One excellent strategy to minimize taxes on mutual fund investments is to open a Hindu Undivided Family (HUF) account. Here is a brief synopsis of its advantages and operation.
What is an HUF Account?
According to Indian tax regulations, a HUF is a distinct legal organization that enables families to combine assets and incomes for tax advantages. It has a separate PAN card from each member of the family.
Tax Savings with HUF
Tax obligations can be decreased by dividing capital profits through a HUF. For instance:
Without HUF
Husband ₹10 lakh salary, ₹7.5 lakh capital gains, Total tax: ₹1,25,459
Wife: ₹15 lakh salary, ₹7.5 lakh capital gains, Total tax: ₹2,11,250
Total Tax: ₹3.36 lakh
Annual Savings: ₹55,000
With HUF
Husband: ₹10 lakh salary, ₹5 lakh capital gains, Total tax: ₹92,950
Wife: ₹15 lakh salary, ₹5 lakh capital gains, Total tax: ₹1,78,750
HUF Account: ₹5 lakh capital gains, Total tax: ₹9,750
Total Tax: ₹2.81 lakh
Annual Savings: ₹55,000
How to Open an hUF Account?
- Fill out the KYC registration form.
- Submit it to the KRA branch/POA for approval.
- Submit the CAN form to a POS.
- Start using the account after approval.
Documents Required
- HUF PAN card and Karta’s PAN card
- Declaration of HUF or coparceners list
- Bank account details
- Karta’s photo and ID/address proof
Funding the HUF Corpus
- Inheritance/Ancestral Property: Tax-free
- Gifts from Non-Members: Up to ₹50,000 tax-free
- Investment Income: Taxed under HUF
- Member Contributions: Taxed in the donor’s name
Key Benefits
- ₹1.25 lakh capital gains exemption
- Separate taxpayer for the family
- Offline account setup
Conclusion
By efficiently dividing capital gains amongst family members and the HUF company, investing in mutual funds through a HUF account can drastically lower your tax obligation. You may maximize the financial planning for your family by utilizing the tax exemptions and perks that are available. To make sure you’re meeting all rules and optimizing your savings, it’s crucial to speak with a tax professional. An HUF account can be an effective instrument in your investment strategy if you use it properly.
Consult a tax advisor to maximize savings and ensure compliance. HUF accounts are a powerful tool to make your investments more tax-efficient.
To see how we’ve delivered sound tax planning to prominent government officials, check this video out!
