How to Claim HUF (Hindu Undivided Family) Benefits While Filing ITR

The Hindu Undivided Family (HUF) is a unique entity recognized under Indian tax laws. It allows joint Hindu families to form a separate taxable unit and enjoy additional tax advantages. Many taxpayers are unaware of how this structure can help reduce their tax burden. If you’re looking to maximize your tax savings, understanding Hindu Undivided Family tax benefits can be a game-changer. This blog will guide you through the essentials of claiming HUF benefits while filing your Income Tax Return (ITR).

What is an HUF?

A Hindu Undivided Family is a legal entity consisting of lineal descendants from a common ancestor, including their wives and unmarried daughters. Governed by Hindu law, an HUF is treated as a “person” under Section 2(31) of the Income Tax Act, 1961. It is eligible to receive a Hindu Undivided Family tax identity and file a separate tax return independent of its members.

An HUF can be formed by:

• A Hindu, Sikh, Jain, or Buddhist family

• At least two members (one of whom must be male for traditional formation, though modern interpretations are broader)

• A common ancestral property or joint income source

Why Choose HUF for Tax Savings?

The primary attraction of an HUF is its ability to function as an independent taxpayer. Here are key benefits under Hindu Undivided Family tax provisions:

1. Additional Basic Exemption Limit:
   The HUF gets the same basic exemption limit as an individual (e.g., ₹2.5 lakhs under the old regime), meaning this income is not taxed.

2. Deductions Under Section 80C:
   An HUF is entitled to claim deductions up to ₹1.5 lakhs under Section 80C for investments like LIC premiums, PPF, ELSS, etc.

3. Ownership of Property and Income:
   HUF can own property and earn income from it, such as rent or business profits. This income is taxed separately from individual members, reducing the family’s overall tax liability.

4. Separate PAN and ITR Filing:
   A separate PAN is allotted to the HUF, and it can file its own ITR, availing of all deductions and exemptions.

Step-by-Step Guide to Claim HUF Benefits in ITR

Step 1: Create an HUF Deed

Although not mandatory, creating a formal HUF deed strengthens your claim. This legal document declares:

• Formation date of the HUF

• Names of the coparceners (members)

• Name of the Karta (manager, usually the eldest male)

It also includes a declaration that the HUF is formed for common family purposes.

Step 2: Apply for a PAN Card for the HUF

You need to apply for a separate PAN in the name of the HUF. This PAN is necessary to open a bank account and file tax returns under the Hindu Undivided Family tax regime.

Documents required:

• HUF deed

• Identity proof and address proof of the Karta

Step 3: Open a Bank Account in HUF Name

All transactions related to the HUF should be carried out through this account. Ensure you keep personal and HUF accounts strictly separate to avoid legal issues.

Step 4: Transfer Assets to HUF

You can transfer ancestral property or gifts received from relatives into the HUF. However, gifts received from non-relatives exceeding ₹50,000 are taxable unless they fall under exemptions.

Step 5: Earn and Declare Income

Income earned by the HUF (like rent, interest, capital gains, etc.) should be reported in its ITR. Ensure the income is genuinely earned through HUF-owned assets or investments.

Step 6: File ITR Separately

Use the separate PAN to file the HUF’s ITR. You can file using ITR-2 or ITR-3 depending on the nature of income (e.g., ITR-3 if HUF runs a business).

Important Points While Filing ITR for HUF

1. Only the Karta Can Sign the ITR
   The Karta is responsible for managing the HUF and must sign the ITR. In their absence, any adult coparcener can take over.

2. Avoid Mixing Individual and HUF Incomes
   Clearly distinguish between personal and HUF incomes. Mixing the two can lead to scrutiny and disallowance of Hindu Undivided Family tax benefits.

3. Gifts Should Be Justified
   Gifts from relatives are non-taxable but must be well-documented. Any unexplained or large gift could attract attention from tax authorities.

4. Maintain Proper Records
   Keep the HUF deed, PAN card, bank statements, and investment proofs organized. These may be needed for tax assessments or scrutiny.

Tax Slabs Applicable to HUF

The Hindu Undivided Family tax slabs are similar to those applicable to individuals under both the old and new tax regimes. Here’s a brief summary (Old Regime):

HUFs are also eligible for rebates under Section 87A (up to ₹12,500 for income up to ₹5 lakhs).

Real-Life Example

Let’s say Mr. Sharma has an HUF consisting of himself (Karta), his wife, and two sons. He earns ₹15 lakhs annually as an individual. He also has rental income of ₹3 lakhs per annum from an ancestral property.

If he declares the rental income under HUF, he can file a separate ITR for the HUF and use the basic exemption limit and Section 80C deductions. This effectively reduces his total tax burden because the rental income does not push him into a higher tax slab personally.

Common Mistakes to Avoid

• Claiming Hindu Undivided Family tax benefits without a valid PAN

• Treating personal income or salary as HUF income

• Failing to maintain separate financial records

• Not filing the HUF ITR when income exceeds basic exemption limit

Conclusion

The Hindu Undivided Family tax system offers a strategic way to minimize your family’s overall tax liability. By setting up a valid HUF, transferring eligible income, and filing taxes correctly, you can leverage India’s tax laws to your advantage. However, the key lies in maintaining transparency, proper documentation, and clear separation of personal and HUF transactions.