income tax provisions
A HUF is treated as a separate tax entity; It Enjoys a Different Origin Tax exemption 2.50 lakh in addition to separate tax exemption for each of its members (generally available to individuals). It is available whether the HUF is resident or non-resident. HUF can invest in various assets like house property, shares, mutual funds etc. in its own name. Like an individual, HUF gets tax-free long-term capital gain of Rs 1 lakh on its investments in listed shares and equity oriented schemes. HUF can also run business in its own name as a proprietor. Though a HUF cannot become a partner but any member of the HUF can become a partner representing it in the partnership firm.
HUF. your house in the name of
A HUF can own any property including a residential house. It can also avail home loan to buy residential home property and get up to Rs. 1.50 lakh along with other eligible items. It can also claim interest paid on money borrowed for purchase/contract/repair/renovation of its property under section 24(b).
According to income tax law A taxpayer can claim only two properties owned by him. If more than two properties are owned and self-occupied, the tax payer has to select any two of all the properties as self-occupied and the rest will be treated as let-out. For the assumed property/properties, the taxpayer has to offer notional rent for tax. Please note that the nominal rent is not the nominal rent but the market rent from which the property is expected to fetch. So your HUF can have additional two properties as self-occupied, for which you do not have to pay any tax as the value of self-occupied property is considered to be zero.
An individual or HUF can claim exemption for long-term capital gains under section 54F by investing in a residential house property on the sale of any property other than a residential house, provided the taxpayer has more than one residential house. Don’t be home of sale of such property other than the property being acquired for claiming exemption. So by owning an additional house in the name of the HUF, you can avoid the application of this restriction.
Profit in respect of certain expenses/investments
Like an individual, an HUF is also eligible to claim certain payments under section 80C such as life insurance premium on the life of its members. It often happens to individuals that the section 80C limit gets exhausted due to mandatory payments like employee provident fund, school fee, home loan repayment which cannot be claimed as the claim limit of section 80C is already is over. So to avoid this overflow, you can pay premium from HUF account and claim tax benefits for HUF.
Though the HUF is not allowed to open a PPF account in its own name, it can still contribute to the PPF account of any of its members and claim tax benefits. HUF can also invest in Equity Linked Savings Schemes (ELSS) and Tax Saving Fixed Deposits.
You can also pay health insurance premium from your HUF if the premium payable to your family and parents exceeds the amount eligible under section 80D.
A resident HUF can claim deduction (from income before taxation) under section 80DD if the HUF has paid Rs. 75,000/- or has purchased life insurance for the maintenance of such member. The amount of deduction available goes up to Rs. 1,25,000/- if the member is suffering from severe disability. This deduction is available irrespective of the amount spent by the HUF.
A resident HUF can claim deduction (from its gross income) for treatment of certain specified diseases (as per Income Tax Act) for any of its dependent members under section 80DDB. 40,000 and that goes up to Rs. 1 lakh if ​​the member is a senior citizen.
Please note that deduction under section 80C can be claimed by HUF whether resident or not, but deduction under section 80DD and 80DDB is available only if the HUF is resident under the tax laws. All the three deductions can be claimed together by an individual and his HUF provided both of them have incurred separate expenses as specified.
However, it should be noted that the creation and operation of a HUF is subject to various conditions mandated by law.
(The author is a tax and investment expert.)