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Smart Things to Know about HUF and Saving Tax through HUF
By Anupama Deshpande | June 06, 2018

An HUF or Hindu Undivided Family (HUF) comprises all the male persons lineally descended from a common ancestor, their wives and unmarried daughters. A Hindu Undivided Family must consist of at least two members. An HUF cannot be created under a contract, it is created automatically in a Hindu Family. A Hindu family can form an HUF. Sikhs and Jains can also form an HUF but they are not governed by the Hindu Law, however, they will be treated as an HUF for Income Tax purposes.



Suggested reading How to Form an HUF in 5 Easy Steps?

Reason behind Forming an HUF

The main reason behind forming an HUF is to save tax as an HUF gets an extra PAN card through which the family members can divert the family income to the HUF income that will result in tax saving and will reduce the tax outgo.

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Smart Things to Know about HUF and Saving Tax through HUF

  • An HUF (Hindu Undivided Family) is formed automatically when one gets married.
  • The simplest way of creating a new HUF is to receive some gift directly in the name of HUF from your parents, parents-in-law, friends and relatives.
  • All the members in a family are considered HUF members. All the male members are called as coparceners and all the female members are called as members but it is changed and now after 01/09/2005 daughters are also coparceners like sons.
  • The senior most male member in the family is normally designated as the Karta and is the authorised signatory of the HUF and he manages the affairs of the HUF.
  • Documents required to form an HUF are Corpus, HUF Deed, PAN Card in HUF's name and Bank Account in HUF's name.
  • All the assets in the name of HUF are assets of the family and not of an individual member of the family.

  • Suggested reading How to Open an NPS Account Online?

  • All the members of the family have a right on the assets of the HUF.
  • According to the income tax law, the HUF is considered as a separate legal entity under the provisions of Section 2(31) of the Income Tax Act.
  • The formation of HUF helps the individuals to save their taxes in a legal manner.
  • Like an Individual, an HUF is also required to file Income Tax Returns every year.
  • HUF is entitled to enjoy all the benefits provided to an Individual Assessee under the income tax act.
  • The members of HUF can split the family's income and file taxes separately i.e. individually and HUF tax return which reduces the overall tax liability.
  • An HUF is taxed on same slab rates which are applicable to an Individual.
  • The individual can claim higher tax deduction and exemptions under the Income Tax Act as the new tax entity i.e. an HUF will be entitled to claim separate tax deduction under section 80C of the Income Tax Act.
  • The benefits of dividend income, interest income and the short and long term capital gain will also be available to the HUF.
  • HUF can contribute to the PPF account of its members and claim tax deduction under section 80C of the Income Tax Act.
  • An HUF can claim a separate tax deduction in respect of payment of Health Insurance Premium under section 80D of the Income Tax Act.
  • An HUF can claim deduction for interest on self occupied house property of Rs. 1,50,000 in a financial year under section 24 of the Income-tax Act.
  • It can also claim deduction under section 80DDB and 80G of the Income-tax Act.

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About Anupama Deshpande
Anupama is a Co-Founder of CodeForBanks.com. She is an MBA (Finance) and Chartered Financial Analyst (CFA). She also carries a Fellowship degree in Life Insurance Sector and is a Master of Computer Application (MCA). She is an expert in Finance Field with an experience of over 18 years on different managerial positions in finance industry including Stock Market, Depository and Mutual Fund Sectors. Apart from that she has remained for few years in the field of marketing as well. Her suggestions and advice for investments have been very useful to many people.
Her vast interest & expertise in the field of finance have encouraged her to write the articles so that others can also get benefitted out of them. She never loses any opportunity to learn and be creative. She is a valuable asset for CodeForBanks.com & important resource to all those around her.
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