Tips and Tricks for Saving Income Tax via HUF

Whenever times come to pay your tax, the first and the foremost question which comes to the mind of individuals is that “How to save Income tax through HUF”? Everyone believes that they could save some amount by using HUF and avoiding paying some tax. The expectations of every individual are that they are going to get some or the other benefits.

HUF refers to Hindu Undivided family, in India there prevails the culture of joint family and there are different incomes flowing into the family from different members and due to which the income is increased. Suppose if you are gaining any amount from rent, in that case it would be divided into all members of the family and not to a single individual. In case you are either gifted or inherited any kind of properties, jewellery, businesses and so on, you could go ahead with reducing your tax burden by forming HUF. Also if you are married into Hindu, Sikh, Buddhist or Jain and doesn’t belong to any kind of fairer sex, there could be different ways for reducing your burden by forming the HUF (Hindu Undivided Family).

Suppose if a HUF was created and some inherited assets which are assigned to the income for Rs 5 Lakh would be taxable for HUF and not to the couples.

Taxation of HUF

An HUF is treated as a ‘person’ and is taxable as a distinct tax-entity. The income will be calculated by the same method as in the case of individuals.

How to get HUF implemented?

For incorporating HUF, you will have to get a deed executed on the stamp paper after identifying the karta, like in whose name the HUF need to be created and constituents of the HUF. There is requirement of at least 2 members for and it should be according to the rules and standard set by the Government. In which it specifies that who could be members and co-parancers (members who are having right to demand partition).

When you are taking benefit of HUF, then you need to check out that you owe a Pan card of HUF.  You will also need to open an account with the same name of karta which should be followed by the HUF in the parenthesis. You could authorize the other person as well for operating on the HUF which would be on behalf of HUF.

Benefits while you use HUF

HUF is eligible under the section 80D (where insurance premium paid on health of a member), 80G for donation, 80L for income either from post office or bank deposits and the 80C which is the assorted list for the items, which is prevalent in the Income Tax Act 1961.Further it also enjoys exemption under sections of 54F and 54 with respect to capital gains. It also gains advantages over slab rate taxability. Under the wealth tax act for year 1957, HUF is treated as the district entity and it enjoys individual taxability.

So the following deductions are available to HUF for calculating tax.

  • Deduction 80C
  • Deduction 80D
  • Deduction 80DD
  • Deduction 80DDB
  • Deduction 80G

Issues during the HUF

The major issue which pops up in the HUF scenario is when any member who is part of the HUF plans to quit. In initial stage the partition was permitted but now when there has been some amendment made to HUF in 2005, the partition could be made according to those rules.

Weather HUF can give or reaceive gifts?

Yes, HUF can give and receive gift from anyone.  Any person who is not a coparcener may make a gift to the HUF. For example, a father can gift his self-acquired property to the HUF of his son, provided there is a clear and unequivocal declaration that the gift is being made for the benefit of his family. We will discuss the gift concept in our next article. So stay with us by subscribing your email ID or bookmark this page.

Important Points Related to Tax Planning by HUF

  1. Gift received by an HUF (excluding those received from its members) are taxable as income of HUF, if the aggregate amount of gifts exceed Rs.50,000, in a financial year.
  2. HUFs are not permitted to open a PPF A/c w.e.f. 13.5.2005.
  3. HUF can be used to increase tax payers for entitlement of basic exemption of 2,50,000/- and other deductions. But clubbing of income should be considered by the assessee while transferring any amount to HUF.

2 Comments

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  1. Good article.

  2. Its very good and informative

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