384. Hindu Undivided Family

Status and USA taxes . . .

Question December 27, 2011 Dear Mr. Chand I acknowledge with thanks the receipt of your excellent book 'The NRI Guide 2012-13'. The topics it covers are very useful references and knowledge source for all NRIs. I recommend all NRIs to purchase this book. I have following questions as they apply to my case in filing IT return for financial year 2011-12 in India and 2011 IT Return in USA and would therefore very much appreciate your clarifications. Facts: Man-Karta of an HUF- (current age 74) arrived in 1991 in USA on green card. Naturalized as citizen of USA in 1997.Wife passed away in 2008. Two daughters are married prior to 2008 and they are NRIs and live in USA. Karta Has not stayed in India for more than 730 days in India during preceeding 7 financial years. Last IT Return of HUF was filed in India 2003-4 as NRI.Thereafter there was nominal income of Bank intrest and there was no need to file income tax return.HUF Assets include the following: 1.Nationalised Bank Account in India since 1970 in the name HUF, prior to becoming NRI. It generates Interest income.Tax Deducted at Source. 2.Sold HUF owned residential land plot in August 2011, which was purchased by HUF in 1970, long before becoming NRI. Long Term Capital Gain accrued. Capital Gains Tax 2 installments paid. 3rd and final installment to be paid in March 2012. 3.Other HUF assets are: Godowns (purchased long back) and 2 residential land plots purchased in 2011. Man has investment income in USA for which he has to file IT Return for the financial year 2011. As we all know there is no HUF status in USA. Questions: 1. Filing IT return in India: Is HUF liable to file IT return in India for financial year 2011-2012? HUF income is derived from bank account interest and long term capital gains in residential plot sale. Does Page 90 information of your book apply which has a meaning like this - If NRI income in India is from bank accounts interest and capital gains and if tax was deducted at source TDS then NRI need not file Income Tax Return in India.Please correct me if my understanding is not right. 2. Filing IT Retrun in USA - Should it include Long Term Capital Gains of Rs. 12 lakhs in India? 3. Does HUF (Hindu Undivided Family) income tax status in India equate with man's individual status in USA?-This is to make sure if Long Term Capital Gain of Rs. 12 lakhs in India is to be included or not in USA income. 4. Survival of HUF - can HUF survive as it is with one male member that is Karta? 5. Transfer of Assets from HUF: Can Karta Transfer/Gift of some of the assets without complete partition? What is the economical way to minimise cost in transfer of assets from HUF? I would greatly appreicate your clarifications to above. Wishing you and your family a happy, peaceful and prosperous new year. Ray Shah Answer: Regards to your questions: Regarding your question: It is not mandatory for NRI’s to file a tax return if their total income in respect of which they are assessable under Indian income tax Act, during the applicable financial year consisted only of investment income and long term capital gains, from which the applicable TDS has been deducted. Hence if a person does not have any income liable to tax, there is no requirement to file a tax return. Clarification for all readers: Short term capital gains do require a return if you have short term capital gains on equity shares or units of equity oriented mutual fund, even if the amount is less than the financial years basic exemption limit, a return is normally required. As US residents are taxed on their world wide income. Any income regardless of how derived must be declared to the IRS. In the case of the man as the Karta of an HUF, my opinion would be that his share of the income should be declared when filling US taxes. In case there are no other beneficiaries, then the full amount of Rs. 12 lakh gain should be declared. Under the DTAA credit for taxes paid should be available in the United States. With one male member as the Karta and no coparcener, there cannot be a Hindu Undivided Family for taxation purposes. Daughters following their marriage, cease to be a member of their father's HUF and become Members of their Husband's HUF. The Karta's wife passed away in 2008. You mention the purchase residential land plots in 2011, were they made under HUF or as a personal asset? Professional guidance should be sought when it comes to your question regarding the Karta transferring/gifting assets from a tax point of view as more details of assets in question are required. Thanks for buying the NRI GUIDE and I'm glad you found it useful. The thought behind the book is not to provide professional advice but to point NRIs in the right direction so they can make an informed decision. Kindly advise the person to whom your questions apply, to seek professional guidance and check with his accountant in USA before filling his taxes with the IRS. May God bless you and have a great new year.