One such provision is forming a HUF (Hindu Undivided Family). Here are some of the popular ways in which forming a HUF can help you save income tax-
1. Income Tax Exemption for HUFsAs per the tax laws, HUF is a separate legal entity. It has its own PAN card and can also start a business or invest in equity, mutual funds, and FDs. As per the IT Act, HUFs can avail a tax exemption of up to Rs. 2.5 lakhs in a year.
In other words, the family members who have formed a HUF can take advantage of their own income tax benefits as well as HUF income tax exemption of up to Rs. 2.5 lakhs.
2. House PurchaseAn individual is only allowed to have a single self-occupied property as per the IT laws. In case if an individual owns more than one property, the other property will be considered as ‘deemed to be let out’. Tax should be paid as per the notional rent on such properties.
However, HUFs are allowed to own residential properties and not pay any tax on the same. So, if a HUF member owns two properties, the other property can be in the name of the HUF to avoid paying notional rent tax.
3. Life Insurance and Health InsuranceJust like individuals, HUFs are also allowed to claim tax deductions on premiums paid for life insurance and health insurance.
So, a HUF member can claim a tax deduction of up to Rs. 1.5 lakh on premiums paid for a life insurance policy. Similarly, there are tax deductions of up to Rs. 25,000 on premiums paid for a health insurance policy.
Who Can Form a HUF?Any Hindu, Jain, Buddhist, or Sikh family can form a HUF. The family should have a common ancestor, and all the lineal descendants of the ancestor can be part of the HUF.
In most cases, the assets of a HUF come from a will or as a gift. It can also be an ancestral property, property purchased from funds acquired by selling a joint family property, or a property purchased by the HUF members.
Family members wanting to form a HUF are advised to consult a professional to understand the tax implications and take the best advantage of the available tax provisions.
Click here to visit our personalized online advisor that gives you the financial expertise you need.
The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
Disadvantages of Early Retirement - What Happens When You're Not Working?
Early retirement seems to be good, many people enjoy life without working especially with extra earnings. But they are not aware about the cons. Lets explore the disadvantages of retiring early to save your retirement life.
5 Benefits of Health Insurance that Makes it a Must Have Cover
Here are the 5 benefits of health insurance that makes it a must to cover
When Should You Withdraw Money from a Mutual Fund?
In case of a sudden change in fund strategy or an underperformance scheme for more than 3-4 years, it makes sense to withdraw money.
How To Apply For Personal Loan
Applying for a personal loan has become extremely easy these days. With the increase in applicants, banks and other financial institutions have made the process very simple.