HUF Tax Deduction: Do you know that there is a separate provision of tax exemption for Hindu families in the Income Tax Act. In this you can double the amount of your tax exemption. This exemption is also available to all the families of the country. The complete process of how this can be taken advantage of will be explained in this news.
New Delhi. The countdown to pay income tax and file returns has started. All taxpayers will have to file their tax returns before July 31. While filing ITR, every taxpayer tries to save tax. CAs also struggle a lot for this, but do you know that Hindu families get separate tax exemption. That too, not in thousands but in lakhs of rupees, through this you can save tax. This exemption is not for any particular family, but any Hindu family in the country can avail the benefit. Apart from Hindus, Jains and Sikhs also get its benefit. That is why AIMEM leader Asaduddin Owaisi has appealed to end this system or give its benefits to Muslims also.
Balwant Jain, an expert in income tax matters, says that there is a separate provision for Hindu Undivided Families (HUF) in the Indian Income Tax Act. Any Hindu family can open an account under HUF and the transactions, earnings etc. made in it are treated as a separate individual. Obviously, he also gets all the tax exemptions which are given to any individual taxpayer. Be it the benefit of 80C or long term capital gain or basic exemption of Rs 2.5 lakh. A HUF can avail all these benefits.
How to take advantage of it
To avail the benefits of HUF, you will have to make a separate PAN. Through this PAN you will have to do all the work related to finance. Under HUF, the head of the family will be considered the doer and all the rest will be its members. As soon as someone joins the family after birth or marriage, he will also be considered a member of HUF. In this way, you can start investing under HUF account as an individual and get tax benefits.
How HUF law works
Under HUF, you can invest as an individual and claim tax exemption. But, it has to be kept in mind that you cannot take tax exemption by investing your earned money in it. Now let us talk about how the exemption can be availed. Suppose you work and your income is Rs 10 lakh per year. If you start a side business along with your job, then usually its earnings also get added to your account and if you earn even Rs 5 lakh, you will directly reach the high tax slab of Rs 15 lakh. On top of this, you will not get any exemption on this income of Rs 5 lakh, because you have already taken all the exemption on the income of Rs 10 lakh.
If you open a HUF account and run a side business in its name, then the earning up to Rs 5 lakh will be completely tax free. If HUF is considered an individual then it will also be given basic tax exemption of Rs 2.5 lakh. Apart from this, a rebate of Rs 12,500 will also be available on the remaining Rs 2.5 lakh and the tax liability will become zero. But, keep in mind that you cannot claim tax exemption by depositing your salary in this account. For tax exemption under HUF, it is necessary that the income should also be earned through HUF.
Where are tax exemptions available?
- Tax exemption of Rs 1.5 lakh under Section 80C of Income Tax which includes investments made through life insurance, FD, PPF, small savings schemes, home loan and ELSS.
- Under Section 80DD, you can avail a rebate of Rs 25,000 on the health insurance premium of yourself and your family and Rs 50,000 on the health insurance premium of your elderly parents.
- You can buy a house in the name of HUF, on the interest payment of which you get a tax exemption of Rs 2 lakh under Section 24B.
- Under Section 54F, if you invest in shares or equity funds, then long term capital gain of Rs 1 lakh per year will also be out of the scope of tax. 10 percent tax will be levied on earnings above this.
- You can also buy 2 properties in the name of HUF, on which there is tax exemption. On property worth more than this, you have to pay tax as per the national rent.
Why was HUF law made?
The provision of HUF was started during the British era. At that time, there were mostly joint families and with many people in one family, their sources of income were also different. In such a situation, the British faced difficulty in collecting taxes, so they considered the entire family as one person and the concept of HUF came. Under this, tax is collected equally from everyone and there is no problem. Since there was such a provision in the Hindu Act, even after independence, it was formally included in the Income Tax Act as a law. However, very few taxpayers are taking advantage of this exemption.
