How Hindu undivided families can maximize tax savings

livemint.com:

Mumbai: If you are a salaried individual with additional income from other sources or likely to come into some inheritance, then the provisions of Hindu undivided family (HUF) can help you make significant tax savings. To create an HUF, the head of the family, or karta, needs to submit an affidavit to that effect to the income tax department, along with an application for PAN (permanent account number) for the new entity and details of the HUF members. Only couples who are married and have at least one child can set up an HUF for tax purposes.

Here is how HUF works and how it can help you save taxes. An HUF comprises the karta, coparceners and other members. The karta is authorized to sign cheques and carry out financial transactions on behalf of the HUF.

Coparceners are members who are born into the undivided family, for example, a father, son, and daughter. Members are outsiders who come into the family, notably a mother and wife, through marriage. “It is important to note that members brought into the family by virtue of marriage can’t be coparceners.

At the same time, an adopted child can be a coparcener," says Balwant Jain, Mumbai-based tax and investment expert. While both coparceners and members of the HUF have rights in property of this entity, only coparceners have the right to demand partition of the HUF. “All members have rights, but not necessarily in the same proportion.

For example, if the son dies, his share would not directly go to his wife, but get proportionately divided among all members of the HUF," Jain points out. An HUF is treated as a separate individual for taxation purpose and will have its own PAN number. To avail the additional tax exemptions and deductions, the HUF needs to show its income—be