HUF, How to Save Income Tax

What is a HUF?

HUF refers to the Divided Hindu Family. You can save taxes by creating a family unit and assembling assets to form a HUF. HUF taxes separately from its members. The Hindu family can come together and form a HUF. Buddhists, Jains, and Sikhs may also form HUF. HUF has its own PAN and file tax records without its members.

How is HUF taxed?

• HUF has its own PAN and file a separate tax return. A separate Hindu family business is being formed as it has a separate business and its members.
• Deductions under section 80 and other exemptions may be claimed by HUF in its tax administration.
• HUF can take out health insurance for its members.
• HUF can pay a salary to its members if it contributes to its HUF operations. These salary expenses can be deducted from HUF income.
• Investments can be made with HUF income. Any profits from this investment are taxable at the hands of HUF.
• HUF is taxed at the same rates as per person.

How to form an HUF?

Although there are tax benefits to building a HUF, you must also meet certain conditions -

• One person cannot build a HUF, it can only be built by a family.
• HUF is automatically created during the wedding.
• HUF contains one ancestor and all his descendants, including their wives and unmarried daughters.
• Hindus, Buddhists, Jains and Sikhs may form HUFs.
• HUF usually has items that come as a gift, a will, or ancestral property, or property obtained from the sale of shared family property or property donated in a standard collection by HUF members.
• Once the HUF is established it must be officially registered in its name. HUF must have a valid title deed. The title deed will contain the details of the members of the HUF and the business of the HUF. The PAN number and bank account must be opened in the name of HUF.

Disadvantage of forming an HUF

While HUF seems to be the best way to save taxes as a family, it does have its drawbacks. Equal member rights: The worst thing about opening a HUF is that its members have equal rights locally. Ordinary property may not be sold without the consent of all members. Any addition to the family, by birth or marriage, becomes a member of the HUF and receive equal rights. HUF may be too large to handle. Separation: Probably the worst dream of opening a HUF to close it. The only way HUF can be disbanded by separation. All members must agree to disband the HUF. For less than part, assets are provided to members which may cause a lot of controversy and which may be a legal issue. Integrated family compliance loss system: HUF has been recognized as a separate tax-exempt business by the revenue department. However, in modern times, when nuclear families are the norm, HUF loses value. There have been a few instances where couples or families are fighting over common household expenses, forgetting to pack up. The divorce rate is rising, so HUF as a tax vehicle is losing value. The HUF continues to test as such until separation: Once the HUF is established, you must continue to file its tax returns, unless a split occurs. Any request for separation is made to the inspector. The probation officer, upon receipt of the claim, must conduct an investigation after giving the members due notice. Revenue from a divided property is taxable as income per member. If a member makes another HUF with his wife and children, the local income transferred from the original HUF is taxed at the hands of the new HUF.