A N ShanbhagI have a plot of land purchased 20-25 years ago for Rs 5,000. Today's price for it would be about Rs 2 lakh. I wish to give this land to my daughter, who wants to build a house on it. I already have a house in which I live. My other children have no objection to my giving her the plot. I am 72 years old. My annual income is Rs 83,000. Tell me the best way to transfer the plot to my daughter's name without paying much tax (gift tax, capital gains tax, etc.). As my daughter has to take a loan from her company to build the house, the ownership of the plot has to be in her name before the company gives her the loan.
-- H Gautam, Pune

The best course of action is to insert your daughter's name as a joint holder of the plot without transferring any money from her account to yours. You may have an agreement with her that the new house will be jointly owned by both of you, and the plot is your share of the ownership of the new house. As I have repeatedly observed, from the income tax point of view, it is not the name, but the source of funds applied to acquire the property that matters. If for some specific convenience, you arrange to insert her name as the first holder, without taking any money from her, then the plot continues to belong to you. If however, you treat this as a gift to her, you will be required to pay very heavy gift tax. It is only a residential house that is valued on the basis of the annual rent assessed for the levy of property tax by municipality or any local authority. The land, without any house, will be valued at the market price. There is one more convenient method. You may sell this plot to her at the market value and treat it as a loan given to her. You may charge her some small interest, say 10 per cent. This interest of Rs 20,000 will be added to your regular income of Rs 83,000. After claiming the deduction u/s 80L and the rebate for senior citizens, your tax liability would be quite low and you can save even this by making an adequate contribution to a PPF account. You may start giving your daughter a gift of Rs 30,000 per annum. This amount should be used by her towards part repayment of her loan. Soon, the loan will get fully settled. Quite neat, isn't it?

I read recently that having an HUF is beneficial and that if all Hindus realised the advantages inherent in it, there would be more HUFs than Hindus. Please elaborate.
-- V K Sastri, New Delhi

This was an observation I had made some time ago. Now that it is possible to earn in one's own hands income through capital gains, on which there is hardly any tax payable, the advantage is considerably diluted. Possibly, having realised this fact, Mr P Chidambaram has given a booster dose to HUFs. The main benefit of an HUF is derived from the fact that it can be taken as a separate unit of assessment in tax planning. FA96 has brought the tax structure of all the HUFs in line with that of individuals. Earlier, the income tax rates for specified HUFs, i.e. HUFs in which at least one of the members had income exceeding Rs 40,000 was higher. For them, the threshold was Rs 18,000. Income between Rs 18,000 and Rs 1,00,000 was charged to tax @ 30 per cent and thereafter at 40 per cent. Now, thanks to FA96, all HUFs will be charged to tax at the normal rates applicable to individuals.

Over and above this, the individual as well as the HUF are entitled separately to claim tax rebate u/s 88 and income rebate u/s 80L, 80G, etc. The greatest advantage that an HUF possesses is that it can hold property for the future benefit of a child who is yet to be born or of a person yet to be chosen as a future member of the HUF through marriage or adoption.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.