The Ultimate Guide to: HUF Tax Benefits for Salaried Employees

Meaning of HUF 

HUF stands for Hindu Undivided Family. Establishing a family unit and consolidating assets to create HUF tax benefits for salaried employees can lead to tax savings. The HUF tax benefits for salaried employees are subject to taxation independently of its individual members. A Hindu family has the option to unite and form a HUF, and individuals from Buddhist, Jain, and Sikh communities are also permitted to establish one. The HUF possesses its own Permanent Account Number (PAN) and is responsible for filing tax returns separately from its members.

The individuals within the HUF are referred to as coparceners, who are related to one another and the family head. While HUF tax benefits for salaried employees may comprise numerous members, only those within four generations, including the head of the family (known as the Karta), are classified as coparceners. A Hindu Coparcenary consists of individuals who gain an interest in the joint family property by birth.

Historically, only male members were recognized as coparceners; however, as of September 6, 2005, daughters have also been granted coparcenary rights. It is important to note that only coparceners possess the right to initiate a partition. A daughter born to a coparcener is entitled to become a coparcener in her own right, similar to her male counterparts. As a coparcener, she has the legal right to request a partition of the family assets.

HUF for salaried employees

A salaried individual is subject to taxation on their salary, and if they generate additional income through stock market trading, property rental, business, etc., they are also required to pay taxes on that income. In this context, an individual receiving a salary anticipates that they will incur minimal or no tax liability on any income earned in addition to their salary.

A large number of employees employed in multinational corporations, especially those whose annual salary is more than Rs 12 lakh, are saving their taxes by using the Hindu Undivided Family (HUF) PAN card. Salaried individuals may not be able to allocate their salary directly to a Hindu Undivided Family (HUF), but they can take advantage of this structure if they intend to generate supplementary income. This additional income can be claimed under the name of the HUF, ultimately leading to a reduction in their taxable income.

A HUF is subject to taxation at the same rates applicable to an individual.

HUF Tax Benefits for Salaried Employees 

A HUF is taxed independently of its members. Consequently, it may assert deductions or exemptions permitted by the tax regulations individually. For instance, if you and your partner, together with your two children, choose to establish a HUF, all four of you and the HUF can take advantage of a deduction under Section 80C. HUF is commonly utilized by families as a way to accumulate wealth.

Let us understand the HUF tax benefits for salaried employees in 10 key points.

1. The Karta, who is the head of the family, oversees the management of the assets and affairs of the Hindu Undivided Family (HUF). For taxation purposes, HUFs are acknowledged as distinct legal entities, enabling them to possess assets, generate income, and submit individual tax returns, thereby creating opportunities for tax savings.
2. The Income Tax Act recognizes the Hindu Undivided Family (HUF) as a separate legal entity. As a result, the HUF tax benefits for salaried employees is issued its own unique Permanent Account Number (PAN), similar to that of any individual taxpayer. Therefore, following the Budget 2025 provisions, the HUF tax benefits for salaried employees will not be liable for income tax on earnings up to Rs 12 lakh.
3. Gifts valued at up to Rs 50,000 are exempt from taxation. A father with a HUF Tax Benefits for Salaried Employees account is permitted to gift property or funds exceeding this amount to a son who maintains a smaller HUF account; however, it is essential to indicate that the gift is intended for the son’s HUF rather than for him.
4. Hindu Undivided Families (HUFs) are permitted to disburse salaries to their members or coparceners who actively contribute to the operations of the HUF. Such salary expenditures may be deducted from the income of the HUF, allowing for a potential tax advantage.
5. Profits derived from the family business, established under a Hindu Undivided Family (HUF), will be subject to taxation as per applicable regulations, and the available exemptions will provide greater opportunities for tax savings.
6. A Hindu Undivided Family (HUF) is permitted to invest in tax-saving instruments such as Equity Linked Savings Schemes (ELSS), allowing for tax deductions of up to Rs. 1,50,000 by section 80C. Additionally, under section 80D, a deduction of Rs. 25,000 is available each year for health insurance premiums paid for family coverage.
7. Salaried individuals are unable to allocate their salaries directly to the Hindu Undivided Family (HUF). However, they can take advantage of this structure if they intend to generate supplementary income, which can be claimed under the HUF’s name, ultimately leading to a reduction in their taxable income.
8. A Hindu Undivided Family (HUF) is permitted to engage in share trading via a Demat account. For tax purposes, HUFs are recognized as distinct entities and possess rights equivalent to those of individual citizens. They can take advantage of tax-saving deductions and exemptions related to investment income. Additionally, HUFs are allowed to participate in Initial Public Offerings (IPOs) and may qualify for enhanced buyback benefits. A HUF has the option to establish a Demat account with various stock brokers, including IIFL, Groww, or Share India.
9. Hindu Undivided Families (HUFs) are recognized as distinct legal entities for taxation purposes under the Income Tax Act of 1961. Any income generated from investments maintained in a Demat account is subject to taxation based on the applicable tax slab for the HUF.

– Tax on Capital Gains: HUFs are subject to both long-term and short-term capital gains taxes, similar to individual taxpayers, determined by the duration for which the securities are held.

– Income from Dividend: Income derived from dividends on shares is incorporated into the HUF’s total income and taxed accordingly.

– Tax Deductions: HUF Tax Benefits for Salaried Employees are eligible for deductions under Section 80C, 80D, and other relevant sections, which can help mitigate the overall tax liability.

10.  If you are receiving rental income from a property while also earning a salary, you have the option to transfer the property to a Hindu Undivided Family (HUF). Following this transfer, the rental income can be reported as income generated by the HUF tax benefits for salaried employees. As the ownership of the property now resides with the HUF, any future sale of the property will result in capital gains tax being assessed from the HUF’s account.

This article aims to provide guidance on the tax benefits of HUF Tax Benefits for Salaried Employees.

For an efficient and economical “HUF Registration Service in India,” please call 9958869427 or email info@etaxworld.in.