How to Save Taxes with HUF

HUF or Hindu Undivided Family is an entity formed under the HUF Act which can act as a separate tax entity different from its members. The members of a family – father, mother, and child can form a HUF with the help of their CA. The HUF is like a company in the sense that it can have assets, income, expenses, etc., and can be taxed accordingly. You can also transfer your ancestral property, inheritance, etc. into the HUF.

The biggest advantage is that the income from HUF is not clubbed in the individual files. If you have Rs.50 lakhs in fixed deposits in the HUF file and say you get Rs.4 lakhs annually as interest income, it will be tax-free, given the current law of Rs. 7 lakhs being tax-free in India. The expenses of HUF for services etc. can be deducted as well. Given the huge taxes that Indian salaried income people have to pay, this is one major avenue to get tax benefits. HUF is not known by most people who are wasting lakhs of tax benefits by not using this provision.

Another way to save taxes for salaried people is through the Voluntary Provident Fund.

The senior family member is known as ‘Karta’ and all other members have equal rights. Citizens of India belonging to Hinduism, Jainism, and Buddhism religions can form a HUF. HUFs can also buy insurance, take loans, and buy assets such as stocks, bonds, gold, etc. It is like you have another 18+-year-old family member who can give you tax benefits with a separate file.

HUFs can only be dissolved by all members’ agreement and the assets are distributed equally. In the case of a large joint family, forming a HUF can be difficult but for nuclear families these days, it is not a problem. So what are you waiting for? Form a HUF and enjoy more tax savings.