CREATION OF HUF AND FORMAT OF DEED FOR CREATION OF HUF
KEY POINTS IN CREATION OF HUF AND FORMAT OF DEED FOR CREATION OF HUF
-> Under the Income Tax Act, an HUF is a separate entity for the purpose of income tax return.
-> The same tax slabs are applicable to HUF as to individual assessee.
-> You can not transfer your own assets/money into HUF.
-> If you have ancestral property and earning some income from this property, then it is better to transfer this asset to HUF and save tax up to exemption limit applicable to individual.
-> You can transfer the money received on sale of ancestral property /assets into your HUF.
-> The income from property of HUF can be further invested in instruments such as shares, mutual funds, etc. and will be assessed under HUF.
-> Existence of property or multiple members is not a pre-requisite to create HUF. A family which does not own any property may still have the character of Hindu joint family. This jointness is understood in terms of faith and food. This is because as a Hindu is born as a member of the joint family.
-> Any gifts received by the members of HUF (birthday, marriage, etc.) can be treated as assets of HUF.
-> The HUF is taxable as separate person under income tax hence one can save tax from basic exemption of Rs. 1.5 lakh. HUF will also gain from the tax slab structure of computing income tax.
-> Apart from basic exemption of Rs. 1.5 lakh, section 80C deduction up to Rs.1 lakh is also available.
-> For example, if you are in 30% tax bracket, then approx tax saving by creating an HUF will be as follows:
-> Basic exemption up to Rs. 1,50,000 = nil
-> Rs. 1,50,000-3,00,000 @10% = Rs. 15,000
-> Rs. 3,00,000-5,00,000 @20% = Rs. 20,000
-> 80C deductions Rs. 1,00,000
-> Therefore total tax payable for HUF on income of Rs. 5,00,000 is only Rs. 35,000.
-> If this income of Rs. 5,00,000 is taxed in individual hand @ 30% tax due is Rs. 1,50,000.
-> Hence, you can save a total of Rs. 1,15,000 by creating an HUF and transferring ancestral property income and other income under HUF.
FORMAT OF HUF CREATION DEEDS
FORMAT-I
DECLARATION
I, ________________ son of _______________ Residing at ___________ aged ___Adult do hereby declare-
1. That I am Karta of ___________________________________________ .
2. That I received on behalf of the H U F gift of Rs. ___________ by way of CASH/CHEQUE from my FATHER ___________________________(name of relative of karta of HUF) on dt. _______________ this formed the corpus of the HUF.
3. That the HUF at present is consisting of the followings members- I) Shri _____________________, Adult, Residing at _________________ II) Smt. _____________________, Adult, Residing at _________________ III) Kumari _________________-Minor, Residing at ___________________
4. That the above statements are true to the best of my knowledge & belief. Declare this on _________________
WITNESS: Signature 1. ————————————–
——————————— 2. ————————————– (_____________________)
FORMAT OF HUF CREATION DEEDS
FORMAT-II
[To be executed on Rs. 100 Stamp Paper in Maharashtra]
DECLARATION OF GIFT MADE BY ________________________ TO THE HINDU UNDIVIDED FAMILY OF ___________________ I, _____________________________, residing at_________________________________________________, do hereby declare and affirm as under:
1. . That out of natural love and affection borne by me towards the Hindu Undivided Family of_______________, I have made a gift of Rs.______ (Rupees _________________ only) as per the following details: By Cheque No.________, dated __________, drawn on Bank ________________________________ Branch, in favour of ________________________ HUF.
2. The above Gift has been duly accepted by ________________________, as Karta of his Hindu Undivided Family and has been duly acknowledged hereunder.
3. . This Declaration of Gift is made to record the fact that I have made this Gift in favour of the Donee as above, who now has the absolute right, title and interest in the gifted amount. Date: ___________, 200__
WITNESS: Signature 1. ————————————–
——————————— 2. ————————————– (_____________________)
___________________ (Signature of the Donee as Karta of his HUF)
For Hindus staying in INDIA Other reason why it is advisable to create a HUF:
You may like to explore the following possibilities of sharing of income and wealth within the members of your family in order to lower the overall tax liability.
Create an HUF (Hindu Undivided Family) so that the family property and family income is assessed separately from that of the individual members of the family. Tax practitioners can help you in creating an HUF in a perfectly legal manner.
Open as many assessment files as possible for the members of your family, including minor children.
Keep separate accounts for all the gifts received on birthdays and social functions so that they can form the sources of future income through suitable investments.
To avoid problems of the clubbing provisions, you may consider making a gift to your would-be spouse or your son's would-be-spouse. Such pre-marital gifts do not attract the clubbing provisions.
If you are the karta of your HUF, you may make gifts within reasonable limits to the members of your family out of the HUF properties and build their separate assets.
Since the income-clubbing provisions apply only so long as your children are minors, you may gift them some assets where the income will be received by them only after they attain 'major' status, e.g. 10-year cash certificates, zero-coupon bonds, etc.
Some smart assessees do not gift anything to their spouses. Instead, they organise exchange of assets to avoid clubbing provisions, e.g. a husband exchanges his 1,000 Colgate equity shares with the jewellery owned by his wife (since Stridhan is the absolute property of the lady).
Since the accretions to income arising on the transfer of asset does not attract the clubbing provisions you can gift any amount which can be invested by your wife or daughter-in-law in 9 per cent fixed deposit, etc. It is only the interest on such amount gifted that is included in the income of the individual. The interest on interest does not attract the clubbing provision.
Since a genuine loan of any amount to your spouse or children does not attract the clubbing provisions, loan any amount (create evidence to avoid hassles in future) to children and spouse, which they may invest in income earning assets.
You can use the Public Provident Fund scheme for building up capital of your minor children. If you have two children you can open two PPF accounts and deposit Rs 15,000 in each account every year. You will get tax deduction under 80C. Moreover, interest on PPF is totally exempt from income tax. Thus, when children become majors, you would have created capital for them while enjoying the tax benefits in the interim.
