Save your Taxes through HUF

Save your Taxes through HUF

HUF: SAVE YOUR TAXES THROUGH HUF

HUF can be used as an efficient tax saving tool that can be used to reduce taxes by proper Tax Planning.

The notion of HUF Hindu undivided family) is particularly relevant In India since joint families exist in Indian culture where an individual’s income is also taxed as joint income.

Income is charged on family as a whole as a unit. So, we can conclude that family is assessable as a unit and has to hold a separate PAN card for earning income and getting assessed under Income tax act, 1961.

What is Hindu undivided family?

  • As per Hindu law, it is a family consisting of all persons lineally descended from a common ancestor, including wives and unmarried daughters.
  • HUF cannot be created under a contract but is automatically created in a joint Hindu family with common ancestors and linear descendant.
  • There are 3 conditions which need to be fulfilled to meet the HUF criteria: Must be Hindu. Jain, Buddhist and Sikh families even though are not governed by the Hindu Law, but they are treated as HUF under the Act. There should be a Co-parcenership.
  • There should be a joint family property which consists of ancestral property, property acquired with the help of ancestral property and property transferred by its members.
  • There should be common ancestor and at least 2 coparceners to recognize HUF under Income tax Act.

Who is Karta, Co-parcener or member of HUF?

The person responsible for managing the affairs of the family is called Karta. In most of the cases, the senior-most male member of the family is known as Karta or manager.

Any male or female person born in a joint family under Hindu law who is within four levels in lineal descendent from the common male ancestor is considered as a coparcener and anyone who becomes part of the family other than by the virtue of birth (I.e. by marriage) is treated as a member.

However, a person who is adopted into the family also becomes its coparcener from adoption though not born in the family.

As per the amended law since 2005, even a girl child becomes a coparcener by birth and can continue to be a co-parcener of her father’s HUF even after her marriage.

However, she will only be a member of her husband’s HUF. All the members of a family, including wife, children, their wives, and their children can be members of HUF.

The male members are called coparceners while the female members of HUF are called members

How is HUF formed?

A HUF comes into existence automatically after the marriage of an Individual and birth of 1st child and only a HUF creation deed on a stamp paper is required to recognize it as HUF for the purposes of Income Tax Act 1961.

Consequently, a separate PAN card should be obtained for the HUF and a separate bank account should be opened in the name of the HUF.
How to create Corpus For HUF?

  • Assets received as gifts by HUF. (relatives or non-relatives). Gift from non-relative should not exceed Rs 50,000.
  • Assets passed on by will that favors HUF.
  • Assets received on the partition of a larger HUF of which the coparcener was a member (like an HUF in which the coparcener’s father or grandfather was the Karta).
  • Common ancestral property
  • Property acquired from the sale of joint family property

What are the Heads of Income For HUF?

  • Income from House Property
  • Income from Other Sources
  • Capital Gains
  • Profits and Gains of Business or Profession

Since HUF is an artificial person it cannot earn income from salary.

Tax benefits enjoyed by HUF

A HUF is assessed as a separate entity for the purpose of assessment under the Act and enjoys the threshold exemption of income of Rs 2.5 lacs and is also taxed at individual slab rates.

For e.g. If there are 3 members in a family and the income of each family member’s income exceeds Rs 10 lacs. Further the family has a let out ancestral property from which it receives rental income amounting to Rs 10 lacs.

Now ignoring any deductions if such income is taxed in hands of any family member it shall be taxed at 30%. However, if such income is shown in hands of HUF then there shall be exemption up to Rs 2.5 lacs I.e., savings of Rs 75,000.

Then further for income ranging between 2.5-5 lacs tax rate shall be 5% instead of 30% (I.e., tax savings of 25% amounting to Rs 62,500) if the income would have been taxed in the hands of any family member. Just like an individual a HUF can claim gross annual value of self-occupied property as NIL.

The HUF is also entitled to claim a deduction for interest on self-occupied house property of Rs. 2,00,000 u/s 24(b) of Income tax act,1961 in a year.

The HUF can also let out its property to any person and interest on loan paid deduction can be availed without any limit, in respect of the said property.

HUF being assessable as separate person under Income tax act ,1961 can avail separate deductions under Section-80C up to Rs 1.5 lacs, Mediclaim for family members under Section-80D up to Rs 25,000 and in case any member is a senior citizen Up to Rs 50,000, u/s 80TTA up to Rs 10,000 and for senior citizens up to Rs 50,000.

Therefore, these deductions can be claimed irrespective of the individual deductions of members since two pan cards can be applied and an individual can file two income tax returns, one in his personal/individual capacity and secondly in the name of the HUF.

Just like an individual a HUF can claim capital gain exemptions under Section 54 and section 54F,54B 54EC of Income tax Act,1961.

Deductions to HUF are also available in respect of medical treatment of dependent or disabled family members, Deduction U/S 80G in respect of donations can also be claimed by HUF. HUF can have a separate DEMAT Account and enjoy tax rate of 15% on Short-term Capital Gains (STT Paid), HUF can also invest in a mutual fund.

HUF can carry business but not profession but funds should be of HUF and can pay remuneration to Karta and other family members.

Don't forget to share this article :-

Stay Updated With Our Blogs!

Explore more of our blogs to have better clarity and understanding
of the latest corporate & business updates.

Why People Choose Our Services ?

Free Legal Advice

We provide free of cost consultation and legal advice to our clients.

Tech Driven Platform

All our services are online no need you to travel from your place to get our services.

Grow your business

Experts Team

We are a team of more than 15+ professionals with 11 years of experience.

Transparent pricing

There are no hidden & extra charges* other than the quote/invoice we provide.

100 % Client Satisfaction

We aim that all our customers are fully satisfied with our services.

On-Time Delivery

We value your time and we promise all our services are delivered on time.

Why Trust legal Suvidha?

People Who loved our services and what they feel.

In this Journey of the past 10+ years, we had gained the trust of many startups, businesses, and professionals in India and stand with a 4.9/5 rating in google reviews.

Rajesh Srivastava
Rajesh Srivastava
Startup CEO
Read More
Great services and expertise. Highly recommended, Quick work and provided good support for the entire process. Made things very easier for us and I got my first ever Trademark for my product in just no time. I recommend their services to all the Startups for a hassle-free registration and other services. Again Thank You So Much Team Legal Suvidha... Good work...
Vijaya
Vijaya
Employee
Read More
Excellent service and has been very timely in response. They are very patient too and guided us with the right steps even though we approached them with very few days left before the deadline. I highly recommend them to other startups who need legal advice and do all the paperwork at the year-end. And we would approach them for all our future requirements as well.
Krish Mundarath
Krish Mundarath
Businessman
Read More
We highly recommend them. Best in class services. Thank you for helping me through the process and for prompt replies. All the Best in your Endeavors. We highly recommend them. Best in class services. Thank you for helping me through the process and for prompt replies. All the Best in your Endeavors. I will surely consider them for future work.
Inamul Hashmi
Inamul Hashmi
Businessman
Read More
Legal Suvidha filed my GST, Income Tax Returns for my business Happy by their service. They are Excellent, cost effective, efficient, co-operative & Genuine service providers keep up the good work in the future. Thank you for shaping my business in the right direction. I would suggest others to take up their services they are better than other competitions present in the market.
Previous
Next

Our Partnerships & Collaborations

Contact us and grow your business

Legal Suvidha App

Now all Professional Services in a Single Click !

Now get all the services required for your business in a single app.

Subscribe to our newsletter & grow your business

Subscribe To Our Newsletter .

Sign up to receive email updates on new product announcements, special promotions, sales & more.