A Less Popular Tax Saving Trick that Individual Taxpayers should Know

This HUF Tax saving trick is not exclusive to the Hindu community but also extends to the Jain, Baudh, and Sikh communities.

As we approach the end of the financial year 2023-24, many individuals are seeking ways to optimize their income tax savings. Nithin Kamath, the founder & CEO of Zerodha, has shared an insightful tax-saving tip for married individuals of the Hindu community, which involves leveraging the benefits of a Hindu Undivided Family (HUF). This smart tax planning strategy can help married Hindu taxpayers save on their income tax outgo.

In a recent social media post on his official ‘X’ channel account, Nithin Kamath highlighted the advantages of utilizing an HUF for tax planning. He explained that HUF is recognized as a separate entity, allowing all deductions to apply individually to the HUF, in addition to the individual deductions.

According to Kamath, married Hindu taxpayers can benefit from this tax saving hack by transferring assets such as properties generating rental income to the HUF, opening a Demat account in the HUF’s name, transferring funds to the HUF’s bank account, and accepting gifts within the HUF structure.

To further explain the practicality of this tax-saving strategy, Pankaj Mathpal, CEO & MD at Optima Money Managers, elaborated on how a salaried individual could utilize the HUF benefit under the Income Tax Act 1961. For instance, if an individual expects income from ancestral property, they can establish an HUF account to channel those earnings into the HUF. This way, the HUF functions as a distinct taxpayer entity.

Mathpal highlighted that the HUF benefit is not exclusive to the Hindu community but also extends to the Jain, Baudh, and Sikh communities. He emphasized that cash deposits in an HUF account are permissible, subject to the same rules that apply to personal savings accounts.

Utilizing the HUF tax benefit can lead to significant tax savings, especially for individuals earning up to ₹7 lakh from their own sources and an additional ₹7 lakh from ancestral property. By leveraging the HUF structure, taxpayers can potentially reduce their income tax liability to zero.

In conclusion, Nithin Kamath’s tax-saving hack using the HUF structure presents a valuable opportunity for married Hindu taxpayers to optimize their tax planning for the upcoming financial year 2024-25. By understanding and implementing these strategies, individuals can make the most of available deductions and exemptions to minimize their income tax burden effectively.

Also Read: 5 other Less Popular but Effective Ways of income tax saving

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