Top 5 HUF Income Tax benefits that you need to know
A Hindu Undivided Family (HUF) consists of individuals who have lineally descended from a common ancestor. In addition to Hindus, even Jain, Buddhist and Sikh families can create HUFs. The concept of a Hindu Undivided Family (HUF) as a separate entity for tax purposes was first recognised in 1917. And over the years, many families have enjoyed tax benefits because of this.
Here is how you can avail of the different tax benefits under HUFs.
- Income tax benefits
An HUF is a separate entity from a legal point of view. Here, individual members of the family have PAN cards, and the HUF has its separate PAN card. An HUF can run its own business to generate income. It can also invest in shares and Mutual Funds. And being a separate entity, the HUF enjoys a basic tax exemption of Rs 2.5 lakh. So, imagine that you create an HUF consisting of you, your spouse and two children. In addition to income tax benefits you enjoy individually, you can also avail of an additional basic income tax exemption of Rs 2.5 lakh each year.
- Owning a house
Under current income tax laws, if you own more than one self-occupied property, only one of them can be claimed as a self-occupied property. The rest are ‘deemed to be let out’ and you have to pay tax on notional rent. However, an HUF can own a residential house without having to pay tax. In addition, it can also avail of a Home Loan to purchase a residential property and get tax benefits up to Rs 1.5 lakh under Section 80C of the Income Tax Act for loan repayment and up to Rs 2 lakh for interest thereon.
- Life Insurance
Provisions of the Income Tax Act allow individuals to claim tax benefits on certain payments they make during a year. Similar benefits are applicable for an HUF. For example, an HUF can pay Life Insurance premium for individual members, and claim tax benefits under Section 80C. The maximum amount that can be claimed as a deduction under this section is Rs 1.5 lakh.
An HUF is allowed to make investments in tax-saving Fixed Deposits and Equity Linked Savings Scheme (ELSS) to earn tax benefits of up to Rs 1.5 lakh under Section 80C. And while an HUF cannot open a Public Provident Fund (PPF) in its name, it can claim tax deductions for the amount deposited by the HUF in respective PPF accounts of its members.
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- Health Insurance
You can claim a deduction of Rs 25,000 per year on premiums paid for Health Insurance for your family under Section 80D. However, with the rise in Health Insurance premiums, this limit can be insufficient when you want to provide decent health coverage for your family. Here’s where HUF can come to your rescue. You can claim additional tax benefit of up to Rs 25,000 on Health Insurance premiums paid during the year for family members of the HUF. If the person is a senior citizen, the limit goes up to Rs 50,000.
As a law-abiding citizen, it is important to pay taxes regularly. However, it doesn’t mean you cannot utilise the different tax benefits provided by the government. By creating an HUF, you can maximise your tax benefits in the long run. You can consider investing in HDFC Bank tax-saving products to enjoy high income as well as tax benefits.
* The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. You are recommended to obtain specific professional advice from before you take any/refrain from any action. Tax benefits are subject to changes in tax laws. Please contact your tax consultant for an exact calculation of your tax liabilities.