Property of Hindu undivided family and the income tax law
It is possible within the framework of the Income-tax Law to buy out property whether residential or commercial in the name of the Hindu Undivided Family and also to claim a tax benefit attached to the said property.
Just like a tax deduction is available to an individual tax payer in respect of self-occupied property, similarly in the same manner a tax deduction is also available to a Hindu Undivided Family owning a residential property.
The readers would be happy to note that within the framework of the Income Tax Law it is legally possible to claim deduction of interest on loan to the maximum extent of Rs.1,50,000 per annum in respect of the property which is purchased by a Hindu Undivided Family.
Thus, if the Hindu Undivided Family makes investment in buying out a residential house property by taking a loan, the said Hindu Undivided Family will be able to enjoy a deduction from its total income to the maximum extent of Rs.1,50,000 in respect of interest on loan for the property purchased by the Hindu Undivided Family.
This loan by the Hindu Undivided Family can be taken from bank, financial institution or any other person.
Thus, even the members of Hindu Undivided Family are competent enough to give loans to the Hindu Undivided Family to make payment for the purchase of the property.
Further, it may be noted that the limit of deduction on account of interest on loan upto Rs.1,50,000 per annum is only in cases where the Hindu Undivided Family takes the loan for the purchase of the property after 1st April, 1999. Another important deduction i.e. permissible to Hindu Undivided Family in respect of residential house property purchased by it relates to deduction in terms of section 80C of the Income-tax Act, 1961.
Just like an individual the Hindu Undivided Family can also make payment towards the repayment of the housing loan.
The amount so repaid out of the housing loan will enjoy a tax deduction within the overall limit of Rs.1.00 lakh u/s 80C of the Income-tax Act, 1961.
This means that just like an individual, the Hindu Undivided Family can enjoy independently tax deduction in respect of interest on the housing loan on one hand while on the other hand a deduction in respect of repayment of the housing loan can also be enjoyed by the Hindu Undivided Family.
If the Hindu Undivided Family were to give the property on rent it would also enjoy the deduction of 30% of the annual value by way of standard deduction from the rental income so received by it in respect of the property owned by the Hindu Undivided Family.
The important point which should always be kept in mind that as far as possible Hindu Undivided Family should not carry out a partial partition of its assets, for example, let us say if a Hindu Undivided Family is the owner of 2/3 properties and the members of the Hindu Undivided Family decide to partition one property and allocate such property to one or two members.
In this situation, even when the ownership of the property has been transferred to one of the members of the Hindu Undivided Family the rental income arising from the said property which has been transferred to a member consequent to partial partition of the property would be treated as an income of the Hindu Undivided Family.
This is mainly because of the fact that Income-tax Act, does not recognise partial partition.
Whenever you are thinking of making a partition of the Hindu Undivided Family at that point of time please always note that the partition has to be full and not partial from tax tangle. It may also be noted that with the latest change in the law the female members of the HUF continue to be members of the Hindu Undivided Family even after marriage.
Thus if you have a daughter, she would continue to be member of your Hindu Undivided Family even after marriage.
This important point should always be noted and taken into consideration whenever the property is purchased in the name of a Hindu Undivided Family. Tax advantages are unlimited for a separate tax entity in the form of Hindu Undivided Family.
Hence, it is time now for you to think of this tax entity to save your tax in years to come.
It is also possible even today to set up a new tax entity in the name of Hindu Undivided Family.
You will also get allotment of a separate PAN Card for your Hindu Undivided Family.
When you go for buying new real estate in your family you should also consider Hindu Undivided Family as a tax entity for making the investment in real estate.
The author is a tax and investment consultant in Delhi for over 40 years.
02 Dec - 10:00 hrs
Founder & CEO, Right Horizons