Tips and Tricks for Saving Income Tax via HUF

Whenever times come to pay your tax, the first and the foremost question which comes to the mind of individuals is that “How to saveIncome tax through HUF”? Everyone believes that they could save some amount by using HUF and avoiding paying some tax. The expectations of every individual are that they are going to get some or the other benefits.

HUF refers to Hindu Undivided family, in India there prevails the culture of joint family and there are different incomes flowing into the family from different members and due to which the income is increased. Suppose if you are gaining any amount from rent, in that case it would be divided into all members of the family and not to a single individual. In case you are either gifted or inherited any kind of properties, jewellery, businesses and so on, you could go ahead with reducing your tax burden by forming HUF. Also if you are married into Hindu, Sikh, Buddhist or Jain and doesn’t belong to any kind of fairer sex, there could be different ways for reducing your burden by forming the HUF (Hindu Undivided Family).

Suppose if a HUF was created and some inherited assets which are assigned to the income for Rs 5 Lakh would be taxable for HUF and not to the couples.

Taxation of HUF

An HUF is treated as a ‘person’ and is taxable as a distinct tax-entity. The income will be calculated by the same method as in the case of individuals.

How to get HUF implemented?

For incorporating HUF, you will have to get a deed executed on the stamp paper after identifying the karta, like in whose name the HUF need to be created and constituents of the HUF. There is requirement of at least 2 members for and it should be according to the rules and standard set by the Government. In which it specifies that who could be members and co-parancers (members who are having right to demand partition).

When you are taking benefit of HUF, then you need to check out that you owe a Pan card of HUF.  You will also need to open an account with the same name of karta which should be followed by the HUF in the parenthesis. You could authorize the other person as well for operating on the HUF which would be on behalf of HUF.

Benefits while you use HUF

HUF is eligible under the section 80D (where insurance premium paid on health of a member), 80G for donation, 80L for income either from post office or bank deposits and the80C which is the assorted list for the items, which is prevalent in the Income Tax Act 1961.Further it also enjoys exemption under sections of 54F and 54 with respect to capital gains. It also gains advantages over slab rate taxability. Under the wealth tax act for year 1957, HUF is treated as the district entity and it enjoys individual taxability.

So the following deductions are available to HUF for calculating tax.

• Deduction 80C
• Deduction 80D
• Deduction 80DD
• Deduction 80DDB
• Deduction 80G

Issues during the HUF

The major issue which pops up in the HUF scenario is when any member who is part of the HUF plans to quit. In initial stage the partition was permitted but now when there has been some amendment made to HUF in 2005, the partition could be made according to those rules.

Weather HUF can give or reaceive gifts?

Yes, HUF can give and receive gift from anyone.  Any person who is not a coparcener may make a gift to the HUF. For example, a father can gift his self-acquired property to the HUF of his son, provided there is a clear and unequivocal declaration that the gift is being made for the benefit of his family. We will discuss the gift concept in our next article. So stay with us by subscribing your email ID or bookmark this page.

Important Points Related to Tax Planning by HUF

1. Gift received by an HUF (excluding those received from its members) are taxable as income of HUF, if the aggregate amount of gifts exceed Rs.50,000, in a financial year.
2. HUFs are not permitted to open a PPF A/c w.e.f. 13.5.2005.
3. HUF can be used to increase tax payers for entitlement of basic exemption of 2,50,000/- and other deductions. But clubbing of income should be considered by the assessee while transferring any amount to HUF.

Popular Schemes Comes Under Deduction Under Section 80C

Life Insurance Premium: You can get deduction by depositing or paying life insurance premium in previous year. You must note here that premium paid on behalf of wife/husband/child or any member of the family where assesse in an HUF. Child includes adult children also, Thus, deduction is available in respect of premium paid on a policy on the life of a married daughter.

Provident Fund & Public Provident Fund: You can claim deduction under section 80C for the amount deposit in provident fund also. The amount deposit in the name of wife/husband/child or any member of the family where you are as an HUF is also eligible for deduction u/s 80C. The annual contribution upto Rs.1,00,000 (A.Y.2014-15) or Rs.1,50,000 (A.Y.2017-18, A.Y.2016-17 & A.Y.2015-16) is eligible for deduction under section 80C. You can deposit Rs.1,00,000 (A.Y.2014-15) or Rs. 1,50,000 (A.Y.2015-16) in PPF A/c even if you have paid the amount in LIC, NSC, ULIP etc. However, the deduction u/s 80C is available on the total contribution of PPF, LIC, ULIP, etc. up to maximum of Rs.1,50,000 [Rs.1,00,000 for A.Y.2014-15].  Interest on PPF is not treated as reinvestment for purpose of section u/s 80C is available even if the contribution is made in the PPF account of minor/major children or spouse.

National Saving Certificates (NSC): You can also get deduction under section 80C for the amount deposit in national saving certification along with PPF/LIC/ULIP up to maximum of Rs.1,50,000 accrued during the year.  There is no TDS deduction for repayment of NSC. Interested accrued during the year (except for the last year) shall be deemed to be reinvested and shall also qualify for deduction u/s 80C.

Bank Term Deposit Schemes: Amount invested in bank term deposits along with PPF/LIC/NSC/ULIP etc. up to a maximum of Rs.1,50,000 (Rs.1 lakh for A.Y.2014-15) is also eligible for deduction under section 80C. The maturity period for bank term deposit schemes is 5 years.

Post Office Time Deposit Schemes: You can also opt for post office time deposit to get deduction under section 80C up to Rs.1,50,000. You must note that the deduction is available only to the first holder.

Mutual Fund Schemes: Some of the schemes of mutual funds are eligible for deduction u/s 80C along with other investments give above. The income from mutual funds is also fully exempted u/s 10 (35).

Senior Citizens Saving Scheme, 2004: You can also get benefit of Senior Citizens Saving Scheme to get deduction u/s 80C of Rs.1,50,000 [Rs.1,00,000 for A.Y.2014-15].  No TDS deduction is required if you provide form 15H/15G (as the case may be).

NABARAD Rural Bonds: The deduction is also available under section 80C for subscription to notified bonds issued by National Bank for Agriculture and Rural Development.

ULIP: The deduction is also eligibile for the amount deposit in the name of himself, his/her wife/husband or his child, and an HUF in the name of its members to any Unit Linked Insurance Plan of UTI.

Tuition Fees: You can claim the deduction of paying the tuition fee of your two children. Here, you should note that tuition fees eligible paid to any university, college, school or other educational institution situated in India. However, any development fees or donation or payment of similar nature shall not be eligible for deduction.

Deduction 80C for A.Y.2016-17 & A.Y.2017-18

We know that you are very much interested to know the deduction from gross total income to calculate net income tax. As we will discuss only here deduction under section 80C in detail.

There are lots of deductions comes under Chapter VI-A from section 80C to 80U like 80HH, 80RRB, 80U and more. But this article is exclusively for the deduction comes under section 80C.

You can claim the deduction under section 80C as per follows: 

• A.Y. 2017-18: Up to 1,50,000/- (As per Budget 2016 Finance Bill 2016)
• A.Y. 2016-17: Up to 1,50,000/-
• A.Y. 2015-16: Up to 1,50,000/-
• A.Y. 2014-15: Up to 1,00,000/-

Aggregate amount of deduction u/s 80C, 80CCC, 80CCD and new section 80CCE  is restricted to Rs.1,50,000.

You can avail the benefit of deduction u/s 80C by investing in the following schemes. 

1. Payment for Life Insurance Premium.
2. Payment for Deferred Annuity Plan.
3. Deferred Annuity Payable by Government.
4. Contribution to Public Provident Fund.
5. Contribution to Provident Fund set up by Central Government.
6. Contribution to Recognised Provident Fund.
7. Contribution to recognized superannuation fund.
8. Subscription to any security or deposit notified by Government.
9. Subscription to Saving Certificates.
10. Subscription for Unit Linked Insurance Plan 1971.
11. Contribution for Unit Linked Insurance Plan of LIC Mutual Fund.
12. Payment for annuity plan of LIC or any other insurer.
13. Subscription to units of notified mutual fund.
14. Contribution to notified pension fund of mutual fund.
15. Pension fund set up National Housing Bank.
16. Subscription to a deposit scheme of public sector company engaged in providing long term finance for housing.
17. Tuition fees of two children in India.
18. Payment of instalment for self-financing of a residential property for repayment of loan.
19. Subscription to equity shares or debentures as approved for infrastructure.
20. Subscription to any units of mutual fund as approved by the Central Board of Direct Taxes.
21. As per the Finance Act, 2006 for F.Y. 2006-07, a term-deposit for a fixed period of not less than five years with a scheduled bank would also qualify for tax deduction under Section 0 C within the overall limit of Rs. 1 lakh. This deduction to some Rules.
22. Notified bonds of NABARD.
23. Deposit in an account under the Senior Citizens Savings Scheme Rules, 2004.
24. Five-years time deposit in an account under the Post Officer Time Deposit Rules, 1981.