HUF can be used as a means of effective tax planning. Under the Income Tax Act, 1961 HUF is treated as a separate entity for the purpose of assessment and HUF has an identity as an artificial person which is managed and controlled by its Karta & other Coparcener.

As per the Income Tax Act, 1961 tax exemption is available for money received from relative and this is available to individual only and not to HUF as HUF is an artificial person and neither its members nor other persons, can be a relative of HUF.

HUF can receive tax free gifts up to Rs 50000 but in case gift received in excess of Rs. 50,000 from Karta and any other members are taxable in the hands of HUF under the head “Income from other sources”.

Moreover, HUF can give gift to Karta as well to any other members. But, as per section 56(2)(vi) of the Income Tax Act, 1961 gift received (without consideration) of Rs 50000 is tax free in hands of donee (person who received gift) provided total gift received in a year is less than Rs 50,000. Therefore, in case the aggregate sum of money received by Karta or any other members is in excess of Rs. 50,000, the whole of such sum shall be chargeable to income tax in the hands of the recipient under the head ‘income from other sources’.

Tax Returns for Financial Year 2010 -11 (March 2011) has started. Request you to please visit Taxmantra.com or mail us Form16/ Salary Certificate and details of other income, at info@taxmantra.com . We would take it from there to file your return of income.

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