Hindu Undivided Family, Tax Benefits of HUF, HUF tax benefits, disadvantages of forming HUF, Ebizfiling

How to save tax by forming HUF (Hindu Undivided Family)?

“What is HUF (Hindu undivided Family)?” And Tax benefits of HUF

Introduction

An article on “What is Hindu Undivided Family is (HUF)?”, the Income-tax benefits of HUF, and the disadvantages of forming HUF. The HUF is taxed individually since it is treated as a separate entity for income tax purposes. This aids in the separation of an individual’s tax duties from those of his family. HUFs have the same income tax bracket as individuals, with an INR 2.5 lakh exemption limit, and are eligible for all tax incentives under Sections 80C, 80D, 80G, and so on. It also benefits from capital gains exemptions under Sections 54 and 54F. An individual can also save Income Tax under Section 80EEA, 80G, and 80GGA.

What is HUF (Hindu Undivided Family)?

The acronym HUF stands for Hindu Undivided Family. By forming a family unit and pooling assets to form a HUF, you can save money on taxes. The HUF is taxed independently of its members. A HUF is formed when a Hindu family joins forces. HUFs can be formed by  Jains, Buddhists, and Sikhs. HUFs need to file separate Income Tax Returns and own separate  PAN (Permanent Account Number) from their members.

Documents required to form a HUF (Hindu Undivided Family)

  • Separate PAN of Hindu undivided family
  • An affidavit signed by the Karta of the Hindu Undivided Family, indicating the name, address of all beneficiaries on the application date, and father’s name.
  • A copy of any document that can be used to prove an individual’s identity, address, and date of birth in the case of a Hindu undivided family’s Karta.

Income Tax benefits of HUF

  • A HUF can own a home without having to pay taxes on it. It can also take up a Home Loan to buy a home and benefit from tax up to INR 1.5 lakh for loan repayment and up to Rs 2 lakh for interest under Section 80C of the Income Tax Act.
  • From a legal standpoint, a HUF is a distinct entity. Individual members of the family each have their own PAN card, and the HUF has its own PAN card.
  • A HUF can earn money by running its own business. It can invest in stocks and mutual funds. The HUF also benefits from a basic tax exemption of Rs 2.5 lakh because it is a separate business.
  • Under Section 80C, a HUF can invest in Equity Linked Savings Schemes (ELSS) and tax-saving Fixed Deposits to earn up to Rs 1.5 lakh in tax benefits.
  • Although a HUF cannot form a Public Provident Fund (PPF) in its own name, it can claim tax benefits for money put in the PPF accounts of its members.
  • Gifts up to the value of INR 50,000 will be tax-free. A father with a HUF account can give a higher-value property or money to a son with a smaller HUF account, but he must declare that the gift is for the son’s HUF and not for him personally.

Disadvantages of forming HUF

The income tax agency recognized the HUF as a separate taxable entity. HUF, on the other hand, is losing importance in today’s world, when nuclear families are the norm. Several situations have come to light in which couples or families are feuding over similar home bills while neglecting to combine assets. As divorce rates rise, the HUF as a tax vehicle becomes less important.

 

The most significant disadvantage of forming a HUF is that all of its members have equal ownership rights to the property. The common property cannot be sold unless all of the members agree. Any new family members, whether by birth or marriage, become members of the HUF and have equal rights. A HUF might grow to be too big to handle.

Conclusions

Because a HUF is taxed independently from its members, it is eligible for deductions ( under Section 80) and exemptions under the tax regulations. If you want to create a HUF, be sure that it is balanced. A HUF has disadvantages and advantages, so you must make an informed decision.

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Author: zarana-mehta

Zarana Mehta is an MBA in Finance from Gujarat Technology University. Though having a masters degree in Business Administration, her upbeat and optimistic approach for changes led her to pursue her passion i.e. Creative writing. She is currently working as Content Writer at Ebizfiling.

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