23 September 2010
The most significant advantage is that any income received by an individual as a member of the HUF from its corpus, is not taxable in his/her individual capacity, as it would be taxable in the hands of HUF. The income of the HUF is eligible to the same slabs and basic exemptions as available to an individual. The HUF is also eligible for deductions under Section 80C.
“Hence, if the total personal income of an individual is split into what is assessed in his hands and what is assessed in the hands of the HUF of which he is a member, there is an overall tax savings,” says Amitabh Singh, partner, global tax advisory, Ernst & Young, India. However, you should also keep in mind that once income of family is assessed as an HUF, it would continue to be assessed as HUF income, until such time the HUF is partitioned completely.
The question of HUF status for a Hindu buyer or seller of any property assumes importance because of certain tax advantages attached with HUF under the income tax and wealth tax laws. Thus, if an individual has personal income and has also HUF income, he would be entitled to have an exemption of Rs 160,000 for his individual income and another Rs 160,000 for his HUF income. Besides, he would also be eligible to a further income tax deduction or exemption of Rs 100,000 under Section 80C in respect of LIC premia, PPF contribution, NSC, etc., both on individual and HUF income separately. Besides, under the Wealth Tax Act, 1957 too, separate exemptions are available for individual property and HUF property. Thus, where the taxable individual wealth is eligible to a general exemption of Rs 150.000, the HUF's taxable wealth is also eligible to a further general exemption of Rs 150,000. Hence, persons having immovable property and jewellery and motorcars under HUF status stand to gain from the extra exemption under Wealth Tax Act as well.
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