The ancient tradition of the Joint Hindu Family is referred to as a Hindu Undivided Family or HUF for the purposes of income tax. There are several tax advantages to running a business or earning under various heads of the Income Tax Return form that can save a big chunk of taxable income should you choose to create an HUF by law. You can pool valuables, estates and other assets to form a large corpus of funds in a way that is different from other forms of business organization.
Any Hindu couple headed by a karta, male or female can come together to form an HUF, even Jains, Sikhs and Buddhists can make an HUF. An HUF has its own PAN and files tax returns without implicating this liability on its members.
HOW forming an HUF CAN SAVE TAX FOR YOU?
HUF is taxed in a pretty different way from its members, that’s the primary reason because of which reduction from taxable income is allowed under tax law and can be claimed by it independently.
For e.g: If you and your spouse along with your three children make an HUF, all five of you and the HUF can claim tax exemption under section 80C. If a family is trying to build assets, an HUF is all that they need to turn into.
TAXATION FOR HUF
- The rates of taxation for HUF are just like an individual’s taxation rates.
- Exemption under Section 80 and other tax deductions can be claimed in their income tax return by the karta of an HUF.
- HUFs can take an insurance policy for the members of the family.
- HUFs can make some investments from their income, but any returns from these investments are taxable in the hands of the HUF.
- If HUF pays salary to its members who are giving their fair share to the work or the joint business of the HUF, then this salary can be reduced from the income of HUF.
HERE’S HOW YOU CAN DO IT…
You certainly have a lot of benefits of forming an HUF, but you definitely don’t want to overlook these terms and conditions while making a HUF.
- An individual cannot form HUF, it should be formed by a family.
- An HUF is simultaneously created at the time of an individual’s marriage.
- To form HUF, you must have same ancestor including the lineal descendants including their daughters and wives.
- Other than Hindus, Buddhists and Jains can also form HUF.
- HUF mainly comprises of the assets that are acquired as a gift, a property acquired by selling a or buying a joint family property, an ancestral property, a will or a common pool by the members of the HUF.
- When you make an HUF, you should get a formal registered name, you must make a legal which would have the names of the HUF members and the business. After this process a PAN no will be issued, and a Bank Account will be opened.
By making an HUF you can certainly save yourself from shelling out a lot of money as income tax. Visit us on www.allindiaitr.com if you have any tax related queries. AllindiaITR is a product of Corwhite Solutions Private Limited.