals belonging to other religions are not allowed to form HUF except Jain’s and Sikhs who can create HUF even though they are not governed by the Hindu Law. Two entities are extremely important for you to know in HUF are the coparceners and members.
Coparcener is someone who has the right to demand the share of the property of family; coparceners are generally the Karta (Main decision maker of family, usually the Father, but Manmohan Singh had 5 years ago brought an amendment which stated that Females can become Karta & there can be an all female HUF as well), then sons & daughters, grandsons and great grandsons in order of their first right.
Wife of the Karta is not a coparcener or even spouse are not coparceners and hence can’t demand/ ask for any share in HUF, they are just merely members of HUF.
Example of Tax Saving by forming an HUF
As discussed above, the main advantage of an HUF derives from the fact that an extra PAN Card is issued for the HUF. We’ll explain this tax saving benefit with the help of following example.
Lets say there are 4 members in a family
Husband – Salary 9 lacs
Wife – Salary 7 Lacs
2 Children without Salary
Additionally, one ancestral property which fetches them an annual rent of 6 Lacs p.a
Now the Question is – In whose hands should this Rental Income of Rs. 6 Lakhs p.a. be taxed? In real life, the most sought after solution is to show the rent as income of wife or anyone who has no income or less income so that the tax liability is least. But is it the best solution?
Let’s see 3 different cases here in which this additional rental income can be shown and how tax can be saved!
Option 1 – If this Rental Income is shown in the hands of the Husband.
Option 2 – If this Rental Income is shown in the hands of the Wife
As this Income is arising to the family as a whole, the Govt has also extended this option of taxing this Income in the hands of the whole Family. Although very few people in India know this fact family income can also be taxed in the hands of the whole family by forming an HUF.
Option 3 – If this Rental Income is shown in the hands of the HUF
The above 3 options clearly indicate that Option 3 is the best option as the least tax would be payable by the family if the Rental Income is taxed in the hands of the HUF.
The tax saved by showing this income in the hands of the HUF is Rs.1,18,000 (i.e. difference between “tax paid if rental income is taxed in the hands of HUF” and the “tax paid if shown in the hands of the wife which is the 2nd best alternative”)
Please Note: For the sake of simplicity, Taxes have been computed without taking into account the “Deductions available under Section 80C“ and “Education Cess applicable on the Tax Payable”
Procedure to create HUF
These are the steps to create capital of a HUF.
First one should open a bank account with the name of Hindu undivided family like “AJAY HUF” with a stamp, ID Proof and the proof of the members of the family of HUF.
Important :- While opening a Bank Account in the name of HUF – Banks always ask for a rectangular stamp which states the name of the HUF and also the Karta who is signing it. A round stamp is not accepted as per RBI Circular. The same applies at the time of opening of bank account of Sole Proprietor as well.
Next is to apply for PAN (Permanent Account Number) of the income tax.
Now transfer money by gifts etc to HUF capital keeping in view the clubbing provisions and tax on gifts under Income tax act, Remember there is no Tax on gifts in kind though they may attract clubbing provisions in some cases.
3 real life tricks of saving taxes through HUF
1. Saving tax by getting gifts
One way of saving tax is by transferring the money received from strangers or family are taken as gifts in name of HUF. So if Ajay starts his HUF called “Ajay HUF” and he is getting some gifts from his father, friends or anyone else, he can ask them to give it to “Ajay HUF” and not Ajay itself.
That way the gift will be treated as income/asset of HUF and taxed separately.
One important point here, if some stranger is giving gift to HUF, there is a limit of Rs.50,000 on which no tax has to be paid, but actually it can go up to Rs 1.8 lacs as the taxable limit is that much, and if one also has to do investments of 1.2 lacs (total 80c limit), then one can afford to receive up to Rs.3 lacs of gifts in a financial year and there will be no tax liability at all.
2. Assign ancestral properties and wealth to HUF and invest it
If family is going to receive an ancestral property or any wealth, then it’s better to transfer it on HUF name so that whatever earnings happen in future in form of rental income or capital appreciation of assets becomes income of HUF itself and taxed in its own hands.
That way the total tax liability of family can be minimized.
3. Use HUF income for expenses and Insurance for Family
As HUF enjoys separate tax benefit under sec 80C, one can use the income of HUF for buying Life & health insurance for family and the permissible deductions can be availed for tax purpose in hands of HUF, so if the total premiums for insurance requirement of family is Rs.50,000 per year, then It can go from HUF income and also the individual can exhaust his 1 lac limit separately via PPF, ELSS and other tax instruments.
Also family day to day expenses can be used from HUF income and hence it will leave other members with more disposable income which one can use to service higher EMI’s if required.
Watch this video to learn more about HUF and Tax saving:
Some important Points you should know about HUF
For creating the HUF one need to get married, there is no need to have child or children for creating the HUF.
An HUF can recieve any amount in gift from bigger HUF’s (HUF of Father, HUF of Grandfather) or any gifts received by the members of HUF (birthday, marriage, etc.) can be treated as assets of HUF , but stranger can gift HUF, not more than 50000 rupees.
Daughter also continues to be a Coparcener after her marriage of that family whether she also will be a member of HUF of her husband. So that way daughters can be co-parancers in two HUF’s 🙂
HUF can pay remuneration to the KARTA of family for the interest and expenditure to run the family business.
Be cautious with HUF creation
While all the above points excites people on opening a HUF account immediately and start taking tax benefit, there are some caveats and one has to be little careful. Remember that HUF is a separate entity and represents the whole Family. So once some assets is assigned to HUF, then it becomes part of HUF only and one can be suddenly take money from HUF for personal purpose .
If other co-parceners of HUF demand the partition of HUF only then one can get his/her share of the HUF. Otherwise it will not break. Also for taxation point, a lot of people mislead the tax department buy using fake HUF transactions and therefore, HUF is looked with high degree of scepticism.
If the HUF is not formed properly and if the assets are income are fudged for evading tax, it can get you in trouble, therefore it’s highly advisable to hire a good CA and create your HUF in the best possible manner with right advice. There is no harm in paying 10,000-12,000 to a CA if HUF can give you 5-10 times tax savings.
It would be a great investment, not an expense!
HUF property cant be mentioned in the WILL
Though HUF is very useful tool but one has to use it very judiciously and thoughtfully. Don’t look for tax benefits only , but practical problems also. Be aware that you cannot make a will out of HUF property. Once transferred to HUF, the assets /property becomes of HUF and you no longer have any individual right on it.
To explain with example –
“A”, who has 2 daughters and a son.He long back ago purchased a house in the name of HUF and put that house on rent, so that the Rental income comes to HUF and will not be be added in his or his spouses’s income .
But now , he ‘s retired and wants that this property should be transferred to his son after his demise. But this is not possible as that property belongs to HUF. He can’t even write a WILL for HUF property and with the huge rise in Real estate prices, none of daughter is ready to leave her share in it.
HUF will be extremely efficient for those people who have a higher income and high saving rate and some form of ancestral assets which can be marked as “Family Assets”.
Evaluate if HUF can really give you that kind of tax advantage or not for people who do not have high salary or who do not have a big enough family. So make sure you can get the maximum out of the HUF and understand the limitations of opening HUF before you go for it.
This article has been authored by CA Karan Batra who blogs on charteredclub.com (Content added by Jagoinvestor with inputs from Karan)
Can you share how was the article and did it help you in understanding Hindu undivided Family? Are you going to open a HUF account?
