Tax Planning using HUF in a joint family

POSTED BY sumit.talwar ON September 21, 2013 8:33 pm COMMENTS (6)

Hi, a brief profile before I ask the question. I am a salaried professional with wife (salaried) and retired parents with income from rent and investments (above no tax limit). Based on your articles on HUF, I have devised the following calculations to better my tax planning.

Current HRA: Rs. 4,00,000 p.a.

HRA claimed so far: Rs. 16,500 p.m. or Rs. 198,000

Taxable HRA: Rs. 4,00,000 – Rs. 198,000 = Rs. 2,02,000

Taxable Slab @ 30%, so tax = 30% of Rs. 2,02,000 = Rs. 60,600

Hypothetically, if my father starts a HUF with me as a coparcener, I can shift to his house and pay him a higher rent of Rs. 33000 p.m. in the name of the HUF for which he is the karta.

My tax advantage is Rs. 60,600

Now for ITR of the HUF

Total Annual Income: Rs. 4,00,000

Total tax @10% = 10% of (4,00,00-1,80,000) = 10% of 2,20,000 = Rs. 22000

So Net payout within the family is Rs. 60,000 – Rs. 22,000 = Rs. 38,000

Question: What are the possible challenges with this arrangement?

Question: What are the requirements to execute this arrangement?

6 replies on this article “Tax Planning using HUF in a joint family”

  1. sumit.talwar says:

    Dear Ashal

    Thanks for your response. You have helped me not commit a mistake in taxation that may have had grave implications.

    regards
    Sumit Talwar

  2. ashalanshu says:

    Dear Sumit, there is marked difference in your own uderstanding and the real situation as per taxation rules. Whenever any member of an HUF transfers his own assets into HUF as a gift, the gift is allowed but tax liabilities on the income generated from gift remain taxable in the original owner’s name. In the given case, it ‘ll be your father’s name for the property in question.

    thanks

    Ashal

  3. sumit.talwar says:

    Dear Ashal

    My understanding of HUF was that the owner of the property can become Karta in HUF and take the rent paid in HUF. This HUF is taxed as per IT Rules similar to personal IT.

    My objective is that I can currently paying a low HRA while I can pay higher HRA and potentially save on the tax paid on unclaimed HRA.

    Hope I am able to clarify.

    regards
    Sumit

  4. ashalanshu says:

    Dear Sumit, how can your father shift his own property into HUF? The income from such gifted property ‘ll remain taxable under your father’s name only. How you are calculating your tax benefits?

    thanks

    Ashal

  5. sumit.talwar says:

    My father.

  6. ashalanshu says:

    Dear Sumit, who is the owner of the house in question as of now?

    thanks

    Ashal

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