The countdown for paying income tax and filing returns has begun. All taxpayers have to file their returns by July 31. While filing ITR, every taxpayer tries to save taxes. But do you know that Hindu families get a separate tax exemption? This tax exemption is not tied to any particular family, rather any Hindu family in the country can avail it. Apart from Hindus, Jains and Sikhs also get the benefit of this scheme. Therefore, AIMIM leader Asaduddin Owaisi has called for doing away with this scheme or giving its benefits to Muslims too.
Balwant Jain, an expert in income tax affairs, says that there is a separate provision for Hindu Undivided Families (HUF) in the Indian Income Tax Act. Any Hindu family can open an account under HUF and the transactions, income etc. made on it will be treated like a separate individual. Of course, he will also get all the tax exemptions given to any individual taxpayer.
How to avail of the benefit?
To avail the benefits of HUF, you need to create a separate PAN. Through this PAN, you need to do all the work related to finances. In a HUF, the head of the family is considered the doer. All others are the members of the family. Once someone is brought into the family by birth or marriage, he is also considered a member of the HUF. This way, you can invest as an individual in a HUF account and get tax benefits.
How the HUF Act Works?
In HUF, you can invest as an individual and claim tax exemption. However, it is to be noted that if you invest your earned money in it, you cannot avail the tax exemption. Now let us talk about how to avail the tax exemption. Suppose you are a working person and your income is Rs 10 lakh per annum. Usually, if you start a side business along with your job, then the income from it will also be credited to your account and if you earn even Rs 5 lakh, then you will directly hit the high tax limit of Rs 15 lakh. Moreover, you will not get tax exemption on that Rs 5 lakh income as you have already availed the entire tax exemption on the Rs 10 lakh income.
If you open a HUF account and run a side business in its name, then the income up to Rs 5 lakh will be completely tax-free. If a HUF is considered an individual, then he will also get a basic tax exemption of Rs 2.5 lakh. Apart from that, there is a rebate of Rs 12,500 on the remaining Rs 2.5 lakh, so the tax liability comes down to zero. However, note that if you deposit your salary in this account, you cannot claim tax exemption. For tax exemption under HUF, it is required that the income is earned above HUF as well.
What are the tax exemptions?
Tax exemption of Rs 1.5 lakh under section 80C of income tax, which includes investments in life insurance, FD, PPF, small savings schemes, home loans and ELSS.
Under section 80D, you can get a rebate of Rs 25,000 on health insurance premiums for yourself and your family and Rs 50,000 on health insurance premiums for your elderly parents.
You can buy a house in the name of HUF, on the interest payments of which you will get a tax exemption of Rs 2 lakh under section 24B.
If you invest in equity or equity funds under section 54F, long-term capital gains of Rs 1 lakh per year are also tax-free.
Any income exceeding this will attract a 10 per cent tax.
You can also buy 2 properties in the name of HUF, which will be tax-free.
For properties worth more than this amount, you will have to pay tax as per the national rent.
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