Is it considered tax avoidance or tax evasion?

General
1

Hello, I have 2 situations I need help with.

A. I work as a remote freelancer for different foreign clients and have the option to receive payments in any bank account in India.

  1. Can I receive some salary in my family member’s bank account to avoid the 50 Lakh 44ADA limit? Is it legal?

  2. What if I form HUF or partnership and receive a salary in that account? Is it legal?

B. I also trade in the stock market. Let’s assume I will have a very successful FY 21-22 in the stock market.

  1. Can I create a bank/broker account on behalf of my family members (sibling, mother) and trade using it by transferring money from my bank account to there and from there to the broker’s account? This way I will get lower tax slabs since they earn less very little money. Is it legal?
2

Hi @ProfessionalLo

Here are the answers to your queries.

A1. Ideally it is always suggested to report the income in ITR of the service provider. If you receive payments in family member’s bank account. you need to report the payments received in your family member’s Income tax return and pay taxes on it. However, if any scrutiny is conducted by income tax department you will have to prove the services were provided by the person in whose return the income is reported.

A2. You can form a partnership and receive professional fees in that account but the intention of forming the partnership firm should be providing the same professional services. Also, partners should be qualified enough to provide those services.

B. If you transfer money to relatives it will be considered as a gift and it is exempt from taxation. You can trade using that money. In this case also you need to report the profits as income in your family member’s Income tax return and pay taxes on it. However, if any scrutiny is conducted by income tax department you will have to prove the sources of funds for the person in whose return the income is reported.

Hope this helps!

1 Like
3

Hi @Laxmi_Navlani, Thank you very much for the detailed response. I just have a quick follow-up question.

  1. Can I form HUF instead of a partnership with my sister since it has a lower tax slab?

  2. Yes. I will provide the same service with HUF/partnership. I will receive 30 Lakh in my personal account, and later 30 Lakh in HUF/partnership. This way I will qualify for 44ADA. I think it will alright?

  3. On scrutiny of trading account, I only have to prove that the money was a gift from me? I don’t need to prove that my family members invested the money themselves?

4

Hi @ProfessionalLo

Here are the answers to your queries.

  1. It is not suggested to form HUF for this purpose because only if funds of an HUF are invested in a company or a firm or any asset, then only income received by the member may be treated as income of the family. However, if fees or remuneration is earned for services rendered by the member in his personal capacity, it will be treated as the personal income of the member.

  2. If your firm is satisfying all the criteria mentioned this will be alright.

  3. On scrutiny of trading account, you will have to prove the sources of funds used by the family members for trading purposes. It can be a gift received from you as well as other sources.

1 Like
5

@Laxmi_Navlani

Thank you very much for your clear explanation. It resolved all my doubts.

6

Hey @ProfessionalLo

I am glad to help you with your queries. Cheers like these keep us going.