HUF to save income tax in India is a powerful strategy for families. Hindu Undivided Family (HUF) splits income, slashing tax bills legally. It’s a lesser-known but effective tool for salaried folks and business owners. How does it work? Let’s dive in.
What Is an HUF and How It Saves Tax?
A Hindu Undivided Family (HUF) is a separate legal entity under Indian tax laws. It consists of individuals who are lineal descendants of a common ancestor, including their spouses. This structure is governed by Hindu law and is available to Hindus, Jains, Buddhists, and Sikhs. The senior-most male member (or female, after 2016) becomes the “Karta” and manages the HUF. A HUF can own assets, earn income, and file income tax returns separately from its members.
For example, income like rent or business profits can go to the HUF, taxed at basic slabs. This doubles exemptions—₹3 lakh tax-free per entity in the new regime. It’s a game-changer for high earners.
Tax Benefits and Deductions:
Using HUF to save income tax in India unlocks deductions. The HUF claims Section 80C (₹1.5 lakh) for investments like PPF or ELSS. It also gets ₹50,000 standard deduction and home loan interest benefits. In 2023, India’s tax collections hit ₹19.58 lakh crore, per IBEF, yet HUFs help families keep more. For instance, a ₹20 lakh family income split equally with an HUF halves the tax. However, proper accounting is key.
Setting Up and Managing an HUF:
Creating an HUF to save income tax in India is simple.
- Create a HUF deed – This legal document states the names of family members and the purpose of the HUF.
- Apply for a PAN card – The HUF must have a separate PAN number.
- Open a bank account – In the name of the HUF to receive income or make investments.
You can then transfer ancestral assets or gifts (within prescribed limits) to the HUF. Income from these—like rent or dividends—stays separate. Moreover, salaried members can also contribute to the HUF corpus. However, gifts from non-family members are taxable if over ₹50,000.
Considerations Before Forming an HUF:
While the tax benefits are appealing, it’s essential to consider potential drawbacks:
- Once assets are transferred, they legally belong to the HUF, not the individual.
- In case of disputes or division, partitioning assets can be legally complex.
- HUFs are monitored by the Income Tax Department to prevent misuse.
- Forming and maintaining an HUF involves legal procedures and compliance requirements.
Conclusion:
In conclusion, HUF to save income tax in India offers big savings if done right. Split income, claim deductions, and plan smartly—it’s a legal tax hack. However, it’s essential to manage it transparently and stay updated on tax rules. Ready to cut your tax bill? Explore more HUF insights now!
– Ketaki Dandekar (Team Arthology)
Read more about HUF to Save Income Tax in India here – https://cleartax.in/huf