Written in : August 1999

Having seen the broad contours of one of the most important non-income incomes - agricultural income - in the last article, let us examine some others.

Hindu Undivided Families, HUFs as we call them, are taxed as a separate entity. They are treated separately from individual members making them. Unlike firms, members do not have a fixed share in the family's income or assets per contract. The members' interest arises by law. There is no 'share' as such of a member which he receives every year.

Any member of a family may at any time receive a part of the income of the family for his own use. If any such income of the family is given away to any of its members, the amounts received by the members is exempt of tax in their hands.

The condition is that the amount ought to have been given out of the income of the family.

This is an important exemption available - and seldom used - which is quite useful in several circumstances.

Since 1993, a partnership firm is treated on par with a company. That is, it does not enjoy a progressive rate of tax but a flat one. All of a firm's income is taxed at the same rate.

While computing income of a firm, remuneration and interest paid to partners is allowed as a deduction. Once the net income is taxed in the hands of the firm, the rest is shared between the partners.

This share in the profits of the firm is not taxed in the hands of the partners. It is exempt of tax. Unlike agricultural income, it is not even 'clubbed' for rate purposes.

The condition is that the firm ought to have been separately assessed, and as a firm. Unless the firm is assessed, the share income is not exempt.

The remuneration and interest paid by the firm is, of course, taxable and is not exempt. It is taxable as business income, not as salaries or other sources.

Any amount received by you may be income or it may not be. What is income is defined in law and decided by courts in hundreds of cases.

Many receipts, even if not income, are clearly brought into the tax net. Other than these which are specifically considered to be income, the rest have to be taxed only when they are of income nature.

At times, some casual receipts may be of income type. That is, income may be received only casually. Such casual receipts are exempt of tax to the extent of Rs.5,000. The condition is that the casual receipt should also be non-recurring, ie, it should not be such that it repeats, or is likely to repeat, again and again.

If such receipts are winnings from races, the exemption will be Rs.2500 and not Rs.5000.

Amounts received under a life insurance policy including bonus on such policies is exempt of tax. This excludes payments received under keyman insurance policies and those mentioned in section 80DDA. So:

• Payments received under Money Back Policies would remain tax-free.
• Payments received by nominees of insurance policies are also exempt. Even without such a specific exemption, such amounts would remain exempt - they are not of income character. But a clarification like this helps.
• Payments received on maturity of insurance policies are exempt.