HOW TO SAVE TAX BY FORMING HUF
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HOW TO SAVE TAX BY FORMING HUF:
Common question which a taxpayer usually asks at the time of filing his Income Tax Return is – How can I save my Tax?
It is our moral duty to educate our fellow Indians about various options available to them by which they can save their tax legally.
We know that there are several illegal ways to avoid tax but that is not at all recommended and when we have Legal ways of saving tax, why we should be using Illegal means.
WHAT IS HUF?
HUF stands for Hindu Undivided Family. HUF is separate tax entity recognized under Income tax law and also as per the definition in section 2(31) of the Income Tax Act, 1961.
The Income of the HUF can be assessed in the hands of the HUF alone and not in the hands of any of its members. The senior most male member of the family who manages the affairs of the family is called the KARTA. Minimum two people of which one male member are required for the HUF to come into existence.
HOW TO FORM HUF?
The HUF structure is a very effective way to save tax and lot of people are eligible to create HUF but somehow there is a lack of awareness about it.
It is not mandatory to have a deed for the formation of an HUF, it is advisable to execute one from a legal and taxation perspective. It should include details of the Karta, members of the HUF, the corpus as well as the business of the HUF.
HUF has a separate PAN and the Karta must apply for it. A new PAN is allotted to the HUF and Tax would be paid by the Family using this PAN. As a new PAN is allotted to the whole family it will also enjoy the benefits of Income Tax Slab Rates that is 10%, 20% & 30%.
HOW TO PUT FUNDS IN HUF?
One can receive money by way of gift from friends or relatives.
Parents can also gift funds to an HUF via gift deed clearly specifying that the gift is directly towards son’s HUF and not towards son.
Gift can be accepted from stranger but only upto Rs 50000 (section 56 of Income tax act 1961).
BENEFITS OF FORMING HUF?
HUF is eligible for deduction under section 80C, 80D, 80G, 80L of chapter VI of Income Tax Act 1961.
HUF also enjoys exemption under section 54 and 54F in respect of Capital Gain.
Under Wealth Tax Act 1957 HUF is treated as distinct entity and enjoys separate taxability.
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