This article discusses the lesser-known tax-saving hack of forming a Hindu Undivided Family (HUF) for Hindu married couples. By creating an HUF, couples can spread their income across more entities, potentially lowering their tax liability and doubling their benefits.
A HUF is a separate tax entity from its members, allowing them to claim tax deductions and exemptions individually. This can significantly reduce overall tax liability. However, it’s important to understand the limitations and considerations involved in forming an HUF.
From a tax perspective, an HUF is treated as a separate legal entity with its own set of tax liabilities and exemptions. For example, rental income from property can be received on behalf of the HUF instead of an individual account, resulting in potential tax savings. HUFs can also enjoy basic exemption limits and tax deductions under various provisions, further reducing tax outgo.
However, there are disadvantages and complexities associated with managing an HUF. Alienating HUF property requires consent from all coparceners or the Karta (the eldest member). Additionally, managing an HUF involves adherence to legal formalities, maintenance of separate accounts, and compliance with tax laws.
