Being a responsible citizen of the nation, every individual should pay their Income Tax on time & should avoid not paying it. It is just the small contribution of each individual to make the country wealthy & developed. In order to encourage people to pay taxes the government has introduced many benefits & awards time to time. Under the provision of Income Tax Act, 1961, there are possibilities that one can save Income Tax. Hence one can take such benefits of such provision.
- Hindu Undivided Family (HUF):
HUF is a separate unite like a person & assessed accordingly, due to which they can own property & also have its own business plan. HUF is also eligible for such exemptions available to Indian resident who is not a senior citizen.
- Who all are included in the HUF?
Hindu Undivided Family consists of those individual who, by birth, acquire an interest in some joint family. It also includes all lineal descendants of these individuals & their children (both sons & daughters) & wives.
- How to form a HUF?
Following are the steps to form HUF:
- It should be properly named.
- Bank account is required on its name.
- The name of HUF & Karta on the Rubber Stamp is required.
- To register the same in Save Income Tax Department required applying for PAN & TAN.
- Income Tax Benefits of forming HUF:
In order to understand the benefits of saving Income Tax available by forming a HUF, let us take an example of a common family, which is, the nuclear family.
- Rajesh is married to Sheetal & has two minor children, kavita (daughter) and Rohit (son). Rajesh’s annual income is INR 10 Lacs & Sheetal INR 10 Lacs. Rajesh has inherited an ancestral property, an apartment, which is on rent for INR 3 Lacs Annually.
- If Rajesh forms a HUF, with him as the Head of the HUF which is called as “Karta”, his children will be called “Coparceners” and his wife will be a Member. The first benefit Rajesh will have that the income form rent of INR 3 Lacs which was up till then assessed as part of his income and now be carved out and shown as HUF income & the HUF will be assessed separately as another entity & will have the benefit of the exemptions of Income Tax Act similar to those received by Rajesh.
- This will lead to substantial reduction of Income Tax being paid by Rajesh up till then & the HUF will pay a much smaller amount of Income tax on this income of INR 3 Lacs after enjoying the exemptions available. Even, 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 Rajesh and Sheetal.