Estimated reading time: 4 minutes 28 seconds
The Indian Income tax Act recognises a Hindu Undivided family as a separate taxable assessee No! There is no such distinct tax on families. At least not yet! What this means is that HUF is treated as a separate person just like how companies are treated as separate entities/ assesses.
HUF is a family hotchpot which is entitled to the same exemptions and deductions as any other individual taxpayer. Since HUF is taxed as a separate assessee, a basic exemption limit of 2 lakhs is allowed! Further the HUF can get deductions of up to 1 lakh under the various subsections of Section 80, medical deductions of up to Rs. 15000 and not to forget the benefit of lower tax slabs.
So, how to create a HUF?
There are certain pre-conditions to start a HUF. One of which requires you to say 'I do'!
Yes! Wedding bells need to ring and signal the process of creating a HUF. It forms a part of the list of joys to look forward to in a marriage. A wedding automatically constitutes an undivided family and the taxman acknowledges the fact. Therefore no additional requirement needs to be fulfilled. However few simple formalities need to be completed to create legal existence for the already formed HUF.
Sourcing the funds for Corpus:
Once the bank account is opened, the HUF is ready to function. HUF can earn income from all the sources of income except salary. But now, how does one source the initial corpus for the HUF bank account?
HUF funds and assets are mainly sourced through inheritance, gifts, wills and transfers. However, since HUF is not an individual it cannot have relatives and friends.
The following are few ways of creating initial corpus for the HUF.
What are the tax benefits?
Unlike how the name reads, Jains, Sikhs and Buddhists are also permitted to form a HUF.
A 'Karta' is the male member of the family who manages the daily affairs. A coparcener is a member of the HUF who has the right to enforce a HUF partition. Only a complete partition is recognised by the income tax act. Partial partition of HUF is not recognised. Further, once a property is put into the pool of assets of a HUF, it cannot form part of a will as no member has an individual right on it.
A HUF is a legal way to save taxes with minimum effort in creating it. With that said, one needs to be aware of and adhere to ways of using it judicially.
So when it is your turn, all that you need to say is 'Yes, I do'...