HUF & Tax Planning- Basic aspects of HUF as a separate entity in the eyes of Income Tax Act and How to do Tax Planning through HUF.

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2. TOPICS TO BE DISCUSSED :
1. What is HUF?
2. How does HUF come into existence?
3. Who is manager/KARTA of HUF?
4. Whether clubbing provision applicable to HUF?
5. What is partition of HUF?
6. How to generate income by HUF?
7. Tax planning through HUF?
8. Who can give Gift to HUF?
9. Questions & Answers….
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3. 3
1. What is HUF?
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4. 1. What is HUF
Hindu Undivided Family (HUF)or
Joint Hindu Family
CONSISTS:
all male lineally descended from common
ancestor.
and their wives and daughters
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5. 1. What is HUF
Any married
Hindu,
Sikh,
Jain or
Buddhist
man can form HUF
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6. 2. How does HUF come
into existence?
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7. 2.How does HUF come into existence?
Formation :
HUF is automatically constituted on marriage. Few
simple formalities to complete for HUF to function as
legal entity
Membership :
It requires minimum of 2 people [at least one male
member]
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8. 2.How does HUF come into existence?
1. Husband & Wife form HUF, wife can only be member,
NOT co-parcener.
2. Co-parcener is different from the other members of HUF,
coparceners are those members who acquires by birth
an interest in the joint property of the family.
3.Co parcenary is restricted to four levels of living order.
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9. 2.How does HUF come into existence?
4. Members of the family who are not co-parceners- No
right to claim partition.
5. 1st Step Form a corpus for HUF, can be any CAPITAL
ASSET (like property, gold, jewellery, securities,
deposits) or CASH.
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10. Salient Features of HUF
CO-PARCENERS:-
1. Some of the members of HUF are designated as co-
parceners.
2. All coparceners are members of HUF, all members are
NOT co-parceners.
3. There's no need to fill an application form or submit
KYC documents for joining an HUF.
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11. Salient Features of HUF
4.Daughters also coparcener w.e.f. 9.9.2005 in the Hindu
Succession (Amendment)Act, 2005.
a. After Hindu Succession Act amendments equal rights to
daughters even after marriage.
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12. Can there be all-female HUF?
Yes, Where a couple has only one daughter and the
husband passes away, the mother-daughter both can
continue the HUF (although a problem may arise after she
gets married and becomes a member of her husband's
HUF).
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Salient Features of HUF
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13. Schools of Hindu Law
13
Dayabhaga School of Hindu
Law
Mitakshara School of Hindu
Law
Father is the sole owner and
the exclusive possessor of the
joint family property.
Law-property vests in the HUF
itself and not in any
individual member of the
family.
No member can enforce the
partition of the HUF so long
as the father lives
It can be partitioned within
the lifetime of the father.
Prevalent in :
-West Bengal
-Assam
Hindus in the rest of the
country
Less Popular More Popular
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14. 3.WHO CAN BE THE
MANAGER / KARTA OF
HUF?
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15. 3.Who can be the MANAGER / KARTA of
HUF?
• The FATHER of the family
in absence of Father (Death of Father)
senior male member of the family can be Karta.
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16. Can a female be the Karta?
 Unmarried daughter, in the unfortunate event of her father passing
away, will become Karta
All male members are minors & natural guardian is mother then
she is the Karta.
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17. Duties of the Karta
Managing the affairs of HUF.
Maintaining the books of accounts, filing tax returns for
HUF
To enter in to contracts, form partnership firm, or
representation on behalf of HUF.
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18. Residential Status of an HUF
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19. 4.Whether clubbing provision
applicable to HUF?
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20. 4.Whether clubbing provision applicable to HUF?
According to section 64(2) of income tax act,
1961 If Income of HUF from property converted
by the individual into HUF property.
Then that shall be clubbed in the hands of
individual & not in the hands of HUF
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21. 4.Whether clubbing provision applicable to HUF?
Clubbing applicable even if: The converted property is
subsequently partitioned; income derived by the spouse
from such converted property will be taxable in the hands
of individual.
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22. 22
What is partition of
HUF?
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23. 5.PARTITION OF HUF
Only co-parceners can demand partition
There are two type of partitions are as follows:
1. Total partition :
2. Partial partition :
 Some family go out of fold off, others remain joint
 Or some of the property is divided and other remain joint
 Not recognized for tax purpose, after 31.12.1978
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24. 6. How to generate income
by HUF?
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25. HUF as Proprietor of Business
1. HUF can be a Proprietor of one or more than one
Business concerns.
2. Separate name can be kept of HUF business entity.
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26. HUF as Proprietor of Business
3. NO TAX AUDIT of HUF business if Turnover within
Rs.1 crores.(AY-2012-13)
4. Business Income Computation @ 8% without books of
account in case turnover is upto Rs. 1Crores – The
Presumptive Basis(AY 2012-13)
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27. Real Estate in the name of HUF
1. 30% Standard Deduction on Annual value of house
property (Rental Income) to HUF u/s 24(a).
2. Self occupied one Residential House & the tax gain
specially by way of Interest on Loan & Repayment of
Loan u/s 24(b).
3. EXEMPTION from Wealth-tax on 1 Residential
house in the name of HUF.
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28. HUF as Partner in Partnership Firm
1. HUF can become Partner in Partnership Firm and
Receive Interest on Capital.
2. HUF can not receive Salary / Remuneration from
Partnership Firm.
3. HUF can receive Share in Profit From Partnership
Firm which is exempt from tax. As Partnership
Firm had paid tax thereon.
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29. LOAN GIVEN TO HUF
1. HUF can receive loan from any person.
2. Such amount can be invested in Income
generating Asset.
3. Income from such asset, is not going to club.
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30. 30
Tax planning through HUF?
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31. Taxation Aspect
HUF is separate and distinct tax identity.
Five basic heads of income -Salary, House Property,
Capital Gains, Profit from business, and Income from
other sources.
Except for salary, HUF can earn from all of these
sources.
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32. Taxation Aspect
It can invest the initial corpus as well as the gifts received
in subsequent years to earn
o capital gains
o Property can be let out to earn rental income
o Business can be started to earn profit from it.
o Interest and royalty incomes are categorized as other
sources.
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33. Taxation Aspect
Various provisions under the Income Tax Act such as
Advance tax, TDS, penalty, interest, fine, etc. are also
applicable to HUF as in the case of an Individual
Assessee.
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34. Tax Saving through HUF
Separate exemption limit under Income-tax Act of Rs.
2,50,000
Separate deduction u/s 80G.(Donation)
Separate deduction u/s 80C.(Insurance Premium can be
paid on life on any member upto Rs. 1.5 lacs)
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35. Tax Saving through HUF
Separate deduction u/s 80D.(Medi- Claim) (Rs.15000)
Section 80DD deduction for maintenance including medical
treatment of a dependant who is a HUF member.
Salary to Karta /Member,
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36. Wealth-Tax & HUF
1. Separate exemption of Wealth-tax for HUF’s upto
Rs. 30 lakhs Wealth.
2. One House- Wealth Tax Free
3. Productive assets of HUF fully exempt from
Wealth-tax
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37. Capital Gain Exemption Benefits
for HUF
1. Cost Inflation Index benefit available to Calculate
Cost of the Asset.
2. Tax benefit of 20% Tax on Long-term Capital Gains.
(Except for non listed shares-Without STT)
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38. Capital Gain Exemption Benefits
for HUF
3. Saving Tax on Long-term Capital Gain possible by
investing in Capital Gains Bonds of NHAI / REC.
4. Long-term Capital Gains Saving by investing in
Residential Property.
5. No capital gains to HUF on Distribution of assets on
partition.
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39. Tax exempt- Income received from HUF by
the member of HUF
1. As per section 10(2) of the Income-tax Act, 1961 any
sum received by an individual from Hindu Undivided
Family of which he is member is exempt from tax.
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40. Stock Market, Mutual Funds & HUF
1. HUF can have a separate Demat Account.
2. Make money by investing in shares of companies :-
(a)Primary Market
(b)Secondary Market
3. Enjoy Tax Free Income for Long-term Capital Gains by
holding shares for more than one year(STT Paid).
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41. Stock Market, Mutual Funds & HUF
4. Enjoy lower tax rate of 15% on Short-term Capital
Gains(STT Paid).
5. HUF can also invest in Mutual Fund.
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42. 42
8. WHO CAN GIVE GIFT TO HUF?
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43. Taxation of money received by HUF
without consideration
1. Provisions of section 56(2)(vi) applicable even to HUF if
any sum of money is received by the HUF exceeding Rs.
50,000 p.a.
2. Items received in kind subjected to the provisions of sec.
56(2)(vi).
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44. 8. Gift of HUF Property
1. Gift on Marriage Occasion is valid – S. Lakshmamma v.
Kotayya AIR 1936 Mad. 825.
2. Gift to Strangers void – Guramma v. Mallappa AIR 1964
SC 510.
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45. 8. Gift by a member of HUF
As per section 64(2) a gift by a member of a Hindu
Undivided Family after 31-12-1969 would attract
Clubbing of Income in the hands of the member and
as such the income from the converted property shall
be deemed to arise to the individual & not to the
family.
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46. Smart strategies: Advantages of HUF
Helps avoid service tax : If business turnover is split by setting
up HUF, the service provider can avoid the hassle of charging
service tax and become small scale service provider.
Salary to Karta : This salary is taxed as his income and will be
fully deductible from the HUF income.
Use HUF income for expenses : The income earned by the
HUF can be used for the household expenses of the family.
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47. Smart strategies: Advantages of HUF
Distribute income to co-parceners : Karta can gift
money to the coparceners from the income earned by the
HUF. This income is tax-free in the hands of the co-
parceners. This way, person with a high income will be
able to get tax-free income.
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48. Smart strategies: Advantages of HUF
Give loan for business : HUF can give loans to
the karta or coparceners for setting up business &
can charge interest on the loan. Interest paid on
any business loan is fully deductible.
No MAT or AMT : unlike other corporate entities,
no minimum alternative tax on HUF owned
businesses.
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49. 49
Ways HUFs can be made better
In May 2005, the government passed a rule PREVENTING
HUFs from opening new accounts in the Public
Provident Fund. All existing accounts, which had
completed 15 years since the initial deposit, were also to
be closed by 31 March 2011.
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50. 50
Ways HUFs can be made better
Kerala does not have a HUF system. For the sake of
uniformity, the same rules should apply across the country.
HUFs are not eligible for some tax benefits enjoyed by
individual taxpayers. They should also be able to claim
deduction for interest paid on education loans, benefits for
pension fund contributions.
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51. 51
I , ………………… son of …………… Residing at ………. aged ………. Adult do
hereby declare ……….That I am Karta of …………………
That I received on behalf of the H U F gift of Rs. …………. by way of CASH /
CHEQUE from my FATHER ……………….. (name of relative of KARTA of HUF)
on dt. …………….. And this formed the corpus of the HUF.
That the HUF at present is consisting of the following members:
(I)Shri................ , Adult, Residing at..........
(II)Smt .................. , Adult, Residing at...........
(III)Kumari ............ , Minor , Residing at..........
SPECIMEN DEEDS RELATING TO HUF
FORMAT – I
DECLARATION
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52. 52
That the above statements are true to the best of my
knowledge and belief. Declare this on……………..
WITNESS Signature
1.……….. (.............)
2. …………
SPECIMEN DEEDS RELATING TO HUF
FORMAT – I
DECLARATION
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53. 53
DECLARATION OF GIFT MADE BY………………………………………………
TO THE HINDU UNDIVIDED FAMILY ………………………………………..
I, ……………………………………., residing at …………………. ,
Do hereby declare and affirm as under : -
1.That out of natural love and affection borne by me towards the Hindu
Undivided Family of ……………………… , I have made a gift of Rs……….
(Rupees ……………….only) as per the following details:
by cheque No. ………., dated ……. , drawn on bank…….. ,
Branch in favour of …………….HUF
SPECIMEN DEEDS RELATING TO HUF
FORMAT – II
(To be executed on Rs. 100 Stamp paper in Maharashtra)
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54. 54
2. The above gift has been duly accepted by………… , as KARTA
of his Hindu Undivided Family and has been duly acknowledged
hereunder.
3. This declaration of Gift is made to record the fact that I have
made this gift in favour of the Donee as above, Who now has the
absolute right, title and interest in the gifted amount.
Date …………..,2015
…………………
(sign)
SPECIMEN DEEDS RELATING TO HUF
FORMAT – II
(To be executed on Rs. 100 Stamp paper in Maharashtra)
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55. 55
I, ……………………………………… , hereby acknowledge having
received the above gift to my HUF
by……………………………………………
Date,……...,20…….
……………………………….
(signature of the Donee
as KARTA of his HUF)
ACKNOWLEDGEMENT OF GIFT
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56. 56
This deed of gift is made and executed at Jaipur on this 30th
day of
November, 20……..by and between:
1. ………………………… W/o / s / o ……………………….aged
about……………………years resident of ………..(hereinafter)
Referred to as the DONOR and the party on the FIRST PART)
2. ………………………………HUF , ADDRESS…………………..comprising
the family members………..(KARTA), his wife……………his son………AND
………….RESIDENT……….(Herein after referred to as the DONEE and the
party on the SECOND PARTY)
HUF GIFT DEED
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57. 57
WHEREAS the Donor is the wife of brother in law of KARTA of
the Donee and is highly affectionate to him.
AND WHEREAS the Donor out of natural love anf
affection towards Donee have made a gift of Rs…………/- (in
words…………………) by way of account payees cheque no.
…….dated ……drawn on…….Bank Ltd,…….
AND WHEREAS the done has accepted the said cheque,
AND WHEREAS the Door and Donee desire to deduce the
covenant of this gift into writing.
HUF GIFT DEED
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58. 58
THIS DEED NOW WITNESSETH ASUNDER
1. That the gift so made is without any material consideration and
is absolute
2. that the Donee has accepted the same by his free will.
3.That the gift is irrevocable in any circumstances.
HUF GIFT DEED
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59. 59
.
IN WITNESS WHEREOF the donor and the done put their
respective hands in token of their having accepted the terms and
conditions on the day, month and year first mentioned.
Witnesses signature
1………….. ……………
DONOR
HUF GIFT DEED
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60. 60
9. Questions & answers….
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