What is HUF?
HUF stands for Hindu Undivided Family. It’s a family structure recognized under Hindu law, consisting of lineal descendants from a common ancestor, along with their spouses and unmarried children.
Who Can Form HUF?
Any Hindu family, as well as Buddhists, Jains, and Sikhs, can form an HUF.
Beneficiaries of HUF
HUF can include three generations of a family. The head of the family, known as the Karta, leads the HUF, while other members like spouses and children are called coparceners.
Formation of HUF
HUF is formed automatically after the marriage of an individual, but it’s legally recognized when a deed of HUF is drafted and executed.
Process to Form HUF
1. Write a HUF deed.
2. Apply for an HUF PAN card.
3. Open an HUF bank account.
Contributions to HUF
Both the Karta and coparceners can contribute assets to the HUF. It’s important to consider taxation while making contributions.
Taxation of HUF
HUF is treated as a separate entity for tax purposes and files its tax return. It’s taxed according to the normal income tax slabs and can claim deductions under section 80 and other exemptions.
Tax Saving Example with HUF:
Let’s say Mr A decides to form a HUF with his wife, son, and daughter after inheriting his father’s property. Since Mr A’s father transferred the property to the HUF, any rental income from it is taxable for the HUF, not Mr A individually.
For instance, if the rental income is Rs. 4.5 lakhs and Mr A’s salary income is Rs. 15 lakhs, the rental income will be taxed at zero for the HUF, saving Mr A from being taxed at a 30% rate if he owned the property personally.
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