Maximize Your Tax Savings With An HUF: A Smart Yet Underused Strategy

As the financial year draws to a close, taxpayers will scramble to minimize their tax outgo. While common deductions under Sections 80C and 80D get all the attention, one powerful yet underutilised tax-saving tool remains overlooked the Hindu Undivided Family (HUF).

- Sujit Bangar

Many shy away from it, fearing complexity, but with the right approach, an HUF can be a game-changer for tax planning and long-term wealth preservation.

Here's how you can leverage an HUF to unlock tax benefits while staying compliant with the law.

How to introduce capital into an HUF

A common misconception is that introducing funds into an HUF is as simple as gifting money. However, tax laws dictate how capital can be contributed:

Gifting money: While family members can contribute funds, any income generated from these funds may be clubbed with the donor's income under Section 64(2) of the Income Tax Act.

Ancestral property: The most common way to fund an HUF is through inherited assets. Income derived from such property belongs to the HUF and is taxed separately.

Business income: An HUF can operate businesses, with profits taxed in its own name rather than in the hands of its individual members.

Loans from members or outsider: An HUF can take loans from family members or third parties. If a reasonable interest rate is paid, the income will be separate from the lender's tax liability.