HUF can be used as an efficient tax saving tool that can be used to reduce taxes by proper Tax Planning. The notion of HUF Hindu undivided family) is particularly relevant In India since joint families exist in Indian culture where an individual’s income is also taxed as joint income. Income is charged on family as a whole as a unit. So, we can conclude that family is assessable as a unit and has to hold a separate PAN card for earning income and getting assessed under Income tax act, 1961.
So, let’s get into the comprehensive understanding of HUF and how it can be used as a legal tax planning tool:
As per Hindu law, it is a family consisting of all persons lineally descended from a common ancestor, including wives and unmarried daughters.
HUF cannot be created under a contract but is automatically created in a joint Hindu family with common ancestors and linear descendant.
There are 3 conditions which need to be fulfilled to meet the HUF criteria:
Read more on: https://taxguru.in/income-tax/huf-tax-planning-instrument.html
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