HUF and Tax saving on rental income

HUF and Tax saving on rental income

I have formed a HUF in this FY{ consist of My Wife/Daughter & Me( Karta)}. I have two properties and one is on rent. This property is acquired by me and my wife( Jointly owned) from our own savings/Housing loan & by selling a piece of land. I am receiving Rs 40K/month rent on this property.

My query is can i transfer rental income from this property to HUF account without any new sale deed and if i reinvest whole rent in Mutual Fund/ Tax saving FDs/Bond or PPF., then Can i avoid clubbing of this rental income with our income( and thereby saving tax), Also whether Mutual fund should be ELSS or any equity or debt MF.

Asked 5 years ago in Income Tax

Hello,

Income from individual assets transferred converted by the individual into HUF property is taxable in the hands of the individual transferring the asset. And the transfer of income without transfer of the asset is taxable in the hands of the transferor.

So whether you transfer the asset into HUF or not, clubbing provision would be applicable. The important thing in the creation of HUF is to form a corpus.

Investment of whole rent in tax saving options won't affect clubbing. Though it can bring some tax savings to you as per Sec. 80C.

I hope that this answer satisfies your requirements.

Regards,

CA Hunny Badlani

Hunny Badlani

CA, Madhya Pradesh

2608 Answers

16 Consultations

Talk to Hunny Badlani

Query on CA reply: Statement by CA: Investment of whole rent in tax saving options won't affect clubbing. Though it can bring some tax savings to you as per Sec. 80C.
my Query: You mean tax relief for HUF under 80C( In our case total income for HUF is Rs 480000/annum, and if HUF invest Rs 150000 in PPF( for one of its member) then can we save tax on this Rs 150000( under 80C). Please note that we are in 30% tax slab and our individual 80C limit is exhausted by contribution to PF only. So query is very clear that this investment in PPF will avoid tax further as it will considered contribution from HUF.

Asked 5 years ago

Since income from the property is taxable in the hands of individuals only and not HUF, investment in PPF by HUF for deduction u/s. 80C won't be available.

Investment by individuals in their name would fetch deduction u/s. 80C, but in your case, it is already exhausted.

Under the house property head, the deduction would be available for municipal tax paid for the property, standard deduction of 30% and interest on housing loan(without any limit), if any.

Hunny Badlani

CA, Madhya Pradesh

2608 Answers

16 Consultations

Talk to Hunny Badlani

Hi,

You cant transfer the rental income to Huf due to the clubbing provisions.

it will be taxes in your hands only.

Lakshita Bhandari

CA, Mumbai

5687 Answers

942 Consultations

Talk to Lakshita Bhandari

Dear Sir,

Hope you are doing well !!

-You can transfer your income to HUF a/c , but you cannot escape the tax liability on that income due to clubbing provision.

-However, only investments in equity linked saving schemes or ELSSs qualify for tax deduction under section 80C. Investors can claim tax deduction of up to Rs 1.5 lakh under Section 80C of the Income Tax Act. All ELSS funds qualify for the tax deduction under Section 80C.

Payal Chhajed

CA, Mumbai

5189 Answers

302 Consultations

Talk to Payal Chhajed

The income would be clubbed in the income of individual who has transferred such property.

The mutual fund should be ELSS.

Hope you find the information helpful if you do please rate it 5 and provide your valuable feedback for my improvement.

Thank you.

Naman Maloo

CA, Jaipur

4303 Answers

101 Consultations

Talk to Naman Maloo

U mean I can transfer complete rental income( say Rs 480000) in HUF and it will be taxed in my hands but by doing so I can generate corpus in HUF.
1. is my understanding correct?
2. But by doing so, It will not be considered as income to HUF and taxed again? Is it so?
3. I can use this corpus to invest in MF/PPF/Other instruments and interest/gains generated will be considered HUF income. Is it correct?

Asked 5 years ago

Yes your understanding is correct for point 1 and 3 but I didn't get your point 2.

Naman Maloo

CA, Jaipur

4303 Answers

101 Consultations