1. The precise advantage of HUF is that it helps in tax planning without "clubbing" taxable income in an individual's hands.
2. Under the Income Tax Act, an HUF is a separate taxable entity, with its own assets, liabilities and sources of income.
3. Its income is also taxed independently of the members’ incomes, and is entitled to same exemptions and deductions as any other individual taxpayer.
4. If other family members are in highest tax bracket, HUF helps in generating income by investing through it to take advantage of lower tax base.
5. Through intelligent planning, an individual can therefore shift some investments to HUF hotchpot, thus dividing his taxable income in two entities, and lowering his annual tax burden.
6. If income generating assets are transferred to an HUF under a will or a gift deed, it can benefit from the basic exemption and a lower tax slab.
7. Any income received from an HUF by its members is also exempt from tax in his hands, although only the "income" earned by HUF can be distributed among coparceners.
8. Any personal funds or property given by individual to HUF "without adequate consideration" will lead to clubbing provisions under Sec 64(2), which means that income from these assets will be treated as the individual's, and thus defeat an important purpose of HUF.
9. In order to "transfer" a movable or immovable asset to the HUF, the Karta of HUF should give an "adequate consideration" amount from the HUF corpus to the individual.
10. Thereafter, any future income earned by HUF from these assets will be its own, and will not get clubbed to an individual's income, thus overcoming Sec 64(2) provisions.
11. Out of these incomes earned by HUF, it can continue giving gifts to members which would be tax-free in their hands.
12. The process will remain the same for all properties, movable or immovable, "transferred" to HUF account.
13. Although HUF can receive money as gifts, but any amount exceeding Rs.50,000 will be taxable income of HUF, and taxed after availing basic exemption, including various tax-saving investments.
14. Ideally, an individual can transfer any individual assets to HUF corpus as part of a Will directly, where question of adequate compensation does not arise at all, thus overcoming Sec 64(2) provisions too.
15. HUF can also receive funds on dissolution (or full partition) of a larger HUF, whose Karta divides its corpus between newly-formed smaller HUFs of coparceners.
16. Moreover, if an ancestral property is sold, its proceeds can be transferred to HUF corpus without attracting Sec 64(2) provisions.
2. Under the Income Tax Act, an HUF is a separate taxable entity, with its own assets, liabilities and sources of income.
3. Its income is also taxed independently of the members’ incomes, and is entitled to same exemptions and deductions as any other individual taxpayer.
4. If other family members are in highest tax bracket, HUF helps in generating income by investing through it to take advantage of lower tax base.
5. Through intelligent planning, an individual can therefore shift some investments to HUF hotchpot, thus dividing his taxable income in two entities, and lowering his annual tax burden.
6. If income generating assets are transferred to an HUF under a will or a gift deed, it can benefit from the basic exemption and a lower tax slab.
7. Any income received from an HUF by its members is also exempt from tax in his hands, although only the "income" earned by HUF can be distributed among coparceners.
8. Any personal funds or property given by individual to HUF "without adequate consideration" will lead to clubbing provisions under Sec 64(2), which means that income from these assets will be treated as the individual's, and thus defeat an important purpose of HUF.
9. In order to "transfer" a movable or immovable asset to the HUF, the Karta of HUF should give an "adequate consideration" amount from the HUF corpus to the individual.
10. Thereafter, any future income earned by HUF from these assets will be its own, and will not get clubbed to an individual's income, thus overcoming Sec 64(2) provisions.
11. Out of these incomes earned by HUF, it can continue giving gifts to members which would be tax-free in their hands.
12. The process will remain the same for all properties, movable or immovable, "transferred" to HUF account.
13. Although HUF can receive money as gifts, but any amount exceeding Rs.50,000 will be taxable income of HUF, and taxed after availing basic exemption, including various tax-saving investments.
14. Ideally, an individual can transfer any individual assets to HUF corpus as part of a Will directly, where question of adequate compensation does not arise at all, thus overcoming Sec 64(2) provisions too.
15. HUF can also receive funds on dissolution (or full partition) of a larger HUF, whose Karta divides its corpus between newly-formed smaller HUFs of coparceners.
16. Moreover, if an ancestral property is sold, its proceeds can be transferred to HUF corpus without attracting Sec 64(2) provisions.