POSTED BY September 21, 2013 8:33 pm COMMENTS (6)ON
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?
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6 replies on this article “Tax Planning using HUF in a joint family”
Thanks for your response. You have helped me not commit a mistake in taxation that may have had grave implications.
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.
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.
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?
Dear Sumit, who is the owner of the house in question as of now?