Summary of this article
HUF cannot gift assets; only expenses for members allowed.
Employer NPS contribution exempt up to Rs 7.50 lakh yearly.
Surrendered pension policy with 80CCC deduction fully taxable income.
Can a Hindu Undivided Family (HUF) make a gift of its assets to its members? If yes, then who will bear the tax burden?
Under the Hindu law, an HUF cannot make a gift of its assets to its members, but it can meet various expenses for its members out of the HUF fund, such as for education, payment of life and health insurance premium, and wedding expenses, among others.
Under the tax law, any money received by the members of an HUF out of the current income of the HUF is exempt under Section 10(2) of the Income-tax Act, 1961, but any gift made out of the HUF’s capital will be treated as partial partition, which is not recognised under the income tax laws. Though partial partition is not prohibited under tax laws, but it is not recognised under the law, and any income arising to the member from the asset so gifted will be clubbed in the hands of the HUF till full partition of the HUF takes place.
On strict interpretation of section 56(2)(x), this would amount to receipt of gift from the HUF and since HUF is not recognised as a relative of the individual, the income tax department may tax such receipt in the hands of the recipient. Please note that members are relatives of the HUF, but HUF is not a relative of the member for the purpose of Section 56(2)(x). This results in an absurd situation where the gift gets taxed in the hands of the recipient member, but the income still gets taxed in the hands of the HUF.
Is an employer's 10 per cent contribution to employees’ National Pension System (NPS) account fully tax exempt without any monetary limits?
No, the employer’s contribution toward an NPS account is not fully exempted. It is exempt up to only Rs 7.50 lakh in a year. The ceiling of Rs 7.50 lakh is to be considered for employer’s contribution towards NPS, Employees’ Provident Fund (EPF) and Superannuation taken together.
In case you opt for the new tax regime, instead of 10 per cent, a higher limit of 14 per cent is allowed as tax-free in the hands of the employee within the overall limit of Rs 7.50 lakh every year.
I had purchased a pension plan policy from a life insurance company in August 2020 and continued with it for six years till 2025 when I decided to stop paying the premium and eventually surrendered the policy. I received a total of Rs 1.62 lakh from the insurance company after surrendering the policy. Will I have to pay tax on this amount or is it tax-free? If it is taxable, then how much do I have to pay in tax?
I presume that you had availed of tax benefits under Section 80CCC against the premium paid in respect of this pension plan. Under the provisions of Section 80 CCC, any money received on surrender of any pension policy for which deduction under Section 80CCC was claimed becomes fully taxable in the year in which the policy is surrendered.
In case the deduction was not claimed, you can treat the premiums paid as your investment and offer the difference as short-term capital gain (STCG) or long-term capital gain (LTCG) depending on the holding period.
The author is a tax and investment expert and can be reached on jainbalwant@gmail.com
(Disclaimer: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.)
