Hindu  Undivided Family (HUF) : Taxability and It’s Benefits

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Hindu Undivided Family

(Existence) of HUF:-

A Hindu Undivided Family (HUF) is a group of individuals mainly come only from the Family members.HUF came into existence in 1917 and recognized as a separate entity. And over the years, many families have enjoyed tax benefits because of this.  The possibility of maximizing tax benefits, in the long run, is increased in making HUF.

Meaning of HUF:

A HUF is automatically created at the time of marriage or family ascendant. As per Income Tax provisions, HUF is taxed separately from its members. The most important thing is that HUF can also be formed by even Buddhists, Jains, and Sikhs. HUF has its own Permanent Account Number (PAN) and has its own separate legal provisions for the Income Tax provisions.

 Object :

A Hindu family can come together and form an HUF. The main object is to form HUF is to take the benefits of Income Tax benefits such as Deductions like 80C  by the Individual in addition to the Income  Tax benefits are availed by them in their Individual capacity.

How the Taxability of HUF is calculated?

As the HUF has its own PAN number, HUF DEED (that required to be get done) and HUF Bank Account number. So accordingly Income tax returns are filed in the separate capacity of HUF. The following points can be seen to determine the benefits of HUF that are:-

  • A HUF is taxed at the same Tax slab rates as an individual.
  • Insurance policy on the life of huf members  can be taken by HUF
  • Deductions under section 80 and other exemptions can be claimed by the HUF in its income tax return.
  • Investments can be made from HUF’s income. Dividends or interest or other income from these investments are taxable in the hands of the HUF.
  • Salary to its HUF members can be paid, and accordingly, this salary expense is deductible from the HUF income.
  • Separate tax return HUF along with its own PAN  can be now filed by HUF. 

HUF

Benefits or Advantage to make HUF:

Here is how you can avail of the different tax benefits under HUFs.

  • Income tax benefits

HUF is recognized as a  separate entity as per Income Tax provisions. Here, individual members of the family have PAN cards, and the HUF has its separate PAN card. For the generation of income,  Huf can establish its own business. It can also invest in shares and Mutual Funds. HUF get the basic tax exemption slab rate of Rs 2.5 lakh. So accordingly, one thing for the making of HUF, the huge benefit can be even in many tax deductions and exemptions. It is the benefit that is absolutely additional to his Individual capacity.

  • Owning a house :

As per recent income tax laws, if HUF is having more than one self-occupied property, then only one of them of such residential property can be self-occupied property. The rest   ‘deemed to be let out’ and you have to pay tax on notional rent. Even, a HUF can his own residential house property with no payment of tax. In addition to this, section 80c  benefit can also be taken it can on  Home Loan so as to purchase a residential property up to a  tax benefits up to Rs 1.5 lakh as per Section 80C of the Income Tax Act for loan repayment and up to Rs 2 lakh for interest thereon as per section 24.

  • Life Insurance

Various tax benefits have been given to Individual persons taking into account all the pros and cons of their needs as per daily necessity. Similar benefits are applicable for a HUF. For Instance, HUF can pay Life Insurance premium (depending upon the issuance policy) for individual members, so accordingly they can claim Income tax benefits under Section 80C. The maximum amount that can be claimed as a deduction under this section is Rs 1.5 lakh.

  • Investments

Being a separate entity HUF, it can claim the fit of other Income Tax provisions  also namely,
A HUF can make investments in Fixed Deposits (FD OF 5 YEARS OR MORE) and also in Equity Linked Savings Scheme (ELSS) to earn maximum tax benefits with a threshold limit of up to Rs 1.5 lakh in Section 80C. It is important to note here that a Public Provident Fund (PPF) account cannot be opened in the name of HUF, but tax deductions of the deposited amount by the HUF can be claimed in respective PPF accounts of the member of the HUF.

  • Health Insurance

You can claim a deduction of Rs 25,000 per year on premiums paid for Health Insurance for your family under Section 80D. Here’s where HUF can come to your rescue. Additional tax benefits of up to Rs 25,000  can be claimed by the HUF on Health Insurance premiums paid during the year for a family. If the person is a senior citizen that is 60 years or more, then the tax benefit limit goes a maximum of up to Rs 50,000.

As a law-abiding citizen, it is important to pay taxes regularly.

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