Hindu Undivided Family: Taxes and Assets
By Team Legistify / 2016-03-31
A Hindu Undivided Family offers specific advantages as far as taxation is concerned. Income Tax Act & Wealth Tax Act recognise the HUF as an independent assessable or taxable entity. Therefore, HUF enjoy all deductions and exemptions as a separate assessee. Overall objective behind the formation of HUF is to save tax by having an extra benefit of slab rate, deductions & exemptions.

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The fact remains that every individual is interested to save his tax. Tax saving can be possible either by legal tax planning or by illegally tax avoidance. Many taxpayers resort to illegal activities to save income tax but frankly speaking, such illegal activities are not a part of tax planning process but are part of tax evasion process which I deprecate always. However one can go ahead with legal ways of saving Income Tax and this is possible only when we screen very carefully the provisions contained in the Income Tax Act, 1961 and find out the pointers which are of an advantage looking to our facts & circumstances.

A very effective and legal way advised by CA’s is creating a HUF. A Hindu Undivided Family offers specific advantages as far as taxation is concerned.  Income Tax Act & Wealth Tax Act recognise the HUF as an independent assessable or taxable entity. T herefore, HUF enjoy all deductions and exemptions as a separate assessee. Overall objective behind the formation of HUF is to save tax by having an extra benefit of slab rate, deductions & exemptions.

H.U.F.- A separate legal entity under Indian tax law

U/s 4 of the Income Tax Act, 1961, Income-tax is payable by 'every person'. 'Person' includes a 'Hindu Undivided Family' as defined in Section 2(31). The definition of ‘Hindu Undivided Family’ is not found in the Income-tax Act. Therefore the expression 'Hindu Undivided Family' must be construed in the sense in which it is understood under the ‘Hindu Law’ [Surjit Lal Chhabda vs. CIT 101 ITR 776(SC)] .

According to Hindu Law, ‘Hindu Undivided Family’ is a family which consists of all persons lineally descended from a common ancestor and includes their wives and unmarried daughters. A ‘Hindu Undivided Family’ is neither the creation of law nor of a contract but arises from status.

A Hindu Undivided Family offers specific advantages as far as taxation is concerned. Income Tax Act & Wealth Tax Act recognise the HUF as an independent assessable or taxable entity. Therefore, HUF enjoy all deductions and exemptions as a separate assessee. Overall objective behind the formation of HUF is to save tax by having an extra benefit of slab rate, deductions & exemptions.

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