As the new fiscal year approaches, Indian taxpayers are seeking innovative ways to mitigate their income tax liabilities.
Recently, Zerodha co-founder and CEO Nithin Kamath in a post on social media platform X (formerly Twitter) highlighted the advantages of a lesser-known tax-saving mechanism: the Hindu Undivided Family (HUF).
Specifically tailored for Hindu families in India, the HUF presents a unique legal and tax entity that offers substantial benefits for married Hindus looking to optimize their tax savings.
In his recent post on X, Kamath explained how Hindu Undivided Families (HUF) can help married Hindus save on taxes. He added, HUF is treated separately for tax purposes, allowing for additional deductions. Kamath suggested practical steps like transferring rental properties, opening a Demat account, and accepting gifts under the HUF. He also shared a video and blog to simplify the concept further.
In his post, Nithin Kamath stated, "A friend was asking me about taxation for Hindu Undivided Families (HUF)."
He further explained, "If you're married and Hindu, you can use an HUF to plan and save taxes. HUF is treated as a separate entity, so all these deductions will apply separately to HUF along with individual deductions."
He added, "So, transferring any property yielding rental income to the HUF, opening a Demat account in the HUF's name, transferring money to the HUF bank account, accepting gifts, etc."
In a subsequent post, Kamath provided additional details by sharing a video and a blog.
Netizens reactions
Many financially savvy users on X reacted positively to Kamath's post.
Former IAS officer KBS Sidhu commented, “I have always suggested that any Hindu who marries should create an HUF on the very same day. It is a common misimpression that a person needs to be blessed with a son to be able to form an HUF. Moreover, people following the religions of Sikhism, Jainism, and Buddhism are also eligible for the benefit of HUF.”
Similarly, CEO of Dazeinfo, Amrit Misra, commented in response to Kamath's post, "Say goodbye to tax woes and hello to financial freedom with HUF! Married Hindus, take note: HUF isn't just a tax-saving strategy, it's a game-changer. By leveraging its benefits, you can take control of your finances and secure a brighter future."
What is HUF?
HUF, or Hindu Undivided Family, is recognized as a separate entity under the Income-tax Act, 1961. It holds its own Permanent Account Number (PAN) and files tax returns independently.
A HUF consists of direct descendants of a common ancestor, along with wives and children of male descendants. The head of the family, known as the "karta," leads the HUF, while other family members are coparceners or members. According to the Hindu Succession Act of 1956, coparceners are those with legal rights to ancestral property by birth.
Formation and Taxation
A HUF can be formed with just two members, one of whom must be a coparcener. However, for tax purposes, it must have at least two coparceners. While a husband and wife can create an HUF, the wife is considered a member, not a coparcener.
Married daughters can be members of their husband's HUF while retaining coparcener status in their father's HUF. Additionally, Jain and Sikh families are also eligible to form HUFs.
Tax Benefits
As the HUF is taxed separately from its members, it can claim deductions and exemptions independently, such as those under Section 80. This separation enables potential tax savings for the family unit.
