HUF Tax planning – A best tool by CA in Udaipur

A Hindu Undivided Family (HUF) allows for creative tax planning. This blog by the Best C A in Udaipur explores how you can hold property in your name, your father’s HUF, and your own individual HUF.

Hindu Undivided Family (HUF) is still considered very useful for tax planning. A person has the right to hold property in his own name, in his father’s HUF, and his individual HUF.

The term “Hindu Undivided Family” has not been defined under the Income Tax Act. But under Hindu law it is defined as a family which includes “all persons descended from a common ancestor and includes their wives and unmarried daughters.” The relationship of Hindu Undivided Family arises not from contract but from situation.

According to Section 2(31) of the Income Tax Act, 1961, HUF is also included in the definition of person; hence HUF is a separate taxable entity under Section 2(7).

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.

Under Section 10(2), the entire amount received from HUF is tax free

HUF is formed by the head of the family. Karta is the senior most male person in the family and to form HUF in his name, it is necessary that you have any ancestral property or any income from ancestral property. It someone does not have any ancestral property, even though he can form a HUF for tax planning purposes

Apart from this, if a family does any work jointly and earns some income from that joint work and all the members are ready to declare in writing that the property and income earned by them jointly and it is it is not from their individual property but is of HUF. Then the property and income earned from it will be taxed in hands of HUF only and not in individual capacity.

Tax rates for HUF :-

1. Tax Rates (Normal tax regime)

The normal tax rates are prescribed every year under the First Schedule of the Finance Act. The tax rates in the case of a HUF have been enumerated in the below table:

Total Income (Rs)	Rate
Up to Rs. 2,50,000	Nil
Rs. 2,50,001- Rs. 5,00,000	5%
Rs. 5,00,001- Rs. 10,00,000	20%
Above Rs. 10,00,000	30%

The income tax slab for HUF is same as that of an individual, with the  exemption limit of Rs 2.5 lakh and qualifies for all the tax benefits under Section 80C, 80D, 80G and so on.

2. Tax Rates (New tax regime)

Section 115BAC provides for a new tax regime for HUFs. This provision provides an altogether new tax slab wherein the tax rates have been significantly reduced. However, to avail of the benefit of this tax regime, the assessee has to forgo specified exemptions and deductions.

From the Assessment Year 2024-25, the default tax regime will be the new tax regime. If a HUF does not want to pay tax according to the new tax regime, it will have to explicitly opt out of it and choose to be taxed under the old tax regime. The income shall be taxable at the following rate under new tax regime:

Total Income (Rs)	Tax  rate
Upto 3,00,000	Nil
From 3,00,001 to 6,00,000	5%
From 6,00,001 to 9,00,000	10%
From 9,00,001 to 12,00,000	15%
From 12,00,001 to 15,00,000	20%
From 12,00,001 to 15,00,000	20%

Tax planning with a Hindu Undivided Family (HUF) – hold property in your name, your father’s HUF, and your own. Uncover strategies from the Top Ca in Udaipur or top GST Consultants in Udaipur.