Hindu undivided family can be considered to lower your tax outgo

The Income Tax Act provides taxpayers with numerous alternatives to decrease their tax liabilities systematically and lawfully. One such feature is the establishment of the Hindu Undivided Family or HUF. HUFs are governed by Hindu law and can be founded by a married couple or joint family members.

A HUF may consist of two people; at least one must be a male member of the family. The family’s senior male member would be dubbed ‘Karta.’ Although it is administered by the Hindu law board, Jains, Sikhs, and Buddhists may also form it.

Having said that, the HUF is treated as a distinct entity for income tax purposes and hence is taxed separately. This assists in distinguishing an individual’s tax obligations from those of his family.

HUFs are taxed similarly to individuals, with an exemption maximum of Rs 2.5 lakh, and are eligible for all tax incentives under Section 80C (ELSS, tax FD, life insurance policy can be claimed but not PPF and tuition fees), 80D, 80G, and so on. Additionally, it benefits from capital gain exemptions under Sections 54 and 54F.

What are the features of the HUF account?

There are a few characteristics of HUF accounts that distinguish them from standard savings bank accounts.

-Each family member may contribute to the shared corpus.

-While a single individual retains control, the entire family participates.

-The corpus may be divided only with the consent of all family members.

Documents necessary to open a HUF account include the following:

-A declaration form will be provided, on which each member must sign and state the name of Karta.

-They are the only HUF members, and sole authority over the HUF account rests with Karta.

-Karta regulates all transactions performed on behalf of the HUF account by each family member.

-Karta’s residential proof.

-Karta’s identification proof.

-Apart from the items listed above, other documents or requirements may be required depending on the bank where the HUF account is opened.

What are the tax advantages associated with a HUF account?

HUFs are taxed differently than individuals, i.e., their members. Under section 80C of the Income Tax Act, HUF accounts are eligible for tax rebates and deductions.

Tax exemption is available on gifts up to a value of Rs 50,000. A parent who has a HUF account may present property or money of greater value to a son who holds a smaller HUF account; however, the father must state that the gift is for the son’s HUF and not for himself. 

Tax benefits may be obtained in this situation under sections 64(2) and 56(2). The corpus may be invested in tax-exempt money market securities.

What are the methods of lowering your tax outgo when you own a HUF?

-Rental revenue from a property may be obtained on behalf of a HUF rather than an individual account.

-Profits generated by a family business in the name of a HUF will be taxed appropriately, and exemptions will provide further leverage for tax savings.

-If the HUF’s business, capital, or investment is expanding, the expansion can be done in the individual names of the HUF’s members through the use of HUF loans. Interest may or may not be charged on loans made by the HUF.

-Any asset submitted to the HUF will be recognised as a common asset, and the asset owner will be required to renounce ownership in the HUF’s name. As a result, if the former owner chooses to sell the asset, it cannot be done without the approval of all HUF members.