Income tax related provisions
An HUF is treated as a separate tax entity; it enjoys a separate basic tax exemption of Rs.2.50 lakh in addition to separate tax exemption for each of its members (normally available to individuals). This 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. Just like an individual, HUF gets initial Rs 1 lakh of long term capital gains on its investments in listed share and equity oriented schemes tax free. HUF can also run a business in its own name as proprietor. Though an HUF cannot become a partner but any member of the HUF can become a partner representing it in the partnership firm
Owning house in the name of HUF
An HUF can own any property including a residential house. It can also avail home loan to buy a residential house property and avail the tax benefits under Section 80 C for repayment of home loan upto Rs. 1.50 lakh along with other eligible items. It can also claim interest paid on money borrowed to buy/contract/repair/renovate its property under Section 24(b).
As per income tax laws a taxpayer can claim only two properties owned by him/her as self-occupied . In case more than two properties are owned and self occupied, the tax payer has to choose any two of all the properties as self-occupied and the rest are treated as deemed to have been let out. For the deemed to have been let out property/ies, the tax payer has to offer notional rent for tax. Please note notional rent is not nominal rent but is the market rent 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 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 the sale proceeds in one residential house property provided the tax payer does not have more than one residential house on the date of sale of such asset other than the one being acquired to claim the exemption. So by owning the additional house in the name of HUF, you can avoid applicability of this restriction.
Benefits in respect of certain expenses/investments
Like an individual, an HUF is also eligible to claim certain payments under Section 80C like life insurance premium on the life of its members. It often happens with individuals that the limit of Section 80 C gets exhausted due to mandatory payments like Employees Provident Fund, School fee, Home loan repayments leaving a few on which the claim cannot be made as the Sec 80C claim limit is already exhausted. So to avoid this overflow, you can pay the premium from HUF account and claim tax benefits for the HUF.
Though HUF is not allowed to open a PPF account in its name, it can still contribute to PPF account of any of its members and claim the tax benefits. The HUF can also make investments in Equity Linked Saving Schemes (ELSS) and tax saving fixed deposits also.
You can also pay health insurance premium from your HUF in case the premium payable for your family and parents exceeds the eligible amount under Section 80D.
A resident HUF can claim deduction (from its income before levy of tax) under Section 80 DD if HUF has incurred any expenditure for medical treatment of any of its physically disabled member for Rs. 75,000/- 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 (from its gross income) for treatment of certain specified diseases (as per the Income Tax Act) for any of its dependent members under section 80 DDB upto Rs. 40,000 and which goes up to Rs. 1 lakh if the member is senior citizen.
Please note that the deduction under Section 80C can be claimed by an HUF whether resident or not but the deductions under Section 80DD and 80DDB are available only if the HUF is resident under tax laws. All the three deductions can be simultaneously claimed by an Individual and his HUF provided both have made separate expenditures as specified.
However, it is to be noted that creation and operation of an HUF is subject to various conditions as mandated by law.
(The author is a tax and investment expert.)