Building HUF Capital

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This discussion explores the tax implications of investing in a Hindu Undivided Family (HUF). The user questions whether HUF income of ₹4 lakh, after a ₹1.5 lakh ELSS investment, will be tax-free due to the Section 80C deduction. They also inquire about capital gains from further investments being clubbed with individual income and the feasibility of consistent annual investments. The response clarifies that a HUF requires at least two coparceners, meaning a husband and wife alone cannot form one unless specific conditions regarding property inheritance are met. The family composition of husband, wife, and a 12-year-old daughter is sufficient to establish a HUF.

Abhishek Jain

Abhishek Jain (Querist)

15 March 2022 I and my wife contribute 2 lakh each into our newly created HUF. We invest 1.5 lakh in Tax saving ELSS. The HUF income of 4 lakh will attract zero tax taking into account 80C deduction of 1.5 lakh, right?

If we invest remaining 2.5 lakh in stock markets, will the capital gains from these equity investments be clubbed with our individual incomes through clubbing provisions? We already treated 2 lakh amount (each) as taxable in the hand of HUF.

Can we continue to invest 4 lakh each year in the above manner to build capital of the HUF?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

15 March 2022 To create HUF, at least two coparceners are required either son or daughter. Therefore only husband and wife cannot create an HUF, unless the property has been received by a coparcener on partition or otherwise.

Abhishek Jain

Abhishek Jain (Querist)

15 March 2022 I have me, my wife and daughter (12 year old) in my family.

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