Tax on huf under section 44ada

 

(Querist)
13 September 2017

Hi,

Me and my wife both are doctors and are working in a hospital on salary basis, simultaneously we started our medical practice and formed a HUF. All the receipts of practice is taken in HUF account. Please advice 1) whether HUF can declare income under section 44ADA of the Act, 2) is there any tax implication on me and my wife.


CMA Ramesh Krishnan (Expert)
13 September 2017

Yes. Sec.44ADA can be opted by resident person ( Individual, HUF) and medical profession also covered under the section. Salary income will be taxed on individual hand and profession income in HUF will be taxed in HUF

Amol S Joglekar (Expert)
14 September 2017

HUF can NOT be a professional entity.
Where the personal skill of karta or any other member of HUF is required, such profession can NOT be run by HUF. Please be sure about it.
You can transfer income into HUF account....that is NOT barred. But HUF doing PROFESSION is out of LAW.

Akash Gupta (Querist)
14 September 2017

Hi Amol, So why HUF is kept under the purview of Section 44ADA, when he can not run profession?

Is this possible if we start taking salary from HUF for rendering our services and then HUF can declare income under section 44ADA.

CMA Ramesh Krishnan (Expert)
14 September 2017

my view. stil HUF can opt the sec.44ADA. section is very clear. Incase act is not allowing Sec. 44ADA for professional under HUF. they might have very clarly excluded.

Amol S Joglekar (Expert)
14 September 2017

01. Can you please show me OR tell me where exactly the word HUF is used in section 44ADA? ( May be bare act or book by singhania or any other well known author?)

02. For the time being. let us agree that as you pointed out section 44ADA has the word HUF....ok?....Still the question remains to be answered is what is more correct "Part to whole?" OR "Whole to part?"?....... meaning thereby.....because a word, inadvertantly though, is used in a section does NOT entitle us to have a profession run by HUF.......See HUF can run a hospital....no issues. But the acticities which involve personal skill can NOT be done by HUF. So to say, if an HUF is running hospital, it can hire doctors and pay them salary / contractual fee....no problem...

CMA Ramesh Krishnan (Expert)
14 September 2017

Dear sir please share any word provision which specifically that HUF cannot take benefits of the sec.44ADA

Amol S Joglekar (Expert)
14 September 2017

44AD : Special provision for computing profits and gains of business on presumptive basis....(This is for BUSINESS)
44ADA: Special provision for computing profits and gains of business on presumptive basis...(For PROFESSION)
Not the point is.....Can HUF do a profession? The answer to this is NO.
An HUF can NOT do a profession.....where ever personal skill is required, HUF can NOT do that....
So to say tell me "Can the HUF be the cost auditor ?".....

Amol S Joglekar (Expert)
14 September 2017

44AD : Special provision for computing profits and gains of business on presumptive basis....(This is for BUSINESS)
44ADA: Special provision for computing profits and gains of profession on presumptive basis...(For PROFESSION)
Now the point is.....Can HUF do a profession? The answer to this is NO.
An HUF can NOT do a profession.....where ever personal skill is required, HUF can NOT do that....
So to say tell me "Can the HUF be the cost auditor ?".....

CMA Ramesh Krishnan (Expert)
14 September 2017

As per details about presumptive taxation issued officially by Income tax department mentioned Sec.44ADA can be opt any resident person and as per person definition under section. 2(31) of income tax act follows

Person [Section 2(31)] : Defination under I.Tax
Person includes :
(i) an Individual;
(ii) a Hindu Undivided Family (HUF) ;
(iii) a Company;
(iv) a Firm
(v) an association of persons or a body of individuals, whether incorporated or not;
(vi) a local authority; and
(vii) every artificial juridical person not falling within any of the preceding sub-clauses.
(viii) Association of Persons or Body of Individuals or a Local authority or Artificial Juridical Persons shall be deemed to be a person whether or not, such persons are formed or established or incorporated with the object of deriving profits or gains or income.

The link for income tax department details below
http://www.incometaxindia.gov.in/tutorials/13.%20tax%20on%20presumptive%20basis%20in%20case%20of%20certain%20eligible%20businesses.pdf


Amol S Joglekar (Expert)
14 September 2017

Please spare some time to answer my question.......which is simple yet straight forward.
Can HUF be appointed as Cost Auditor?
Let us have the answer of above question and then we will proceed to 2(31) and 44 ADA. ok?

CMA Ramesh Krishnan (Expert)
14 September 2017

Thank you sir. For your kind advice

Amol S Joglekar (Expert)
14 September 2017

So to say........Should I take your answer as
YES,
HUF can be appointed as Cost Auditor of a company under Companies (Cost Records and Audit) Rules 2014.
Right????

RAJA P M (Expert)
14 September 2017

My dear Experts., I watch/read after starting this query. I got a good experience in this query. Also thank you for both of you... Please finalize the query....

Akash Gupta (Querist)
15 September 2017

Hi Experts, Please give the final reply. Mr. Raja it would be great if you can share your experience as well. It will help me a lot.

Amol S Joglekar (Expert)
16 September 2017

let us wait for Raja P M...please.....

RAJA P M (Expert)
16 September 2017

Yes Sir... I'm also waiting here....

Ashiwini Ballodia (Expert)
16 September 2017

Great Answer given by all expert

CMA Ramesh Krishnan (Expert)
16 September 2017


For request of querist
I am concluding my view, that HUF can opt the section.44ADA benefit and below points are my supporting
As per Income tax definition HUF also a “ Person” and
HUF can do business in the name of HUF. Form of Business can be Proprietorship Concern, Partnership with other person. All the provisions of Business head are equally applicable for HUF also. Provision of Tax Audit u/s 44AB is also applicable for HUF if the turnover of Business of HUF exceeds applicable turnover in any previous year. Further, HUF can claim the benefit of 44AD if all the conditions are satisfied.
Sec.44AD is only for Business and not allowed for professionals, So sec.44ADA introduced for professional. Basic objective of the section to apply for professional, but the section not restricted the option only for Individual, it is very clear that resident person can claim the benefit subject to fulfill all other conditions in the section.
So as per the Income tax act not barred the HUF to avail the benefit.
Now come to the point that “whether HUF can have professional qualification and do the profession, absolutely not, HUF is the artificial body like Partnership firm, LLP, AOP, BOI and Company etc.
Today we can see several Partnership firms, LLP & Companies are running professional like Accountancy firms, Engineering and Legal etc. This means that they are not individual professional, those are group of Individuals or hired Individuals to do the profession under one legal name other than that Individuals.
Several educational institutions to day run by Societies, AOPs and even some places HUFs, this that not mean only Individual can opt the teaching profession, but Individual can do the teaching profession under different legal name also.
Also we can see several hospitals today run by companies & corporates, Company also is artificial person, how they are running hospital? can company has that medical degree or professional degree.
So Professional is truly related to individual but while come to commercial, it may have different formats, a profession can do their service in capacity of Individual or partner of one firm, member of one HUF or Director of one company or an employee of firm/huf/company etc. Only necessity is you should have required qualification.
So, in my opinion that, querist stated husband & wife both are medical professionals and they are forming the HUF to do the professional service and all the income and receipts are received under HUF account. So there is no restriction on opting Sec.44ADA by that HUF and avail the benefits of this section subject to fulfilling other conditions of that section.
Learned fellow members are invited to comment on my view and I always ready to learn from mistakes if any in my view.

Amol S Joglekar (Expert)
17 September 2017

01) As per the literaligis, there is absolutely no bar for HUF to opt for 44ADA. subject to however the following.....
The crucial question is "CAN an HUF run a profession?"...... The decided case laws and well settled principles of Income Tax suggest the answer to be NO. So to say, HUF being professional is a null and void set, no matter whether or not 44ADA includes inter alia HUF. An HUF as a profession is nothing else than a myth.

02. Society running a hospital (Bharati Hospital,Pune .....Krishna Hospital Karad, ), a trust running a hospital (Poona Hospital, Pune), Company running a hospital (Appolo hospital) etc. etc..... Good examples for our academic discussions.... ..... But the question for our consideration is........what is the limit for tax audit? Is it 1 crore or 50 lakh? ICAI guidance note on tax audit says...it is 1 crore and NOT 50 lakh. ...... NIIT Ltd., Aptech Ltd, Seed Infotech Ltd, are some of the companies imparting information technology training....it is a coaching class......But then the limit for tax audit is 1 crore and not 50 lakh.

03. Since the discussion is now centering at the fundamental concepts, I would like to call for the opinions of experts on this site (a) B Chakrapani Warrior who happens to be a great torch bearer so far as income tax matters are concerned and (b) Seetharaman, who happens to be a top finance person of a navaratna company of India.

CA R SEETHARAMAN (Expert)

17 September 2017

I agree with Amol S Joglekar that two professional can't form a huf to do professional practice.
See the example how huf is formed to run the family business or earn from income from property.
Let’s understand taxation of HUF with an example – After the death of his father, Mr. Rajesh Chopra decides to start an HUF with his wife, son, and daughter as members. Since Mr. Chopra had no siblings, property held by his father was transferred in the name of the HUF. The property held by late Mr. Chopra earns an annual rent of Rs 7.5 lakhs. Mr. Rajesh Chopra has an income from salary of Rs 20 lakh. By creating an HUF, Mr. Chopra can save tax.

RAJA P M (Expert)
17 September 2017

Thank you for the reply Mr SEETHARAMAN SIR also thank you for attending the query.....

CA R SEETHARAMAN (Expert)

17 September 2017

Professional income are personal income can't part of huf income.

The following incomes are not taxed as income of HUF

If a member transfers his self-acquired property to the HUF without receiving proper sale consideration, income from such property is not taxable in hands of the HUF. It will continue to be taxed in the hands of the member.
Personal income of the members cannot be treated as income of HUF.
“Stridhan” is absolute property of a woman, hence income from it is not taxable as income of HUF.
Income from an individual property of daughter is not taxable in hands of HUF even if such property is vested into HUF by the daughter.

S S Dahale (Expert)
18 September 2017

as per IT law, HUF is an ENTITY not a living person, ( though having separate PAN card)so professional services rendering is by a person, who can be a Karta / member ( instant case of medico practitioner) of a HUF. thus INCOME EARNED by rendering those PROF SERVICES CANNOT be INCOME of HUF, but of an INDIVIDUAL

Akash Gupta (Querist)
18 September 2017

Dear Experts,
Thank you for kind advice. I understand now and will help me a lot.
Just out of curiosity, wanted to understand how can I use HUF to save tax. I don't have ancestral property or family business. Can I start business in the name of HUF, which would be a new business related to trading or manufacturing?
Second case if my father is running a business, then how can I use my HUF to save tax?

CA R SEETHARAMAN (Expert)

18 September 2017

You can't start new business in the name of huf with your personal fund.
You can convert your father's business as huf business.

Akash Gupta (Querist)
19 September 2017

Thank you sir for your reply, please advice if I transfer money to HUF and show it as loan and pay interest from HUF to personal account, then can I start HUF business.

CA R SEETHARAMAN (Expert)

19 September 2017

No such arrangement not allowed.

RAJA P M (Expert)
19 September 2017

No.... It's not allowed....



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