Being a separate tax entity an HUF enjoys certain tax benefits along side the individual also claming it which I am going to explain this article.
Tax benefits in respect of income
Being a separate tax entity it enjoys a separate basic tax exemption of 2.50 lakhs. This basic exemption is available to all the HUF whether resident or non resident for tax purposes. HUF can invest in various assets like house property, shares, mutual funds in its own name. As HUF can own and transact in shares and securities, it can avail the basic deduction of Rs. one lakh in respect of long term capital gains arsing on sale of listed share and units of equity oriented units of mutual funds under Section 112A from current year. HUF can also carry on business of its own to generate its income.
Owning of a residential house and benefits of owning house in the name of HUF
An HUF can own residential house and can avail home loan to buy a residential house property and avail the tax benefits in respect of repayment of home loan under Section 80 C upto Rs. 1.50 lakhs along with other eligible items. As per present income tax laws a taxpayer can own and have only one self occupied property. In case more than one properties are owned and self occupied, the tax payer has to chose one of the property as self occupied and the rest are then are treated as deemed to have been let out. For the deemed to have been let out property/ies, the tax payer is required to offer notional rent for tax. Please note notional rent is not nominal rent but it is the market rent which the property is expected to fetch. So your HUF can have an additional property as self occupied for which you do not have to pay any tax as the value of self occupied property is taken as nil.
An individual or HUF can claim exemption under Section 54F for long term capital gains on sale of any asset other than a residential house by investing in one residential house property within specified period. However the tax benefit can not be claimed if the tax payer has more than one residential house on the date of sale of such asset other than the one being acquired to claim the exemption. So in order to avoid applicability of this restriction under section 54F the additional house can be owned in the name of an HUF.
Benefits in respect of certain expenses/investments
Like an individual an HUF is also allowed to claim tax benefits for certain payments made. The HUF can pay life insurance premium on the life of its members and clam the tax benefits under section 80C. So in case your limit of Section 80 C of Rs. 1.50 lakhs gets exhausted, you can pay the life insurance premium on the life of any member of HUF and claim it here.
Though HUF is not allowed to open a PPF account in its name, it can still claim the tax benefits for making contribution in the PPF account of its members. The HUF can also make investments in Equity Linked Saving Schemes (ELSS), tax saving fixed deposits and in National Saving Certificates.
Due to ever rising premiums of health insurance even the present limit of Rs. 25,000/- under Section 80D is insufficient for buying health insurance for whole of the family. In such situation, your HUF can come to your rescue. You can pay health insurance premium of some of your family members from HUF and claim the benefit in HUF separately upto Rs. 25,000/-. If it has a member who is senior citizen the limit goes upto Rs. 50,000/-.
The HUF however can not claim deductions for tuition fee paid for any of its members or deposit made under Senior Citizen Saving Scheme or any contribution made towards National Pension System (NPS) account or to Senior Citizen saving Scheme or any pension plan.
A resident HUF can claim deduction under Section 80DD for any of its physically disabled member for Rs. 75,000/- if HUF has incurred any expenditure for medical treatment of such member or has bought a life insurance for 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 also claim deduction for treatment of some specified disease for any of its dependent member under section 80DDB upto Rs. 40,000 and which goes up to Rs. 1 lakh if the member is senior citizen.
In my next Article I have discussed- Legal Aspect of an HUF
The author is a tax and investment expert and can be reached on firstname.lastname@example.org and @jainbalwant on twitter.