How to save taxes using HUF: Zerodha CEO Nithin Kamath explains
Since the HUF is taxed separately from its members, it can separately claim deductions, such as those under Section 80, or other exemptions under the I-T Act
Do you grumble about paying too much in income tax? As we are on the verge of entering a new fiscal year, Zerodha co-founder and CEO Nithin Kamath has shared a way for married Hindus to save on income tax. The method is one of those that lie in plain sight and yet most miss them. It is the provision of the Hindu Undivided Family (HUF) in the Income Tax Act, 1961.
Kamath’s post
“If you’re married and a Hindu, you can use a HUF to plan and save your taxes. HUF is treated as a separate entity, so all these deductions will apply separately to HUF along with the individual deductions,” Kamath explained in a X post.
He added that people can transfer any property that yields rental income to the HUF, open a Demat account in the HUF’s name, transfer money to the HUF bank account, accept gifts in that account, and the like to cut their taxes.
In a follow-up post, Kamath shared a video and a blog to explain how HUF can be used to save taxes.
What is Hindu Undivided Family or HUF?
The HUF is treated as a “person” under Section 2(31) of the Income-tax Act, 1961, for assessment purposes. A HUF has its own Permanent Account Number (PAN) and files tax returns independent of its members.
A HUF can comprise the direct descendants of a common ancestor, and the wives and children of the male descendants. A HUF must have a “karta” — usually the head of the family — while the other family members are coparceners or members. According to the Hindu Succession Act of 1956, a coparcener is an individual who has a legal right to ancestral property by birth.
How does a HUF help save taxes?
A HUF can be formed with only two members, one of whom is a coparcener. However, to be taxed as a HUF, it should have at least two coparceners. For instance, a man and his wife can create a HUF, but a wife is only a member and not a coparcener.
In the case of a married daughter, she can become a member of her husband’s HUF while continuing to be a coparcener in her father’s HUF. Jain and Sikh families can also form HUFs.
So, the HUF is basically a family unit with assets being pooled in. Since the HUF is taxed separately from its members, it can separately claim deductions, such as those under Section 80, or other exemptions.
Netizens react
Many X users with financial knowledge responded to Kamath’s post positively.
Former IAS officer KBS Sidhu posted: “I have always suggested that any Hindu who marries, should create an HUF on the very same day. It is a common misimpression that a person needs to be blessed with a son to be able to form an HUF. Moreover, people following the religion of Sikhism, Jainism and Buddhism are also eligible for the benefit of HUF.”
Amit Misra, CEO of startup Dazeinfo, wrote: “Married Hindus, take note: HUF isn’t just a tax-saving strategy, it’s a game-changer. By leveraging its benefits, you can take control of your finances and secure a brighter future.”