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2018

Tax Benefits for a Hindu Undivided Family (HUF)

Tax Benefits for a Hindu Undivided Family HUF

HUF stands for Hindu Undivided Family. It is considered as a separate legal entity different from its members & Karta. Just like an Individual, an HUF also enjoys certain tax benefits. This article discusses tax benefits available to an HUF.

  • Basic Exemption Limit for HUF:
  • An HUF enjoys basic tax exemption of 2.50 lakhs.
  • This basic exemption is available to all the HUF whether resident or non resident for tax purposes.
  • Deduction from Capital Gains arising on Sale of Listed Securities: As HUF can own and transact in shares and securities, it can avail the basic deduction of Rs. one lakh in respect of long term capital gains arsing on sale of listed share and units of equity oriented units of mutual funds under Section 112A from current year.
  • Ability to carry on business on its name: HUF can also carry on business of its own to generate its income.

 

Investment in Residential House Property:

  • An HUF can own residential house property.
  • An HUF can also avail home loan to buy a residential house property.
  • Likewise, it can also avail tax benefits in respect of repayment of home loan under Section 80 C up to Rs. 1.50 lakhs along with other eligible items.
  • Moreover, an individual can buy additional residential house property in the name of his HUF so that he can have an additional property as self occupied for which he does not have to pay any tax as the value of self occupied property is taken as nil.
  • An individual or HUF can claim exemption under Section 54F for long term capital gains on sale of any asset other than a residential house by investing in one residential house property within specified period. However the tax benefit cannot be claimed if the tax payer has more than one residential house on the date of sale of such asset other than the one being acquired to claim the exemption. So in order to avoid applicability of this restriction under section 54F the additional house can be owned in the name of an HUF.

 

Benefits in respect of certain 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 clam the tax benefits under section 80C.
  • So in case your limit of Section 80 C of Rs. 1.50 lakhs gets exhausted, you can pay the life insurance premium on the life of any member of HUF and claim it here.
  • Though HUF is not allowed to open a PPF account in its name, it can still claim the tax benefits for making contribution in the PPF account of its members. The HUF can also make investments in Equity Linked Saving Schemes (ELSS) and in tax saving fixed deposits.
  • Due to ever rising premiums of health insurance even the present limit of Rs. 25,000/- under Section 80D is insufficient for buying health insurance for whole of the family. In such situation, 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 has a member who is senior citizen the limit goes up to Rs. 50,000/-.
  • The HUF however cannot 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 to Senior Citizen saving Scheme or any pension plan.
  • A resident HUF can claim deduction under Section 80DD for any of its physically disabled member for Rs. 75,000/- if HUF 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 80DDB up to Rs. 40,000 and which goes up to Rs. 1 lakh if the member is senior citizen.

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