A Hindu Undivided Family (HUF) enjoys certain tax benefits along side the individual also claming, as it is a separate tax entity. Effectively, a taxpayer individual can claim the same benefits he/she is eligible for, through the HUF, thereby doubling the tax benefit. Let us see what these benefits are and how you can use it to reduce your tax outgo.
Tax benefits for income
An HUF enjoys a basic tax exemption of Rs 2.50 lakh. This is available irrespective whether the HUF is resident or non-resident for tax purposes. HUF can invest in assets like house property, shares and mutual funds (MF) in its own name. As HUF can own and transact in shares and securities, it can also avail the basic deduction of Rs 1 lakh in respect of long-term capital gains, arising on sale of listed shares and units of equity oriented MFs under Section 112A from current year. HUF can also carry on business of its own to generate its income.
Tax benefits for owning a house
An HUF can own residential house and can also avail home loan to buy a residential house property and avail tax benefits in respect of repayment of home loan under Section 80 C upto Rs 1.50 lakh along with other eligible items.
As per tax laws, a taxpayer can own and have only one self-occupied property. In case of more than one property, the taxpayer has to chose one of the properties as self-occupied and the rest are then deemed to have been let out. For the deemed to have been let out property/ies, the taxpayer is required to offer notional rent for tax. Please note notional rent is not nominal rent, but is the market rent which the property is expected to fetch in the market.
So your HUF can have an additional property as self-occupied for which you do not have to pay any tax, as the value of one self-occupied property is taken as nil.
An individual or HUF can claim exemption under Section 54F for long-term capital gains from any asset, other than a residential house by investing in one residential house property within specified period. However, it can not be claimed if the taxpayer has more than one residential house on the date of sale of such asset, in addition to the one being bought. So in order to avoid applicability of this restriction under section 54F, the additional house can be bought in the name of an HUF.
Tax benefits for expenses/investments
Like an individual, an HUF is also allowed to claim tax benefits for certain payments made. The HUF can pay life insurance premium on the life of its members and claim tax benefits under section 80 C. So in case your limit under Section 80 C of Rs 1.50 lakh gets exhausted, the HUF can pay the life insurance premium on the life of any member of HUF and claim the tax benefit.
Though HUF is not allowed to open a Public Provident Fund (PPF)account in its name, it can still claim tax benefits by making contribution in the PPF account of its members. The HUF can also invest in Equity Linked Saving Schemes (ELSS), tax saving fixed deposits and in National Saving Certificates to claim the tax benefit under Section 80C.
If the limit of Rs 25,000 under Section 80D for tax benefit on health insurance premium falls short, your HUF can come to your rescue. You can pay health insurance premium of some of your family members from HUF and claim the benefit in HUF separately upto Rs 25,000. If it is being paid for a member who is a senior citizen the limit goes upto Rs 50,000. So you as well as your HUF can claim deduction under Section 80 D for same set of people within the limits specified.
The HUF, however, can not claim deductions for tuition fee paid for any of its members or deposit made under Senior Citizen Saving Scheme or any contribution made towards National Pension System (NPS) account or any pension plan.
A resident HUF can claim deduction under Section 80 DD for any of its physically disabled member for Rs 75,000, if it has incurred any expenditure for medical treatment of such member or has bought a life insurance for maintenance of such member. The amount of deduction available goes up to Rs 1,25,000 if the member is suffering from severe disability. This deduction is available irrespective of the amount spent by the HUF.
A resident HUF can also claim deduction for treatment of some specified disease for any of its dependent member under section 80 DDC upto Rs 40,000 and up to Rs 1 lakh if the member is senior citizen.
The author is a tax and investment expert
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