सोमवार, 14 अक्तूबर 2019

All about HUF

All about HUF

HUF (Hindu Undivided Family ), Basic purpose of creating a HUF is to save Income Tax arising out of family Income .This is new form of Tax saving tool. In India there are many Hindu families who live jointly and their properties are ancestral as well as self acquired. Income arising out of such properties can be shown as separate income and to be taxed separately.

Basically, HUF account can be created by right of birth and not by an agreement between two parties. Any individual covered under Hindu personal law that is Hindu,Sikh, Jain or Buddhist can create an HUF account, if they have property income and want to save income tax.

Benefit of creating HUF

By creating HUF one can save substantial amount of Income tax , this is because HUF is treated as distinct entity , separate from Individual forming the HUF.

Let me give you a live example question asked by a client :
Sir, I am working in govt job and my total income is around Rs. 12 Lakh per year . My wife is a school teacher and her income is around Rs 6 lakh per year . When My father was alive he had constructed house and some shops . From that we get rental income of around Rs. 50000 per month .This income is added to my income and I have to pay Income tax on it along with my income. I want to know how can I show this income separately so that it is not taxed in my hand.??

This question was asked by one of my client.

My answer is he should create a HUF and obtain a separate PAN for HUF , that way his income from ancestral house and shops amounting to Rs.6 Lakh (@Rs 50,000/-) will not be taxed in his hand.
Let us calculate his Taxable Income before and after Creating HUF

Income Tax payable before creation of HUF
Income from salary : Rs. 12,00,000
Income from Property : Rs. 6,00,000
Less : Admissible Expneses for Property 1/3= Rs. 200000
Taxable Income from Property = Rs. 4,00,000
Total Taxable Income = Rs. 16,00,000
Income tax payble = Rs. 304200/-

If he creates HUF
a. income from his Salary (after deductions) Rs. 12,00,000
Tax payable : Rs. 179400/-
b. Income from HUF Rs. 600000
less admissible ded. Rs. 200000                                                                                 
Taxable income Rs. 400000
Tax payable = Rs. 7800
Total Tax payable : 179400+7800 = Rs. 187200
saving in Tax Rs. 117000

Salient features of HUF

1. HUF has its own PAN and files a separate tax return. A separate joint Hindu family business is created since it has an entity separate from its members.

2. Deductions under section 80 and other exemptions can be claimed by the HUF in its income tax return.

3. HUF can take an insurance policy on the life of its members and claim deductions under section 80C upto Rs. 1.50 Lakh

4. HUF can pay a salary to its members if they contribute to its functioning of the HUF. This salary expense can be deducted from the income of HUF.

5. Investments can be made from HUF’s income. Any returns from these investments are taxable in the hands of the HUF.

A HUF is taxed at the same rates as an individual.

Please remember your personal income like salary etc can not be shown as HUF income .

A women can not create HUF, she will be part of husband or father's HUF

Only male member can be KARTA of HUF a child becomes a member of HUF by birth itself, no agreement required.

If you are interested in creating a HUF to save your Income Tax , please contact us.(whatsapp 9470307730


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