Planning for two streams of revenue / income is a thought most of us have when we become stable with a job or a full time profession. Some of us are lucky to find a part time profession in our passion but many of us are not. I feel the answer lies in tracing our roots and culling out what is relevant for today's life.
Today, success is measured by education / job profile. And not by skill set. In fact, we can say that "skill based training" is completely lost barring a few professions. In the days of our grandparents, most Indian families had a ‘family’ business. And the Hindu Joint families' business is a recognised entity under Income Tax Law - the HUF.
But is HUF a mere tax saving tool?
Keeping aside the taxation point of view for now, let us look at it only as a cohesive business structure and a wealth creation tool.
A child becomes a member by birth in an HUF. Dividends issued to members of HUF were credited to their accounts. Money distributed as dividend is re-invested in family business and interests were credited to members’ accounts. This money grows as the child grows and is available to him when he wants to continue with the business or branch out into a different entity with a different business model.
I am sure many of us today realise and understand what that kind of capital means!!!
Of course like any other business structure, HUF has its own pros and cons. But it can be eliminated if the HUF is managed with the intent of growing the family business as a whole and by being transparent. Further it encourages entrepreneurship at a very early age.
What could be income earning activities/avenues for HUFs today?
- Rent earning property,
- Interest earning Deposits,
- Dividend earning stocks etc.
Surplus from an individual’s earnings can be pooled into an HUF account (tax implications to be considered), which will enable wealth creation.
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