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With a net annual investment of just Rs.69,100 for 18 years, build tax free capital of Rs.43.59 lakhs for your child!

Every parent would naturally be concerned about building capital for his or her children, which would go to ensure meeting their financial requirements for higher education, marriage, settlement in life, etc. One of the major stumbling blocks in doing so are the clubbing provisions under Section 64(1A) of the Income-tax Act, which provide that any income arising to a minor child is required to be clubbed with the income of either the father or the mother, whosever’s total income is greater. Imaginative planning through investment in PPF can be resorted to achieve the objective of building up ‘tax free capital’ for children and in particular minors, successfully overcoming the hurdles of the clubbing provisions.


Investment in PPF can be usefully resorted to achieve the twin objectives of building up tax free capital as also securing valuable tax saving through deduction under Section 80C. Section 10(11) of the Income-tax Act provides that the interest @ 8.70% per annum earned on the balance in the PPF Account is totally exempt from Income-tax. Moreover, section 80C of the Income-tax Act provides that any contribution made by an individual even in the account of his children (either minor or major) also qualifies for deduction out of gross total income. As per the current provisions of the PPF Scheme, the maximum contribution that can be made in the PPF account during the financial year is Rs.1,00,000.   (more…)


Making of food products is manufacture & export by a 100% EOU can enjoy tax holiday holds ITAT Ahmedabad

If you thought that your favourite dhoklas and samosas were mere gastronomic delights you were mistaken. Infact, if a taxpayer has a 100% export oriented unit (EOU), which is actively engaged in making and exporting the same, he can even enjoy income-tax exemption for the profits earned therefrom under Section 10B of the Income-tax Act.

Upholding the above contention of the taxpayer in the case of Deepkiran Foods Pvt. Ltd. vs. ACIT (30 99), the Income-tax Appellate Tribunal (ITAT), Ahmedabad has rendered a very interesting decision. In this case, the taxpayer company was a 100% EOU engaged in the business of manufacturing and export of various food products like paratha, samosa, dhokla, idli, dahi vada, fried bhindi, pani puri, mint chutney etc. It claimed total exemption in respect of the profits earned under Section 10B. The Assessing Officer was of the view that preparation of eatable items by the taxpayer in its mechanized kitchen did not amount to manufacture or production within the meaning of the said section and, therefore, it was not eligible for exemption. The Commissioner (Appeals) upheld the view of the Assessing Officer and hence the matter was taken in second appeal before the ITAT.

Analyzing the facts of the case, the ITAT noted that the taxpayer held factory license for its 100% EOU unit for manufacture and export of food. Its factory premises were also licensed under Section 58 of the Customs Act, 1953 as a Private Bonded Warehouse for storing and manufacturing of food items. The value of plant and machinery and electrical installations as per the audited balance sheet was in excess of Rs. 20 crores, and the number of workers employed in its factory were in excess of 2000. The Tribunal observed that these facts had not been controverted by the revenue by bringing any contrary material on record and therefore the undisputed factual position was that the taxpayer unit was an industrial undertaking. (more…)


Any gift within the value of Rs.5,000 by an employer on a ceremonial occasion is tax exempt for his employees!

The noted Sufi writer Idries Shah once remarked, “If you give what can be taken, you are not really giving.” If you as an employer are trying to think of giving something to your employees during the coming festive season, out of which even the Taxman cannot take anything, here is a smart idea!

Rule 3(7)(iv) of the Income-tax Rules relating to valuation of perquisites provides that, “the value of any gift, or voucher, or token in lieu of which such gift may be received by the employee or by member of his household on ceremonial occasions or otherwise from the employer shall be determined as the sum equal to the amount of such gift. However, where the value of such gift, voucher or token, as the case may be, is below Rs.5,000 in the aggregate during the previous year, the value of perquisite shall be taken as nil.” (more…)


Courts have held that two male members are a must to constitute an HUF is a myth that must be dispelled!

Under the Direct Tax Laws in our country, a Hindu Undivided Family (HUF) has been granted the status of an independent tax entity. Thus, an HUF has assumed a useful role in personal tax planning.

No doubt, it is true that to constitute an HUF, there should be atleast two members and there cannot be an HUF consisting of a single member, male or female. However, the myth or misconception, that there must be atleast two male members in the family to constitute an HUF as a taxable unit needs to be dispelled.

Courts and Tribunals have categorically held that such profit or income arising from any properties held by an HUF cannot be taxed in the hands of the individual Karta on the ground that he does not have a son in the family. It would be interesting to review the ratio and reasoning of some landmark judicial pronouncements on the subject.

As held by the Supreme Court in the case of ‘Gowli Buddanna vs. CIT’ 60 ITR 293(SC), under Hindu Law, a joint family may consist of a single male member and the Income-tax Act also does not indicate that the HUF as an assessable entity must consist of atleast two male members. (more…)

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