HUF-Can you Save Tax by Creating an HUF ?

Did you know that by simply forming an HUF, you can legally save tax.
An HUF (Hindu Undivided Family) is treated as a separate tax entity under the Income Tax Act, allowing you to split income, claim deductions, and reduce your tax burden. In this blog, we’ll explain:

• What is an HUF?
• Who can form an HUF?
• How to introduce capital in HUF?
• How to file HUF’s ITR?
• Deductions and tax rebates available to HUF
• Real examples using Mutual Fund gains & Rental Income
• How it helped save to in tax?

What is an HUF?

An HUF is a tax entity that consists of a common family, typically headed by a Karta (usually the eldest member). It includes coparceners (sons, daughters) and members (spouses and other relatives).

Under Section 2(31) of the Income Tax Act, HUF is considered a “person” and has a separate PAN, bank account, and files its own ITR.

Benefit – It gets all the tax exemptions and deductions that are available to an individual taxpayer.

Who Can Create an HUF?

Only individuals belonging to the Hindu, Sikh, Jain, or Buddhist religions can create an HUF.

Minimum Requirement: A married couple (husband & wife) can form an HUF.
Children born in the family automatically become coparceners. You can’t form an HUF as a single individual.

Important Note: Once a corpus is created, income from that can be invested in mutual funds, fixed deposits, or property – all taxable in the hands of the HUF, not individual.

How to Form an HUF?

Step-by-Step Process:

1. Prepare an HUF declaration deed on stamp paper.
2. Apply for a PAN card in the name of HUF.
3. Open a bank account in the HUF’s name.
4. Capitalize the HUF through gifts, ancestral property, or asset transfers.

Required Documents:

• HUF declaration deed
• PAN application form (Form 49A)
• ID and address proof of Karta
• Passport-size photograph of Karta
• Proof of HUF’s bank account (after creation)

How Can I Introduce Capital into HUF?

Source	Tax Treatment
Ancestral Property / Will	No tax
Gifts from Non-members (up to ₹50,000 per year)	No tax
Rental Income / Mutual Fund Returns	Taxable in HUF’s hands
Contribution by Member	Income taxed in donor’s hands (Clubbing)

Can HUF Claim Tax Rebate & Deductions?

YES. HUF gets same deductions as individuals.

List of Available Benefits:

Section	Deduction for HUF
80C	₹1.5 lakh (LIC, ELSS, etc.)
80D	Mediclaim premium
80G	Donations
24(b)	Interest on home loan
Standard Deduction on Property	30% of rental income
Basic Exemption Limit	₹2.5 lakh (Old Regime), ₹3 lakh (New Regime)

HUF cannot claim the rebate under Section 87A.

Real Case Study – Rental Income Shift to HUF

A person earns ₹20 lakh salary and ₹7.5 lakh rental income. Before forming HUF – everything taxed in personal hands. After HUF – rental income shifted to HUF. Result:

Particulars	Individual Return
Tax without HUF	₹5,46,000
Tax (Individual + HUF)	₹3,82,200 + ₹6,500= ₹3,88,700
Tax Saving	₹1,57,300 ✅

Mutual Fund Gains Planning

Family Setup:

• Husband income: ₹10 lakh + ₹7.5 lakh MF gains
• Wife income: ₹15 lakh + ₹7.5 lakh MF gains

🟥 Without HUF – LTCG taxed entirely in their personal hands
🟩 With HUF – LTCG split equally (₹5 lakh each among husband, wife & HUF)

Summary Table – Why You Should Consider HUF

Feature	Benefit
✅ Separate PAN	File ITR independently
✅ Basic exemption limit	₹2.5 or ₹3 lakh tax-free slab
✅ All deductions	80C, 80D, etc.
✅ Legal & Easy	Completely lawful entity
✅ Ideal for MF & Rental Income	Reduces personal tax load

Final Thoughts – HUF is a Must-Have Tax Tool

Creating an HUF is like giving your family a second income identity – legally.
It’s one time setup, but the tax benefits continue for generations.

✅ Use it to split rental income
✅ Use it to plan mutual fund redemptions
✅ Use it for gifting and inheritance planning

🗂️ SAMPLE FORMAT OF HUF DEED

(To be executed on a Non-Judicial Stamp Paper of appropriate value as per state laws)

DECLARATION OF HINDU UNDIVIDED FAMILY (HUF)

This Deed of Declaration is made on this ___ day of _______, 20 at [City, State], by:

Shri [Full Name of Karta],
Son of Shri [Father’s Name],
Residing at: [Full Residential Address],
PAN: [Permanent Account Number],
Aged about __ years,
Hereinafter referred to as the “Karta” of the Hindu Undivided Family (HUF),

WHEREAS:

1. The Karta belongs to the Hindu religion and follows the Mitakshara School of Hindu Law.
2. The Karta hereby declares that a Hindu Undivided Family (HUF) has been constituted and continues to exist in the name and style of “[Name of the HUF]”, consisting of the following co-parceners/members:

Present Members of HUF:

Sr. No.	Name of Member	Relationship with Karta	Date of Birth	PAN (if any)
1.	[Name of Karta]	Self (Karta)	DD/MM/YYYY	[XXXXX1234X]
2.	[Spouse’s Name]	Wife	DD/MM/YYYY	[XXXXX1234X]
3.	[Child Name]	Son/Daughter	DD/MM/YYYY	[XXXXX1234X]
…	…	…	…	…

DECLARATION:

1. That the Hindu Undivided Family (HUF) named [Name of HUF] has been formed as per Hindu Law on [Date of Creation], and it comprises the Karta and above-named co-parceners/members.
2. That this HUF shall be governed by the provisions of Hindu Law, particularly the Mitakshara Law, and applicable laws of the land including the Income Tax Act, 1961.
3. That the HUF is being created and continues as a joint family, and all income and properties belonging to the HUF shall be jointly owned and assessed in the hands of the HUF.
4. That the initial capital of the HUF shall consist of:
   • Gift of ₹___________ received from [Name and relation of donor, with PAN] through account payee cheque/DD/online transfer on [date].
   • Any ancestral property, if applicable: [Description of property, if any].
   • Other voluntary contributions/gifts received on behalf of the HUF.
   • Any future income arising from assets of the HUF.
5. That the bank account in the name of the HUF will be opened and operated by the Karta.
6. That the PAN application of the HUF will be filed with the Income Tax Department in the name of [Name of HUF], through the Karta.
7. That this declaration is made for the purpose of documentation and to submit as evidence before any statutory authority, including banks, Income Tax Department, and others.
8. That the HUF shall be dissolved only in accordance with Hindu Law or by mutual agreement of all living co-parceners and in writing.

SIGNATURES

I, the undersigned Karta of the HUF, hereby declare that the above statements are true and correct to the best of my knowledge and belief.

Signature: __________________
Name: Shri [Karta’s Full Name]
Date: ___________
Place: __________

Acceptance by Members:

We, the undersigned members of the HUF, confirm and accept the above declaration and acknowledge the constitution of the HUF.

1. [Name] – [Relation], Signature: __________
2. [Name] – [Relation], Signature: __________
3. [Name] – [Relation], Signature: __________
   (Continue as per number of members)

Witnesses:

Signed and Delivered in the presence of:

1. Name: ____________________
   Address: __________________
   Signature: ________________
2. Name: ____________________
   Address: __________________
   Signature: ________________

Note:

• Ensure the deed is executed on appropriate stamp paper.
• Mention mode of contribution (gift, inheritance, etc.) and maintain proper documentation.
• PAN of HUF must be separately applied for using Form 49A.
• Bank account should clearly state the nature of HUF and be operated by the Karta only.
• Maintain books of accounts separately for HUF income and file ITR accordingly.