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Country people are always been encourage with a number of benefits and awards to file and pay Income tax. After all, it is a small contribution of each people in the country to uplift the basic infrastructure and make the country move towards prosperity and developed. Therefore being a responsible citizen of the country, people should pay their income taxes on time and should not avoid paying it. However, it is pertinent to note under the provision of the Income Tax Act, 1961 there are possible opportunities to save Income tax, and then it is prudent to claim such benefits of such provision.
HUF stands for Hindu Undivided Family [HUF], is a separate unit like an Individual and assessed accordingly. It is eligible for those exemptions available to resident Indian who is not a senior citizen. HUF can own property and also have its own Business Plan.
The HUF includes those persons who, by birth, acquire an interest in some joint family property. It also includes all lineal descendants of these persons, and their wives, and children, both sons and daughters.
To understand the Save income tax benefits (we are not discussing the wealth tax benefits, as they too are available) additionally available by forming a HUF, let us take an example of a family, which is now common, the nuclear family.
Varun is married to Supriya and has two minor children, Janaki (daughter) and Bharat (son). Varun’s annual income is Rs. 10, 00,000 and Supriya Rs. 10, 00,000. Varun has inherited an ancestral property, an apartment, which is on rent (annually Rs. 3, 00,000).
If Varun forms a HUF, with him the Karta (head of the HUF), his children will be called coparceners and his wife will be a member. The first benefit Varun will have that the rent income of Rs. 3,00,000 which was hitherto assessed as part of his income and now be carved out and shown as HUF income and the HUF will be assessed separately as another entity and will have the benefit of the exemptions of IT Act similar to those received by Varun.
This will lead to substantial reduction of Income-tax being hitherto paid by Varun and the HUF will pay a much smaller amount of Income tax on this income of Rs. 3, 00,000/- after enjoying the exemptions available. Also, 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 Varun and Supriya.
The formation of HUF can be done as per below instruction or steps:-
It should be properly named & for the most bank account is required on its name. Rubber Stamp required carrying the name of HUF and that of Karta. To register the same in Save Income Tax Department required applying for PAN and TAN.
It is helpful to save tax but the asset transferred to it remains with it and distributed only on the full fledge partition of HUF, the property can be shared by the coparceners. The property inherent by HUF or acquired during the time the same will be termed as HUF property and that HUF property cannot be mentioned in the WILL. In case of HUF, the ancestral property transferred to HUF will remain part of HUF and Karta later cannot transfer to his wife or son or daughter.
Any tax planning should be guided from professional dealing it regularly otherwise the same can be termed as evasion by authority hence it is as always advisable to get good tax planner, well versed in doing his/her transaction in case of HUF so that informed decision can be taken about the formation of HUF.