How to save taxes using HUF?

Income Tax Tax Savings & Deductions
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Establishing a Hindu Undivided Family (HUF) is a way to save money on taxes by setting up a distinct legal entity for your family. With a HUF, income from sources like rent, interest, or investments can be divided between the individual and the HUF, lowering the overall tax burden. Moreover, HUFs are eligible for deductions under provisions such as 80C, which further enhances tax efficiency for the entire family.

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@Surbhi_Pal @AkashJhaveri i read somewhere that HUF needs at least 2 coparceners (3 members including karta) for anything to be taxable on HUF. If there is only 1 coparcener (for example husband and wife without children), then tax liability is still with the Karta only. Is this true?

And another question - what is the easiest way to add funds to HUF account?

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Hi team,

Can a spouse dissolve HUF by mailing to IT team?

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Hello @Patl_Pel ,

Any member of the HUF can apply for dissolution after making sure that all members agree to the same. HUF dissolution can not take place by sending an email to the IT department.

After the members have agreed, a partition deed needs to be prepared and the assets need to be divided physically either by selling or transferring.

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There seems lot of confusion on fund introduction to HUF by members.
I have below two questions
1: If karta and member contribute say some amount as a initial corpus to HUF during its formation, i believe it will be non taxable at HUF, as its a gift by relative. But what will be tax implication on income generated on this income? will it be clubbed with karta income ?
2: what would be tax implications on same scenario as above where funds are transferred after HUF formation?

Please note both questions are related to asset transfer as a cash.

Asking this question because all articles, information videos on internet says, the income on such funds is clubbed with member who transferred the funds

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@Yogesh_Sonawane

Scenario 1 & 2: Contribution as Initial / After Incorporation, Corpus at the Time of HUF Formation

  • Gift by Karta and Members:

    • Any contribution made by the Karta or members of a Hindu Undivided Family (HUF) during its formation is treated as a gift by relatives (as members of the HUF are considered relatives under the Income Tax Act). Hence, it is non-taxable in the hands of the HUF.

  • Income Generated on the Initial Corpus:

    • Clubbing Provision (Section 64(2)):

      • Income generated from the contribution made by a Karta or any member will be clubbed with the income of the contributor if:
        • The funds gifted or transferred by the Karta or member are without adequate consideration.
        • The income is directly attributable to the gifted amount.
      • Example:
        • If ₹5,00,000 is contributed by the Karta to form the HUF corpus and this generates ₹50,000 as interest, this ₹50,000 will be clubbed with the income of the Karta.

    • However, once the income is reinvested or generates further income, this secondary income (income-on-income) is taxable in the hands of the HUF and not clubbed with the Karta’s income.

Key Considerations

  1. Gifts from Non-Members:

    • If the HUF receives gifts from non-relatives exceeding ₹50,000 in a financial year, the entire amount is taxable in the hands of the HUF as per Section 56(2)(x).

  2. Documentation:

    • Proper records and gift deeds should be maintained to substantiate that contributions or gifts were made by members or relatives to avoid disputes during assessment.

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1 Like
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How about loan at zero interest to HUG by karta in both scenarios?
With proper loan aggreement documentation.

This loan is personal capital of karta and not borrowed from somewhere else.

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An interest-free loan from the Karta to the HUF is a legitimate transaction. However, proper documentation and adherence to procedural requirements are essential to establish the transaction as a loan and avoid disputes during assessments.

1 Like
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Thank you for reply.
Is stamp paper loan agreement with notarization and bank transfer proofs or cheque copies are sufficient for the proofs of legitimate transaction ?

Additionally, can I give give multiple loans to HUF right ?

Just to confirm this again, no clubbing provisions applicable on income earned by HUF on this ?

Thanks in advance

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Hi
what documentation is required to obtain PAN for HUF ? Is there an agreement or template that needs to be registered with IT Dept ? What says that the HUF is now established ?
thanks

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Hello @Gopala_Krishnan

To obtain a PAN for an HUF, start by creating an HUF deed, which is needed for the PAN application. After submitting the online PAN application for the HUF, send the following documents to the TIN Facilitation Center for verification:

  1. HUF Deed
  2. Karta’s identity proof
  3. Karta’s address proof
  4. Form 49A

Also, HUF is established when the HUF deed is created.

Hope this helps!

1 Like
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Hi Swapnil thanks a ton for the response.

  • Please share the template for the HUF deed.
  • Should this be done on Rs 100 or Rs 500 stamp paper ? signed by Karta and all coparceners ? or signed only by the Karta ?
  • Would the residential status of the HUF change if the Karta is NRI ?
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Hello @Gopala_Krishnan ,

Solving your queries one by one.

1. Residential status of the HUF:

  • The residential status of an HUF is determined by the location of its control and management.
  • If the Karta is a non-resident but the control and management remain with members residing in India, the HUF will be considered a Resident for tax purposes.
  • If the HUF is controlled and managed by the NRI karta then it will be a non-resident HUF.

2. Value of stamp paper in case of HUF deed:

Here is the format for the HUF deed/afidavit, which will be needed while registering the HUF. Usually we should file the HUF affidavit on a ₹500 stamp paper, in case it is not available in your region then you can use the ₹100 stamp paper.

3. Format for HUF deed/afidavit:

AFFIDAVIT

I, ______ son of ________ do solemnly affirm, confirm and state on oath that I am the Karta of ______ HUF. The requisite details are as stated below:

Name (HUF):
Name of Karta:
Address:
Date of Formation of HUF: __________________

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I hereby verify that the contents of above details are true and correct to the best of my knowledge and belief.

Date:
Place:
(on the left)

Signature with stamp:
(on the right)

1 Like
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Thanks @Sakshi_Jain :pray:t3:

1 Like
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You can save taxes using Hindu Undivided Family (HUF) by splitting income, claiming deductions and investing in tax-free instruments. HUF enjoys separate tax exemptions, reducing overall tax liability legally. Consult a tax expert!

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can HUF bank transfer money to member’s account? what will be tax implications? does it consider as gift?