The Hindu : Business : Senior citizens savings scheme: more clarifications

Online edition of India's National Newspaper
Monday, Dec 20, 2004

Business

Business

Senior citizens savings scheme: more clarifications

QUESTION: During 1960, I have started a business with my brother. For income tax, our auditor declared the income as that of a Hindu Undivided Family (HUF). After that, my brother had a male child during 1968. Then our auditor included him in the HUF. My brother died during 1993.

Last year I attained the age of 65. I asked the auditor to get me the benefit of senior citizen for my earnings. But my auditor informed me that since I am an HUF, I cannot claim the benefit for the senior citizen. And now, even the recent exemption for persons with income up to Rs. 1 lakh is not available to me, because exemption under Section 88D is available only to individuals.

Now I have no connection with my nephew in business. In the above circumstances is the advice given to me correct?

ANSWER: There is a contradiction in facts given by the reader. If the assessee and his brother were carrying on the business as a joint family, his brother's death does not dissolve the joint family. His nephew would not cease to be member of the joint family in respect of the business income without a partition as between the reader and his nephew. It is stated that the nephew has no connection with the business now, in which case, such partition should be established. Even if it is so established, the reader, his mother, his wife and children would continue to form a joint family. While it is possible for the individual to throw his assets into the hotchpot of the family and blend his individual property as that of the HUF, no such conversion from HUF to individual is possible. If, however, the original status was wrongly declared as HUF, it can be corrected with evidence therefor.

As otherwise, the advice that is given to the reader by his auditor is correct. The benefit of senior citizenship as well as exemption under Sec. 88D is available only to individuals and not for a HUF, which is a group of persons consisting of the karta and other members. Sec. 88B also clearly specifies that a senior citizen is an individual, who is of the age of 65 years or more.

Source of deposits need

not be from pension

Q: Is the benefit of the scheme available only for deposits made out of pension and terminal benefits as for schemes for retiring employees?

A: No. As long as the depositor is an individual and he is a senior citizen within the meaning of the depositor under the scheme, he is eligible. Requirement that it should be out of terminal benefits is only for those, who have retired after attaining the age of 55 before reaching 60 and wish to avail the scheme.

PAN is not essential

for enabling deposit

Q: Is it necessary that the depositor should have a PAN? Since PAN is insisted upon, does it mean that persons without PAN cannot be a depositor?

A: PAN (Permanent Account Number) is only a mode of identification required under the Income-tax Act. PAN is required to be obtained only by persons who have taxable income or carrying on a business or a profession with total sales, turnover, or gross receipts exceeding Rs. 5 lakhs.

Hence this is not mandatory merely for availing Senior Citizens Savings Scheme. Form 60 is accepted in substitution of PAN, where it is necessary to be cited for any transaction. But Sec. 139A does not place a bar for others who may voluntarily apply for and get such PAN as specifically provided under sub-section (3) of Sec. 139A.

If the assessee has PAN, the necessity of establishing identification with such declaration in Form 60 on every occasion, when PAN is required, is dispensed with.

Scheme is not meant

for benami investments

Q: Is it possible for a son, who is not a senior citizen to invest in such account in the name of his mother, a senior citizen, so as to provide the intended pensionary benefit for the mother? If so, should mother disclose the source of her income?

A: The scheme is not meant for benami investments. In fact, Benami Transactions (Prohibition) Act, 1988 permits investment only in the name of wife and unmarried daughter, subject to the presumption of gift in their favour. If, however, a person makes a bona fide gift to the mother, so that it becomes her property, there is no bar for the mother making a deposit, since it will be her money.

The source of every deposit under Senior Citizens Saving Scheme, 2004 or for that matter any other deposit, is bound to be established as from accounted or accountable sources.

If not Sec. 69 would authorise the assessing officer to treat such amount, for which source is not established, as taxable income. If the source is explained by mother as gift from the son, the son is bound to explain the source.

The scheme is not intended to be abused, so as to provide shelter for unaccounted money or provide a profitable source of investment by persons other than senior citizens in their names.

S. Rajaratnam

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Senior citizens savings scheme: more clarifications