One of the best ways to reduce your tax liability is by forming a HUF(Hindu Undivided Family). Members of the same family, with a common ancestor, form HUF. HUF includes the daughters and wives as well. Jain, Buddhist and Sikh families can also opt for HUF tax benefits. Read on to know how HUFs are taxed, the tax benefits and a few limitations of HUF. But first, understand what HUF is and how it is formed.
The Hindu Undivided Family (HUF) typically comprises individuals with a common lineage and family ancestors, including unmarried daughters and wives. Additionally, joint family property and copartnership should be present for the HUF to be operational. (Due to the Hindu Succession Act created in 1956, the definition was broadened to include those that were Hindus at birth and those that practised Sikhism, Jainism, and Buddhism).
Since HUF is considered an individual ‘person’, a separate tax return must be filed for it. HUF is not sanctioned through a legal contract; instead, it comes into effect when two eligible people marry, or a child is born within the lineage. Although rules and regulations about this have changed over the last couple of years, the family’s eldest member (generally male) is pronounced the head or the ‘Karta’ of the family. HUF is considered a separate enterprise and therefore is regulated through its own tax mechanisms.
In most cases, a HUF is automatically created after marriage. However, it is recommended that most people have a written agreement that is legally binding and available to them at all times. A prerequisite to forming a HUF and collecting HUF benefits includes the creation of the HUF should be through a family/unit and not an individual. Once a HUF is formulated, a legal deed shall come into effect, including a pan number and a bank account in HUF’s name.
Additionally, to understand what a Hindu Undivided Family tax is, individuals must understand a couple of things before forming a HUF. Assets can be a part of HUF, whether from relatives or non-relatives. Those that are from non-relatives should not cost more than Rs. 50,000. Those passed on through a family will, common ancestral property, and property acquired through the sale of a property owned by the joint family are all assets belonging to the HUF. Income from other sources (not individual incomes), capital gains, and common profits and business gains sourced through the HUF belong to it, as it is a separate assessable entity.
At its core, a HUF is taxed like an individual, with all the same rates. The main reason why many financial advisors cite multiple benefits of HUF in income tax is that the income tax slab for HUF also has an exemption limit of Rs.2.5 lakh, similar to that of individual income tax rates. It also complies with most of the regulations under Section 80C, 80D, and 80G, which relate to individual income tax accounts.
This means that whatever tax benefits an individual may get from their individual account, a family can avail the same advantages through their HUF tax benefits. Any income generated through investments made by the HUF is taxable solely through the HUF and not the different individuals. Individuals who contribute to developing a HUF can also obtain other HUF benefits such as a salary, which shall be expended on the HUF.
Many HUF tax benefits are available to families and individuals across the board.
Understanding how HUF works and what HUF tax benefits you can avail of can help you save taxes. Whether you are a part of a joint family or nuclear or just got married, you are eligible for tax benefits under the HUF provision. Talk to your family members and register yourself as a HUF, get a PAN and a bank account to start availing of the tax benefits for HUFs.
Ans: A Hindu Undivided Family (HUF) is a family of people who are the descendants of the same ancestor. This includes the unmarried daughters and wives of members. It comes under Hindu Law and is treated as a separate legal entity.
Ans: HUF is taxed as per the same tax brackets as an individual taxpayer. Thus, income up to Rs.2,50,000 is exempt from tax.
Ans: A residential property in the name of a HUF is tax-free. That is, HUF doesn’t have to pay property tax on a residential property in its name.
Ans: Gifts received by a HUF up to the value of Rs.50,000 are exempt from tax.
Ans: Senior citizens, who are members of a HUF can get an additional deduction of Rs. 50,000 on premiums paid towards health insurance. This limit is Rs.25,000 in the case of other members.
Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
|Section 194IB||Section 44AA||Section 80E|
|Section 195||Section 80EEA||Section 80DD|
|Section 80CCC||Section 80GG||Section 80 G|
|Section 54F||Section 1941A||Section 10|
|Section 194Q||Section 192||Section 269SS|
|Section 80DDB||Section 44AD||Section 194C|
|Section 194A||Section 194H||Section 80D|
|Section 80C||Section 80C, 24(b), 80EE & 80EEA||Section 234A|
|Section 50C||Section 80C||Section 80EEA|
|Section 194B||Section 194J||Section 206C|
|Section 80CCG||Section 80 EEB||Section 24Q|
|Section 40b||Section 194C||Section 54EC|
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