EXEMPTIONS FROM CAPITAL GAIN TAX (SEC 54 TO 54GB)

RESIDENTIAL STATUS OF AN INDIVIDUAL

[SEC.6(1) OF INCOME TAX ACT]

DIFFERENCE BETWEEN TRUSTS, SOCIETIES & SEC.8 PVT LTD COMPANY

Doing a Social work is good and important for betterment of society. Then why not doing it in a legal manner. In India Non-Profit making organizations can be registered as Trust, Society, Private Limited Non Profit Company (Section 8 Company). People usually consider them to be one and same. But No. There is huge difference between all three. All have their own Benefits, Drawbacks and legal existence. The following comparison table should help you in deciding which is better for you considering your objectives and circumstances.

BASIS OF DIFFERENCE	TRUST	SOCIETY		PVT LTD SEC-8 COMPANY
STATUTE / LEGISLATION	Indian Trust Act, 1882	Societies Registration Act, 1860	The Companies Act, 2013
MEMBERS ARE CALLED AS	Trustees	Members	Directors
MINIMUM NUMBER OF MEMBER REQUIRED	Two	Seven	Two
GEOGRAPHICAL AREA OF MEMBERS	Members can be from same state or city.	Should be from different states.	Can be from same state or city.
MINIMUM CAPITAL INVESTMENT REQUIREMENT	Can be registered with a minimum amount (say Rs 1,100/-)	Can be registered with a minimum amount (say Rs 1,100/-).	Minimum Capital Required Rs. 1,00,000/-.
MEMBERSHIP FEES FOR MEMBERS	No such option	Societies can keep a minimum fees for every Member	No such option
FAMILY MEMBERS	Can become Trustees	Registrar objects on family members becoming part of the Governing Body	Can become Director
GEOGRAPHICAL AREA OF ACTIVITY	All India	Normally, state wise registration. A separate registration for All India level is required.	Normally, state wise registration. Can work on All India Level.
MAIN DOCUMENTS	Trust Deed	1.       Memorandum of Association 2.       Rules and Regulations	1.       Memorandum of Association 2.       Articles of Association
AMENDMENTS IN MAIN DOCUMENTS	Easily done by Supplementary Trust Deed.	Relatively more difficult. Both Memorandum of Association and Rules and Regulations need to be changed	Relatively more difficult. Both Memorandum of Association and Articles of Association needs to be change.
NATURE OF CONTROL	One Man Control, i.e , Settler	Democratic system. Decisions are made by voting. Power struggle may ensue.	Decisions are made by Board of Directors
NAME OF ORGANISATION	Easily Available	A bit difficult to get the desired name	A bit difficult to get the desired name
WINDING-UP	Trust is generally irrevocable, Can not be wound-up.	Can be wound up if 3/5th of the members so desire	Voluntary Wind up or by Tribunal for some reasons. For voluntary wind-up consent of at least 3/4th of the members is required.
AFTER DISSOLUTION	If dissolved on certain conditions,  All the property is transferred to Trust having same objectives.	Upon dissolution and after settlement of all debts and liabilities, the funds and property of the society may not be distributed among the members. Rather, the remaining funds and property must be given or transferred to some other society having similar objects.	Upon dissolution and after settlement of all debts and liabilities, the funds and property of the company may not be distributed among the members of the company.  Rather, the remaining funds and property must be given or transferred to some other section 8 company having similar objects

I hope above table will help you in understanding basic differences among these three and choosing a right option as per your requirement.

## This Post is just a knowledge sharing initiative for mutual discussion and author does not intend to solicit any business or profession.

CLUBBING OF INCOME

Normally, a person is taxed in respect of income earned by him only. However, in certain special cases income of other person is included (i.e. clubbed) in the taxable income of the taxpayer and in such a case he will be liable to pay tax in respect of his income (if any) as well as income of other person too. The situation in which income of other person is included in the income of the taxpayer is called as clubbing of income. E.g., (1) Income of minor child is clubbed with the income of his/her parent (2) Income of husband which is shown to be the income of his wife is clubbed in the income of Husband and is taxable in the hands of the husband. Section 60 to ​64​ gives various provisions relating to clubbing of income.

SEC.	NATURE OF TRANSACTION	CLUBBED IN THE HANDS OF	CONDITIONS/ EXCEPTIONS	RELEVANT REFERENCE
60	Transfer of Income without transfer of Assets.	Transferor who transfers the income.	Irrespective of: 1. Whether such transfer is revocable or not. 2. Whether the transfer is effected before or after the commencement of IT Act.	1. Income for the purpose of Section 64 includes losses.     [P. Doriswamy Chetty 183 ITR 559 (SC)] [also see Expl. (2) to Section 64] 2. Section 60 does not apply if corpus itself is transferred. [Grandhi Narayana Rao 173 ITR 593 (AP)]
61	Revocable transfer of Assets.	Transferor who transfers the Assets.	Clubbing not applicable if: 1. Trust/transfer irrevocable during the lifetime of beneficiaries/transferee or2. Transfer made prior to 1-4-1961 and not revocable for a period of 6 years.Provided the transferor derives no direct or indirect benefit from such income in either case.	Transfer held as revocable 1. If there is provision to re-transfer directly or indirectly whole/part of income/asset to transferor; 2. If there is a right to reassume power, directly or indirectly, the transfer is held revocable and actual exercise is not necessary. [S. Raghbir Singh 57 ITR 408 (SC)] 3. Where no absolute right is given to transferee and asset can revert to transferor in prescribed circumstances, transfer is held revocable. [Jyotendrasinhji vs. S. I. Tripathi 201 ITR 611 (SC)]
64(1)(ii)	Salary, Commission, Fees or remuneration paid to spouse from a concern in which an individual has a substantial* interest.	Spouse whose total income (excluding income to be clubbed) is greater.	Clubbing not applicable if:Spouse possesses technical or professional qualification and remuneration is solely attributable to application of that knowledge/qualification.	1. The relationship of husband and wife must subsist at the time of accrual of the income. [Philip John Plasket Thomas 49 ITR 97 (SC)] 2. Income other than salary, commission, fees or remune- ration is not clubbed under this clause
64(1)(iv)	Income from assets transferred directly or indirectly to the spouse without adequate consideration.	Individual transferring the asset.	Clubbing not applicable if, The assets are transferred; 1. With an agreement to live apart. 2. Before marriage. 3. Income earned when relation does not exist. 4. By Karta of HUF gifting co-parcenary property to his wife. L. Hirday Narain vs. ITO 78 ITR 26 (SC) 5. Property acquired out of pin money. [R.B.N.J. Naidu vs. CIT 29 ITR 194 (Nag.)]	1. Income earned out of Income arising from transferred assets not liable for clubbed. [M.S.S. Rajan 252 ITR 126 (Mad)]2. Cash gifted to spouse and he/she invests to earn interest. [Mohini Thaper vs. CIT 83 ITR 208 (SC)] 3. Capital gain on sale of property which was received without consideration from spouse [Sevential M. Sheth vs. CIT 68 ITR 503 (SC)] 4. Transaction must be real. [O.N. Mohindroo 99 ITR 583 (Delhi)]
64(1)(vi)	Income from the assets transferred to son’s wife.	Individual transferring the Asset.	Condition: The transfer should be without adequate consideration.	Cross transfers are also covered [C.M.Kothari 49 ITR 107 (SC)]
64(1)(vii),(viii)	Transfer of assets by an individual to a person or AOP for the immediate or deferred benefit of his: (vii) – Spouse. (viii) – Son’s wife.	Individual transferring the Asset.	Condition: 1. The transfer should be without adequate consideration.	1. Transferor need not necessarily have taxable income of his own. [P. Murugesan 245 ITR 301 (Mad)]2. Wife means legally wedded wife. [Executors of the will of T.V. Krishna Iyer 38 ITR 144 (Ker)]
64(1A)	Income of a minor child [Child includes step child, adopted child and minor married daughter].	1. If the marriage subsists, in the hands of the parent whose total income is greater; or; 2. If the marriage does not subsist, in the hands of the person who maintains the minor child. 3. Income once included in the total income of either of parents, it shall continue to be included in the hands of some parent in the subsequent year unless AO is satisfied that it is necessary to do so (after giving that parent opportunity of being heard)	Clubbing not applicable for:— 1. Income of a minor child suffering any disability specified u/s. 80U. 2. Income on account of manual work done by the minor child. 3. Income on account of any activity involving application of skills, talent or specialized knowledge and experience.	1. Income out of property transferred for no consideration to a minor married daughter, shall not be clubbed in the parents’ hands. [Section 27]2. The parent in whose hands the minor’s income is clubbed is entitled to an exemption up to Rs. 1,500 per child. [Section 10(32)]
64(2)	Income of HUF from property converted by the individual into HUF property.	Income is included in the hands of individual & not in the hands of HUF.	Clubbing applicable even if: The converted property is subsequently partitioned; income derived by the spouse from such converted property will be taxable in the hands of individual.	Fiction under this section must be extended to computation of income also. [M.K. Kuppuraj 127 ITR 447 (Mad)]

* An individual shall deemed to have substantial interest in a concern for the purpose of Section 64(1)(ii).

IF THE CONCERN IS A COMPANY	IF THE CONCERN IS OTHER THAN A COMPANY
Person’s beneficial shareholding should not be less than 20% of voting power either individually or jointly with relatives at any time during the Previous Year. (Shares with fixed rate of dividend shall not be considered)	Person either himself or jointly with his relatives is entitled in aggregate to not less than 20% of the profits of such concern, at any time during the previous year.

Note : The clubbed income retains the same head under which it is earned.

## This Post is just a knowledge sharing initiative for mutual discussion and author does not intend to solicit any business or profession.

Taxability of Gifts

1.      Any Gifts in cash or in kind received by a HUF from its Members are Tax Free.

2.      Also Gift received by any person from any *Relatives is Tax Free.

Conclusion:-

Hence, a member of HUF can receive gift from their *Relatives and subsequently may gift the same to their HUF.

3.      Any sum of money received on occasion of Marriage from any person (whether relative or stranger) is completely Tax Free.

4.      Any Gift received from a stranger upto of Rs 50,000/- is Tax Free.

5.      Ancestral property inherited by way of will / gift is Tax Free.

6.      Also, this property can be further transferred by Member to its HUF as a Gift.

7.      Members can transfer their own property as gift to its HUF.

8.      Member can give Interest free Loan to their HUF (condition applied: such sum is out of their own saved & taxed funds, not borrowed)

##Who is a*Relative for YOU  

§  Your Spouse  (पति /पत्नी)

§  Your Brother or Sister (भाई / बहन)

§  Your Spouse’s Brother or Sister (जेठ ,देवर , नन्द / साला, साली)

§  Your Father’s Brother or Sister (ताऊ / चाचा / बुआ)

§  Your Mother’s Brother or Sister (मामा / मौसी)

§  Your Lineal Ascendant or Descendant (आपका नज़दीकी वंशज)

§  Your spouse’s Lineal Ascendant or Descendant (आपके पति /पत्नी का नज़दीकी वंशज)

§  Spouse of above referred persons (ऊपर दिए गए सभी के पति / पत्नी)