Skip to main content

A HUF can save more tax

Invest In Tax Saving Mutual Funds Online

Call 0 94 8300 8300 (India)
 



Once, our venerable Finance Minister, P Chidambaram, said, "Left to God, even he will not like to pay Income Tax". Though as a responsible citizen of our country, we should pay our income taxes on time and should not avoid paying it. However, if the Income Tax Act, 1961 provides legal opportunities to save Income tax, it will not be prudent if you are not taking benefits of such provisions. HUF is an entity, which has been given certain exemptions, quite similar to an Individual by the IT Act. If you are a born Hindu or a Sikh or a Buddhist or a Jain, you can take benefit of these provisions, and if possible you should take it. Also read: All about tax laws related to stock valuations

 

What is a HUF?

 

The Income Tax Act 1961 provides that a HUF (Hindu Undivided Family) is separate unit like an individual and is too assessed accordingly. A HUF can claim tax benefits under the income tax act as Wealth tax act. A HUF is eligible for those exemptions that are available to a resident Indian who is not a senior citizen. It can own property and also have its own business. Who all are included in the HUF? The HUF includes those persons who, by birth, acquire an interest in some joint family property. It also includes all lineal descendants of these persons, and their wives, and children, both sons and daughters. Even married daughters can remain a part of the HUF, while being a member of her spouse's family HUF.

 

What are the Income Tax Benefits in forming a HUF?

 

To understand the income tax benefits (we are not discussing the wealth tax benefits, as they too are available) additionally available by forming a HUF, let us take an example of a family, which is now common, the nuclear family. Naresh is married to Priya and have two minor children, Jaya (daughter) and Bhargava (son). Naresh's annual income is Rs10, 00, 000 and Priya Rs10, 00, 000. Naresh has inherited an ancestral property, an apartment, which is on rent (annually Rs3, 00,000). If Naresh forms a HUF, with him the Karta (head of the HUF), his children will be called coparceners and his wife will be a member. The first benefit Naresh, will have that the rent income of Rs3, 00, 000 which was hitherto assessed as part of his income and now be carved out and shown as HUF income, and the HUF will be assessed separately as another entity and will have the benefit of the exemptions of IT Act similar to those received by Naresh. This will lead to substantial reduction of Income tax being hitherto paid by Naresh and the HUF will pay a much smaller amount of Income tax on this income of Rs3,00,000/- after enjoying the exemptions available. Also, the gifts received by the coparceners/member (beyond the exemption limit) can be shown as received by the HUF, thereby reducing the income tax burden of both Naresh and Priya. Now, you may invest the HUF income in LIC policies, PPF accounts, ELSS instruments in the name of Karta, coparceners or member of the HUF and it will get the income tax deductions under Section 80C.

 

How to form a HUF?

 

The following steps are required to form a HUF:

(i)                  Open a bank account in the name of Hindu Undivided family titled "Naresh HUF" with a rubber stamp, ID Proof, residence proof and the proof of the members of the family of HUF.

(ii)                The rubber stamp should be rectangular carrying the name of the HUF and that of the Karta

(iii)               Then apply for PAN (Permanent Account Number) from the income tax authorities.

(iv)              Transfer the rent income received from the ancestral property along with the excess gift amount received by the HUF members (Karta, coparceners and members)

 

Disadvantages of HUF

 

Though a significant amount of tax can be saved by forming a HUF, there are few disadvantages of HUF which should be taken into consideration. Whenever an asset is transferred to HUF it remains with it. Only when the coparceners will demand a partition of HUF, the property can be shared by the coparceners. HUF property cannot be mentioned in the WILL. In case of Naresh HUF, the ancestral property transferred to HUF will remain part of HUF and Naresh later cannot transfer to his wife or son or daughter. Of course after his death, his son will become the Karta, but other members will enjoy the benefits and income of the HUF.

 

Who should actually form a HUF?

 

HUF will be a good option for persons who have sufficient income and savings and who also have some ancestral property too (which could be treated as family assets for HUF). Before forming a HUF one should calculate the tax benefits clearly and then take a calculated decision. It is advisable to hire a financial advisor, well versed in forming HUF and who will be able to give the pros and cons so that an informed decision can be taken about formation of HUF.

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

SBI Magnum Tax Gain Scheme 1993 Applcation Form

    https://sites.google.com/site/mutualfundapplications/tax-saving-mutual-funds-elss     Investment Details Basics Min Investment (Rs) 500 Subsequent Investment (Rs) 500 Min Withdrawal (Rs) -- Min Balance -- Pricing Method Forward Purchase Cut-off Time (hrs) 15 Redemption Cut-off Time (hrs) 15 Redemption Time (days) -- Lock-in 1095 days Cheque Writing -- Systematic Investment Plan SIP Yes Initial Investment (Rs) -- Additional Investment (Rs) 500 No of Cheques 12 Note Monthly investment of Rs 1000 for 6 months and quarterly investment of Rs 1500 for 4 quarters.
Read more

Impact of Demonetisation

The government's move to demonetise `500 and `1,000 currency notes will immediately impact reserve money and money supply in the system along with the balance sheet of the Reserve Bank of India, the sole authority in the country for accepting currency notes and coins as legal tender. ET explains the interplay of currency, reserve money and money supply. 1. What is currency in circulation? It is the total value of currency (coins and paper currency) that has ever been issued by the central bank minus the amount that has been withdrawn by it. Currency in circulation comprises currency notes and coins with the public and cash in hand with banks. It is a major liability component of a central bank's balance sheet. 2. What is reserve money? It is essentially the central bank's money . It is also called high-powered money , base money and central bank money . As per the definition, reserve money equals currency in circulation plus bankers' deposits
Read more

Birla Sun Life Tax Plan Online

Invest Birla Sun Life Tax Plan Online   An Open-ended Equity Linked Savings Scheme (ELSS) with the objective to achieve long-term growth of capital along with income tax relief for investment.   After a bad patch from 2008 to 2010, Birla Sun Life Tax Plan has made a big comeback in the last five years, with a particularly good run since 2014. The fund's rankings, which had slipped to two stars in 2011-12, recovered sharply to three-four stars in the last three years. The fund has delivered a particularly large outperformance over its benchmark and peers in the last couple of years. The fund's investment strategy focuses on a diversified and high-quality portfolio, with parameters such as capital ratios and balance-sheet strength used to judge quality. It uses a combination of top-down and bottom-up approaches to take sector/stock positions. The fund avoids highly leveraged plays. Staying more or less fully invested at all times, the fund parks roughly half of its portfoli
Read more

Should you Roll Over 1 year Fixed Maturity Plans?

The period between January and March typically sees an uptick in the launch of fixed maturity plans, or FMPs. Not this year. Instead, fund houses are busy rolling over or extending the tenure of their one- year FMPs launched last year to three years. Investors in one- year FMPs have a choice. Either redeem units or roll over to three years. If you exit now, your gains will be added to your income and taxed in line with your individual slab rate of 10, 20 or 30 per cent. If you stay invested for two more years, you pay 20 per cent tax with indexation benefit. Yields have softened in the past few months on expectations of a rate cut. If the central bank continues its soft monetary stance, yields are likely to fall further. In such a scenario, it makes sense for investors, particularly those in the 30 per cent tax bracket, to roll over their investments and lock in at a higher yield now. In a surprise move, the Reserve Bank of India cut repo rate by 25 basis
Read more

Mutual Fund Review: IDFC Premier Equity Fund

  IDFC Premier Equity Fund, which falls under the presumed high risk group of mid- and small-cap schemes, can rely on astute and timely equity picks. These make it less vulnerable to fluctuations compared with others in the category   IDFC Premier Equity Fund is designed to invest in upcoming, but promising businesses available at cheap valuations, and hold on to these businesses until they reap desired returns. The experiment has been successful so far, and IDFC Premier Equity has emerged as one of the top performing mutual fund schemes in the mid- and smallcap category of equity schemes.    While the scheme is an open-ended equity fund, i.e. open for subscriptions throughout the year, it has a unique philosophy to limit fresh inflows. Thus, while an investor can always take the systematic investment plan ( SIP ) route to invest in the scheme throughout the year, inflows through a lumpsum investment have been restricted. Since inception, IDFC Premier Equity has been opened for l
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