Skip to main content

How can you save tax with HUF status?

Invest In Tax Saving Mutual Funds Online

Call 0 94 8300 8300 (India)

 

Hindu Undivided Family (HUF)

When Shashank and Mitali got married, they did not bother much about their finances. After all, both were well qualified and had well paying jobs. In addition, Shashank also earned rental income from ancestral property. But after seeing the huge amount they paid as taxes (after investing in the usual tax saving instruments), they spoke to Shashanks former classmate, who is a practising chartered accountant.

 

That is when they realised that they could save taxes by setting up a Hindu Undivided Family (HUF).

The HUF concept is not new in India, and is one of the best ways to save tax. Any married man from the Hindu, Jain, Sikh, or Buddhist community can form an HUF, and will act as the " Karta" or the head of this family. According to Indian law, an HUF will be considered as aseparate entity from the individual for tax purposes, which benefits married couples from these communities to save a substantial amount on taxes.

HUF is a separate entity in itself and qualifies for all tax benefits under Section 80C ( up to ₹ 1 lakh), 80D ( health insurance premium), 80G ( donation), 80L ( income from bank account), Section 54 ( capital gains) and so on.

Tax slabs applicable to income of an HUF is similar to that of any individual taxpayer, with the basic exemption at ₹ 2 lakh. First, any two family members with the karta (male member of the family) can create an HUF. For a married individual, family will mean wife / husband and children, if any.

An HUF can be used for any purpose apart from receiving salaries, which means that one can form an HUF to keep ancestral property, or to run a business. For example, if a married man has a salary of ₹ 5 lakh, and gets rent on ancestral property of ₹ 3 lakh, as an individual he will be paying taxes of approximately ₹ 1 lakh ( assuming ₹ 1 lakh is invested under section 80C). However, if he shifts the property to an HUF, then he will be paying only ₹ 20,000 as taxes as an individual and the HUF will be liable for no taxes ( assuming that both the individual and the HUF has invested ₹ 1 lakh under section 80C). This results in a tax saving of around ₹ 80,000.

Let us look at a more detailed example to see how a HUF can save one's taxes.

Forming of an HUF is relatively simple, with all married men and their wives becoming an HUF automatically.

There are, however, a few simple procedures to be followed, such as executing a deed on a stamp paper to transfer assets to the HUF -this can be property, cash, jewellery, etc. One will also have to get aPAN card in the name of the HUF and open a bank account. There can be multiple instances of HUF's in each family, with each married couple being part of their own HUF.

There are also cases with women only HUF's, where the Karta has passed away, and left behind only female descendants - in such a case, the daughter assumes the role of the Karta.

Transferring money into an HUF is not as easy as it seems as one cannot just transfer money or assets into the HUF name, as this gets combined into a single entity under the existing law and taxed as such. The ideal way to setup a HUF is to put some of the gifts ( cash, jewellery, etc) received at one's wedding into the HUF. The other way is to set up the HUF using ancestral property from a will though in this case the will should specify that the property will go to the HUF and not the individual.

Another pitfall one should be aware of is that while transferring gifts to the HUF, there is no exemption on receiving gifts from specified relatives like in the case of an individual - the HUF is liable to pay taxes on all gifts. However, since the HUF gets tax benefits like an individual entity, gifts of up to ₹ 2 lakh ( limit can go up to ₹ 3 lakh if the tax benefits under Section 80C are fully used) are exempt from taxation.

Assets and liabilities in the name of the HUF will belong to the HUF and this will be treated as a separate entity. For example, if a business is being run under an HUF all business expenses will be deducted from the HUF income. This includes any salary paid to family members who are part of the HUF.

Additionally, a member of an HUF has to maintain books of accounts and all paperwork for the HUF separately. Transfer of assets to HUF happens only one- way. You can create assets for the HUF, but these can be taken out only by dissolving the entity. However, financial assets, gold and cash, can easily be distributed among members. But there are some disadvantages also by forming an HUF. For instance, if you are looking to sell aproperty that is in an HUF's name, it may not find many takers as everybody wants a clear property title. If there is a legal dispute around the property, then selling it can become impossible.

An HUF can be dissolved if all the members agree. A partial dissolution is not possible.

Happy Investing!!

We can help. Call 0 94 8300 8300 (India)

Leave your comment with mail ID and we will answer them

OR

You can write back to us at PrajnaCapital [at] Gmail [dot] Com

---------------------------------------------

Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

Invest Tax Saving Mutual Funds Online

Tax Saving Mutual Funds Online

These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)

Download Tax Saving Mutual Fund Application Forms from all AMCs

Download Tax Saving Mutual Fund Applications

These Application Forms can be used for buying regular mutual funds also

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

  1. ICICI Prudential Tax Plan Invest Online
  2. HDFC TaxSaver Invest Online
  3. DSP BlackRock Tax Saver Fund Invest Online
  4. Reliance Tax Saver (ELSS) Fund Invest Online
  5. Birla Sun Life Tax Relief '96 Invest Online
  6. IDFC Tax Advantage (ELSS) Fund Invest Online
  7. SBI Magnum Tax Gain Scheme 1993 Invest Online
  8. Sundaram Tax Saver Invest Online
  9. Edelweiss ELSS Invest Online

------------------

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds Invest Online
      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    1. Mid and SmallCap Funds Invest Online
      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    1. Small and MicroCap Funds Invest Online
      1. DSP BlackRock MicroCap Fund
    1. Sector Funds Invest Online
      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Tax Saver MutualFunds Invest Online
      1. ICICI Prudential Tax Plan
      2. HDFC Taxsaver
      3. DSP BlackRock Tax Saver Fund
      4. Reliance Tax Saver (ELSS) Fund
    2. Gold Mutual Funds Invest Online
      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

Popular posts from this blog

Mutual Fund Exit Load Changes

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300 Mutual Fund Exit Load Changes AMCs don't communicate about any change in exit load directly with investors, but do update on their website   The exit load applicable to your investments is the load which existed at the time when you invested in the particular fund. Any subsequent changes in the exit load will not be applicable to your investments.   However, Asset Management Companies ( AMCs ) periodically publish addendums in the newspapers, which state any change in exit loads of specific schemes managed by them. Such changes are also posted on their websites. However, a direct communication to an investor is not made, considering the costs involved in doing so. In their own interests, investors should not only track the performance of the funds they i...
Read more

Birla Sun Life Mutual Fund Launches Birla Sun Life NIFTY ETF

Birla Sun Life has launched a new fund namely, Birla Sun Life Nifty ETF, an open ended exchange traded fund. The new fund will be open for subscription from 4th July to 18th July 2011, at an offer price of Rs 10 per unit. The investment objective of the scheme is to generate returns that closely correspond to the total returns of securities as represented by S&P CNX Nifty, subject to tracking errors. No exit load will be charged under the scheme. The performance of the scheme will be benchmarked against S&P CNX Nifty and will be managed by Satyabrata Mohanty.   -----------------------------------------------------------------   Also, know how to buy mutual funds online:   1) DSP BlackRock Mutual Funds: http://prajnacapital.blogspot.com/2011/05/buying-dsp-blackrock-mutual-funds.html   2) Reliance Mutual Funds: http://prajnacapital.blogspot.com/2011/06/buying-reliance-mutual-funds-online.html   3) Birla Sunlife Mutual Funds: http://prajnacapital.blogspot.com/2011/...
Read more

Atal Pension Yojana contribution Tax Benefit for spouse

Contributions to Atal Pension Yojana (APY) are eligible for the same tax benefits as the NPS. This means that the contributions can be claimed under Section 80CCD (1B). The current limit for Section 80CCD (1B) is   Rs   50,000, over and above the   Rs   1.5 lakh limit under Section 80C. Section 80 CCD (1) is a different one, meant to cover employers' contribution towards NPS . You cannot get tax benefit by investing in the name of your spouse under Section 80 CCD . ------------------------------ ----------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saver Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in India for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Religare Tax Plan 4. DSP BlackRock Tax Saver Fund 5. Franklin India TaxShield 6. ICICI Prudential Long Term Equity Fund 7. IDFC Tax Advantage (ELSS) Fund 8. Birla Sun Life Tax Relief 96 9. ...
Read more

Mutual Fund Reivew: Birla Sun Life Asset Allocation Conservative

Birla Sun Life Asset Allocation Conservative has numbers on its side to prove its credibility… Don't be surprised to find this Fund of Funds ( FoF ) in our recommendations. It has earned its place. And despite the difference in the structure of the product, there is no arguing with the numbers.   Of the total 6 years of its existence, the fund has been among the top 10 funds in its category in four of them. Last year it put up an average show and the only year it underperformed its peers was in 2008.   One aspect to look at when investing in an FoF is the expense ratio. The expense ratio of an FoF is capped at a lower limit of 0.75 per cent (2.50% for an actively managed fund). However, the FoF not only has its own expense (though lower) but even the expense ratio of the fund it is investing into. Fortunately, the fund manager takes that into account. "Expense is one of the important criteria used for fund selection and is the main reason for our investment in BSL Ind...
Read more

Short-Term Investment Options in Mutual Funds

Mutual funds offer liquid funds and ultra short term funds in the debt category, which are suitable for short investment periods. Ultra short-term funds were earlier known as liquid plus funds. Liquid funds invest in money market instruments with a maturity of 91 days or less. However, there are no such restrictions for ultra short-term funds. Who should invest in these? These are open-ended schemes. Investors with a short investment horizon or with surplus cash and low risk appetite should look at these. These could include corporate as well as retail investors. Those interested in staying invested for less than 15 days can opt for liquid funds. Retail investors who want to remain invested for two-four months, can look at ultra short-term funds. The short duration for both liquid and ultra short-term funds shields them from any interest rate volatility.   What kind of returns do they offer? In terms of an investment period less than 15 days, these funds are comparable to a ba...
Read more
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now