FAQs on HUF: Tax benefits, formation, and key rules explained
Subscribe to enjoy similar stories. A few weeks ago, when Mint Money discussed Hindu Undivided Family (HUFs) units, we received a flood of queries. To address the most common concerns, this article has compiled frequently asked questions regarding tax-saving instruments available to Hindu, Sikh, Jain, and Buddhist communities.
Tax experts Balwant Jain and Prakash Hegde address these queries, offering insights and highlighting differing perspectives where interpretations vary. Read this | How can you save tax on mutual funds by forming a Hindu Undivided Family unit? An HUF is recognized as a separate entity for taxation purposes, with its own PAN, allowing it to claim additional deductions and exemptions. Consider a case where an individual (Person A) earns a taxable salary of ₹20 lakh and receives ₹7.5 lakh as rental income from an ancestral property.
After availing of a 30% standard deduction on rental income ( ₹2.25 lakh) and a ₹1.5 lakh deduction under Section 80C, their taxable income amounts to ₹23.75 lakh, resulting in a tax liability of ₹5.46 lakh. If the property were held under an HUF, separate deductions and exemptions would apply to the HUF's rental income, reducing the total tax liability to ₹3.82 lakh—a saving of ₹1.64 lakh. In essence, creating an HUF doubles the tax benefits by splitting income into two separate taxable accounts.
This principle can also apply to financial assets. An HUF is created by default and cannot be established through contracts or agreements. It requires at least two members, with varying opinions on when an HUF officially forms.
Common View: Marriage of a couple creates an HUF. Alternative View: The birth of a child is necessary. To open a bank account or obtain a PAN, the karta (h
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