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HUF / Private Trust

HUF​

HUF stands for Hindu Undivided family & governed by Hindu law board. The expression “Hindu Undivided Family” has not defined under the Income Tax Act or in any other statute. HUF could be formed by a married couple or by members of a joint family. To form a HUF minimum two members are required & at least one among whom should be a male member of the family. Senior most male member of the family would become ‘Karta’.

Key Benefits of HUF​

  • Every member of the family can deposit their income in the common corpus.
  • Single person’s authority while participation from the entire family.
  • Gifts collected up to a worth of Rs 50,000 will be tax free. A father who owns a HUF account can gift a property or money of higher worth to a son who owns a smaller HUF account, but he should specify that the gift is for the son’s HUF and not to him as an individual. Under section 64(2) and 56(2) tax benefits can be enjoyed in such instance.
  • Corpus can be used for investment in tax-free money instruments.
  • Corpus can be divided only on agreement of every coparcener of the family.
  • The Income Tax Act recognizes the HUF as an independent assessable or taxable entity. Hence, HUFs enjoy all deductions and exemptions under the IT Act independent of the income and tax liabilities of its members. A separate Income Tax Return is filed under Income Tax Act.
  • Tax Saving- For example- an ancestral property that yields rental income. Under normal circumstances, the rent will be attached to a person’s income and will be taxed according to that individual’s tax slab. However, if it is transferred to an HUF, the income will be that of the HUF’s and will be taxed separately.
  • 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.

Key Points​

Taxation​

Yes, an individual can transfer it's personal income to HUF. But income earned on that transferred amount will be taxed in hands on Individual only but not in hands of HUF.

Let's understand with an example

  • A transfer Rs 10 lakhs to his HUF
  • HUF earned 1 lakhs on above Rs 10 lakhs
  • This 1 lakh will be taxed in hands of A
  • Now this 1 lakh belong to HUF
  • Next year HUF will 1.1 lakhs on 11 lakha total capital
  • 1 lakh will be taxed in hands of A
  • 10000 will be taxed in hands of HUF

Can an individual having personal income transfer it to an HUF account? If yes, how? - Quora

Creation​

 A HUF is created through executing a deed, getting HUF PAN and opening a bank A/c in the name of HUF.

Drawings / Expenses of HUF​

HUF as has been seen earlier is an entity belonging to a family. The family in the instant case consists of members constituting the HUF. In such a case drawings or expenses needed to maintain the family can be met out of the current income of the HUF or the corpus funds. of the HUF and there is no bar/limit on this. The expenses which can be met out of the Corpus of HUF can be either recurring / casual and, one time expenses. In such cases, the essence is that the expenses should be on account of or for the benefit of the family as a whole or any member of the family. Expenses on education, maintenance and marriage of the members of the family is the obligation of the family, even if the individual member may have his/her own income from learning or earning.

The following nature of expenses can be generally classified under the heading of drawings:

  1. Expenses on rent
  2. Expenses on fooding of the family
  3. Expenses on education including higher education of the family members
  4. Expenses on Electricity bill
  5. Expenses on Motorcar
  6. Expenses on family get-together / entertainment
  7. Expenses on Travelling/holidays
  8. Expenses on capital assets like buying a Car, TV, and Refrigerator etc.
  9. Expenses on medical treatment of family members
  10. Expenses on marriages and other festival and ceremonies.

Drawings / Expenses of HUF

Documents Require for Registration of HUF in India​

  • PAN Card copy of Karta
  • Aadhar Card copy of Karta
  • Passport Size Photograph of Karta
  • Specimen Signature of Karta & Family members with their names & relation with Karta
  • HUF deed

Private Trust vs HUFs​

Rent for HUFs​

Can I show my rental income in HUF account? | Mint​

the process of transfer of the house to HUF, given that it is an immovable property, the same can be done through a duly stamped and registered gift deed in favor of the HUF.

The gift received by the HUF will not be treated as the income of the HUF.

However, any income arising from the house/asset transferred by a member to the HUF is subject to clubbing provisions.

Accordingly, the income derived from such immovable property shall be clubbed with your income.

Can a Karta pay rent to his HUF | Company Formation, Income tax filing, Business Setup in India, Private Limited Company Registration, LLP Registration

Transfer of rental income to HUF: What are the income tax provisions? | Mint

Can my father's self-acquired immovable property be transferred to my HUF? | Mint Can an HUF buy a house property and take a home loan? | Mint

HUF Income Tax: Top 5 HUF Tax Benefits Available Under HUF | HDFC Bank

In case of demise of karta​

If the individual who transferred the asset to the HUF passes away, the rental income will typically be shown as income of the HUF and not of the deceased individual or the next Karta of the HUF.

In the event of the death of the individual who transferred the asset to the HUF:

  1. HUF Continues: The HUF remains a separate entity even after the death of its member. It continues to exist and hold the assets that were transferred to it.

  2. New Karta: Upon the death of the existing Karta (the individual who was the head of the HUF), the next senior most member of the family becomes the new Karta. This could be the spouse, eldest son, or any other senior member as per the family's customs and traditions.

  3. Tax Treatment: The rental income generated from the property transferred to the HUF will then be considered as the income of the HUF and will be taxed in the hands of the HUF itself. The income won't be clubbed with the income of the deceased individual or the new Karta of the HUF.

Therefore, upon the death of the individual who transferred the asset to the HUF, the rental income will be treated as income of the HUF and will be taxed accordingly, irrespective of the status of the Karta.