I am a retired government servant and an income tax assessee. I have ancestral undivided property in my native town and draw an annual rental income of ₹2.1 lakh which is deposited in an SB account. This amount earns an interest in the SB account as well. Can this income be shown as income of HUF? If so, what is the tax liability? What are the deductions available against this income?

Are the deductions and exemptions applicable for individuals also available for HUFs? Do I need separate PAN and Aadhaar to show this as income of HUF? What is the ITR form I have to use for HUF Accounts?

S Raju

I understand and presume that you hold a share in an undivided property along with your family members (mother, brother, sister etc.) and there does not exist any HUF for such ancestral property.

As per the provisions of the Income-tax Act, 1961, your share of rental income is taxable in your hands. From the rental income (i.e. the Gross Annual Value), a deduction of municipal tax paid (if any) is available to arrive at the net annual value (NAV). From the NAV, a standard deduction of 30 per cent is available. Apart from this, deduction in respect of interest on housing loan, if any, paid during the year can be claimed subject to certain restrictions.

Accordingly, the income is taxable in the hands of respective individual for their share and the taxability for HUF does not arises. Please note that due to the limited information available, I have not commented on the creation of HUF and implications of contribution or transfer of any asset to HUF. For your academic understanding, tax liability of HUF is calculated in the same manner as calculated for an individual. Hence, all the deductions as available to the individual are available to HUF. HUF is a separate entity for taxation purpose and is required to have separate tax registrations (PAN) and compliances. As per the income-tax return forms notified for FY 2016-17, the tax return of an HUF not having income from business or profession may be filed in ITR - 2.

I invested ₹8,250 in August 2007 in zero interest Nabard Bhavishya Nirman Bond maturing in October 2017 for ₹20,000. I would like to know the tax treatment for interest earned of ₹11,750.

Vipulkumar Chauhan

In the zero coupon bond or zero interest bonds, the investor does not get any benefit during the tenure of the bond. The benefits are received only at the time of maturity. Where such bonds are held as investments (i.e. not as stock in trade), the income arising on maturity of bonds is taxable as Capital Gain.

Taxability for the same depends upon the period for which the bonds were held before maturity. We understand that you have been holding the bonds for more than 10 years, thus the same shall qualify as Long-term capital asset and thus the incomes generated shall be categorised as long-term capital gain for which the applicable tax rate is 20 per cent (with indexation benefit) or 10 per cent (without indexation benefit), whichever is lower.

The writer is a practising Chartered Accountant. Send your queries to taxtalk@thehindu.co.in

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