How HUF Can Help You Save Big on Taxes: Smart Strategies for Property, Shares, and Mutual Funds

If you’ve ever wondered how to legally save more tax while keeping your family’s wealth secure, a Hindu Undivided Family (HUF) could be your best solution. Many people are unaware that forming an HUF opens multiple tax-saving opportunities—especially when it comes to property, investments, and insurance. Let’s understand how an HUF can help you minimize your tax burden and maximize your savings.

What Is an HUF and Why It Matters

Under Indian tax laws, an HUF is treated as a separate tax entity—independent from the individual members of the family. This means it enjoys its own income tax exemption limit and can file a separate return.

• Under the old tax regime, HUFs get a basic exemption of ₹2.5 lakh.

• Under the new tax regime, the limit rises to ₹4 lakh.

Because HUFs are recognized as independent taxpayers, they can hold property, invest in shares, mutual funds, or even operate a business under their own name.

Tax Benefits on Capital Gains and Investments

Since an HUF can invest in shares and securities, it also qualifies for tax benefits under Section 112A—meaning it can enjoy up to ₹1.25 lakh of long-term capital gains (LTCG) tax-free each year.

HUFs can also operate a business using their own funds or borrowed capital. The income generated from these sources is taxed separately from the income of individual family members, effectively dividing the tax liability within the household.

Benefits of Holding Property in the Name of HUF

Owning property under an HUF’s name offers significant tax advantages:

1. Home Loan Benefits

   • Under the old regime, an HUF can claim a deduction of ₹1.5 lakh on home loan principal repayment under Section 80C.

   • Additionally, it can claim up to ₹2 lakh on home loan interest under Section 24(b) for self-occupied or let-out properties.

   • Under the new regime, interest deductions are available only on let-out properties and limited to the taxable rental income.

2. Multiple Self-Occupied Homes

   • An individual can declare only two houses as self-occupied for tax purposes.

   • However, if one house is owned by the individual and another by the HUF, both can claim self-occupied status—allowing the family to avoid tax on notional rent.

3. Exemption on Capital Gains (Section 54F)

   • If a person or an HUF sells an asset (like mutual funds or shares) and reinvests the proceeds in buying or constructing a new house, the capital gains become tax-free under Section 54F.

   • Having property under an HUF’s name helps when the individual already owns a house but still wishes to claim this exemption.

Investment-Linked Deductions

HUFs enjoy several investment-related deductions, especially under Section 80C and 80D:

1. Life Insurance Premiums

   • HUFs can pay life insurance premiums for their members and claim deductions up to ₹1.5 lakh under Section 80C.

   • This benefit helps when individual limits are already exhausted.

2. PPF and ELSS Contributions

   • While an HUF cannot open a new Public Provident Fund (PPF) account, it can contribute to the PPF accounts of its members and still claim tax benefits.

   • Investments in ELSS (Equity Linked Saving Schemes) or Tax-Saving Fixed Deposits are also eligible under Section 80C.

3. Health Insurance (Section 80D)

   • HUFs can pay medical insurance premiums for their members and claim deductions up to ₹25,000.

   • If the insured member is a senior citizen, the deduction limit increases to ₹50,000.

4. Medical Treatment for Dependents

   • HUFs can claim up to ₹75,000 for treatment or insurance of a dependent with disabilities under Section 80DD, and up to ₹1.25 lakh for severe disabilities.

   • Expenses for certain critical illnesses are deductible up to ₹40,000, and for senior citizens, up to ₹1 lakh.

What HUFs Cannot Claim

Although HUFs get many benefits, they cannot claim deductions for certain investments like:

• Tuition fees of children

• Senior Citizen Savings Scheme (SCSS)

• NPS or pension contributions

• National Savings Certificate (NSC) under some conditions

Why Every Family Should Consider HUF

Creating an HUF helps distribute income among family members, reducing the overall tax burden. It also promotes financial discipline and wealth management within families. However, you must maintain proper records and ensure transactions are genuine to comply with income tax regulations.

In short, an HUF can be a powerful financial planning tool—helping your family save taxes on property, investments, and insurance, while ensuring long-term financial security.