An HUF (Hindu Undivided Family) is an exclusive tax entity created under the law to give recognition to the joint family in addition to the individual persons in the family. Hindus, Jains, Sikhs and Buddhists are allowed to create an HUF for tax benefits under wealth and income tax. The HUF includes all the family members who by birth, are eligible for an interest in the family property.
The HUF is led by the oldest male member of the family, known as the Karta. In case of death of the Karta, the oldest surviving son of the HUF becomes the Karta and in case there are no sons, an unmarried daughter can be considered as a Karta. All the male members of the HUF with an interest in the property are known as Coparceners. The rest of the female members are simply known as “Members”.
There are many recommended routes to create HUF capital. Some of the most common and popular methods of doing so have been provided below.
Gifts received from relatives of HUF:
Gifts received from the members of HUF are not taxable. As per section 56(ii) of the IT Act, such gifts do not attract any tax and are fully exempted. It is one of the most sought after routes taken by HUF members in India to create wealth and add impetus to the existing capital.
For gifts received from outside persons of value less than Rs.50,000, there is levy of tax. This condition is applicable for gifts received from non-related persons of the HUF.
Marriage gifts to members of the HUF:
During the marriage of any of the members of HUF, gifts received from within the HUF or outside are fully exempt from income tax. On the contrary, gifts received during marriage of a daughter member of the HUF is taxable.
Capital added through Income Generation:
With the existing capital in hand, the HUF can engage in creating additional income and
generate further capital. The entity is allowed to earn from all legitimate ways except by way of salary. It can engage in business, investing in real estate and market linked investment options such as shares, earn income through rent etc. The HUF should file for ITR (Income Tax Returns) and income earned would be taxed as per the slabs. The deductions available to HUFs are akin to the ones available to individual taxpayers.
The deductions and exemptions available to HUF are more or less the same as the ones available to individuals under various sections of the IT act. For example, the HUF can invest in long term infra bonds and claim deductions u/s 80CCF or avail deductions in the income earned u/s 80D for mediclaim premium paid towards HUF members.