HUF Tax planning and creation

HUF enjoys a separate taxation exemption limit of Rs.2, 50,000. HUF is needed to undergo tax audit u/s 44AB by a Chartered accountant, if its gross turnover is more than 25lakhs/ 1 crore.  All you need is execution of a deed, a PAN No. and opening a bank account in the name of HUF.
BLENDING: Blending is done by transferring individual asset into common hotchpot. It attracts section 64(2) of the Income Tax Act, 1961, which states that it will be deemed to be a gift. Proper documentation is needed to be done where the individual transferring the property have bonafide intentions of sharing the property in common pool. After transfer of property, every person involved in the HUF has equal sharing rights of the property.
RECEIPT OF GIFTS: Receiving gifts from relatives is one of the most popular methods of creating corpus. But it cannot be created for the first time receiving gifts from stranger. Receiving it from stranger can only be executed if it is already in existence. It requires Gift deed needed to execute under prevailing laws. It comes under section 56(ii) of Income Tax Act. Gifts received at marriage are also fully exempt from taxation. The only exception is that gifts received at the marriage of daughter are taxable.
Gifts from non-relatives are exempted up to a limit of Rs. 50,000.
ANCESTRAL PROPERTY: Transferring ancestral property in the name of HUF can be exempted from taxation, provided it is declared through registered will.
DOING JOINT LABOUR: Any property acquired through the business carried on by the members of HUF, for the benefit of HUF are exempt from taxation.
In case of property acquired with the aid of joint family property, then also the property is deemed to be joint family property.

LOAN TO MEMBERS: HUF can give loan to its members by for expansion of their individual business. Interest charging is at the discretion of choice.
REMUNERATION TO MEMBERS: Remuneration to the members is allowable as deduction under law.
RENTAL & BUSINESS INCOME: Rental & business income will be received in the name of HUF & not in the name of individual and it will have leverage of tax exemptions just like an individual.
LOAN FROM RELATIVES: It can take interest free loans from relatives of the members of HUF.

Credits: kanika singh

Leave a Comment