Levies on home business

Tax Queries

 From the information that you have provided, it is rather clear that you are running a mini hotel business and therefore, your income from rentals will be treated as business income. Net profit from your house will be taxed under the head 'Income from business'. You can therefore deduct all actual expenses incurred on maintenance, repairs and under other heads from your gross receipts. Your total income from all sources will be taxed at the rates applicable to a lady taxpayer with individual basic exemption of Rs 1.45 lakh for the year ending on March 31, 2008.  Can I start a Hindu Undivided Family (HUF) with my wife, father and two minor sons as members? My father is a retired person, with a monthly pension and I am his only son. At present, I have a flat on rent which I want to transfer to the HUF so that the rental income is taxed at that end. Also, we have a plan to start a small business and the income will also be divided equally between us. What will the tax liability of this business on the HUF?

- Pramod Mane, Kolhapur

 At the outset, it would be incorrect to say that an HUF can be 'created' at any point in time. Among all Hindus, a joint family is always deemed to be in existence. Of course, it is a different matter altogether that the HUF may or may not be a taxable entity. Keeping this in mind, if any member of an HUF converts his personal property into an HUF property without receiving adequate consideration, the income from that property is included in his individual income. So, after you transfer your flat to the HUF, the rental income from it will continue to be included in your income. However, any other sum received by a member of an HUF as share in profits is exempt from tax in his hands, if the HUF is being assessed as a separate entity. The income of an HUF is taxable at the same rates as an individual. Therefore, if you start a business as an HUF, the income earned will be taxed at the hands of the HUF. The profits received by you and your father will not be taxed again.  (The writer is a chartered accountant)