How is Income Tax for HUF Calculated?
HUF or Hindu Undivided Family is a separate entity for tax calculation. As per Hindu Law, HUF is a lineage where every family member including the unmarried daughters and wives is related to one common ancestor.
Even Buddhist, Sikh, and Jain families also come under HUF. A whole HUF family can claim tax deduction under a specified section of tax calculation.
Keep reading the article to know more.
Calculation of Income Tax for Hindu Undivided Family
Here is a step-wise guide to computing income tax for HUF:
Step 1: As per the residential status, the gross income of HUF will be calculated under four heads of income.
Step 2: Sections 60 to 63 are applicable for HUF tax computation.
Step 3: Start counting losses from the previous years and carry forward them if it is permissible.
Step 4: By counting steps 1 to 3 you will get the gross total income and afterwards the deductions will be calculated as per the following sections:
| Section | Types of Deductions |
|---|---|
| 80C | Deductions on provident funds, life insurance premiums, equity and debentures |
| 80D | Medical insurance premium |
| 80DD | Treatment expenditure for disabled people and dependent handicapped individuals |
| 80DDB | Deduction on medical treatments |
| 80G | Deduction on charitable donation |
| 80GGA | Specific deductions on rural development and scientific research contribution |
| 80GGC | Deduction on contribution to political parties |
| 80-IA | Special income from industrial investments and other infrastructural developments |
| 80-IB | Deductions on income from other than industrial investments and other infrastructural developments |
| 80-IBA | Deductions on Housing Project Gains |
| 80-IC | Special deductions on the income of specific enterprise tasks |
| 80-ID | Deductions on the income from convention centers, hotels, etc. |
| 80-IE | Certain deductions specific to North Indian states |
| 80JJA | Income from bio-degradable waste processing businesses |
| 80JJAA | Employment of new employees |
| 80TTA | Deductions on savings account |
Step 5: The remaining amount will be counted as Total Income and it will be rounded off to the nearest ₹10.
Step 6: After the deductions, the tax will be calculated as per the updated tax slab rates
Step 7: A surcharge of 10% will be added to the total income of ₹5000000 to ₹10000000 and 15% of income tax if a person has more than 1 crore as a total income
Step 8: 2% education cess and 1% SHEC will be levied
Step 9: From the final amount, TDS and paid advance tax will be deducted. This total income amount will be rounded off as per the nearest ₹10 and will be calculated as a self-assessment tax.
Benefits of HUF Income Tax Return
Here are some key tax benefits for HUF:
- By creating a Hindu Undivided Family, you may minimise your tax obligations and involve your family members for future benefits.
- The HUF is treated as a distinct entity for income tax purposes and is consequently taxed separately.
- HUF can be formed by Jains, Sikhs and Buddhists as well, although subject to the control of the Hindu law board.
- Since dissolving the HUF is challenging, the partition can only move forward if all HUF members concur.
- The HUF can include Section 80 deductions and other exemptions in its income tax return.
- HUF has the option to purchase life insurance for its members.
- If HUF members help the HUF function, they can take remuneration, and the HUF income might be used to offset this salary expenditure.
- The income of HUF can be used for investments. Any profits from these investments will be taxed to the HUF.
- The same tax rates apply to a HUF as they do to an individual.
This article has provided some important insight into HUF and income tax calculation and other related information. HUF has several benefits including great investment opportunities, salary system, etc. So, individuals who can meet the established criteria of HUF can surely opt for this system and get the benefits.
FAQs About HUF and Income Tax
Who can be a Karta of HUF?
The senior member of a HUF can be the Karta. Women can also become Karta of a HUF.
Can salaried individuals open a HUF account?
Yes, any salaried individual can open a HUF account and continue getting tax deductions and exemptions.
Who are the HUF coperceners?
In a HUF, male members are the coparceners, and female members are only called members.