I am a salaried individual and I am planning to buy a house property for own use. I don't have any other property right now and i am claiming HRA on my current rented premise. From tax planning point of view, i want to structure in such a way that i don't loose my HRA benefit from a tax point of view. Hence, i am planning to do the following: 1) Create a HUF 2) Remit funds to HUF from my own income and capitalize the HUF 3) Purchase the property in the name of HUF through own contribution and Home loan in the name of HUF 4) Occupy the property for own use and do a rent agreement with my HUF and myself as individual 5) Pay rent to HUF and claim HRA tax deduction in my income Pl let me know if this structure is workable from a tax planning point of view or will there be any issues in this.
Hi,
The arrangment will not fly with tax office due to clubbing provisions. If you fund your Huf and then Huf buy Property, then it will be treated as your property.
Creation of HUF is a long term tax planning tool when over a period of time wealth is created in HUF.
Further, banks will also not give loan to HUF, if there is no regular business of HUF.
Hence, it's not advisable to use the structure mentioned in your question.
This is not advisable for a simple reason the rent you pay to the HUF will again be clubbed into your hands as the property of the HUF is being funded by you and not an inhereted or gifted property. You can always throw your own property in the name of the HUF, but any income earned from such property will be clubbed as per Income Tax Act. The provision was introduced for the very purpose of avoiding such transactions. That said, income earned from further investing such income (say rent you pay is further invested in some equity or FD or debt funds and interest/gains made on those - second degree income) becomes HUF's income and hence eligible for all slab rates, but not the original rentals. So net net no point in going through this process.
Hi,
I dont think this will work. This will surely be a questionable arrangement and you may want to avoid such arrangements.
HUF will also not get the loan from banks without any proper source of incomes.
Regards,
Nikhil.
It will not be in your favour as the property is wholly financed from your own sources of income and not from HUF and also clubbing provisions apply.
Hi
Such an arrangement wouldn't work all together. Clubbing provisions shall apply and such transaction would fail.
Tax planning through HUF can be done over a period of few years. It's not possible in a way as you have described.
Hi,
Hope you are doing well !
It is not advisable and feasible too.
Funding own money to buy HUF property, will consequently be treated as your own property.
Your main purpose of tax saving wont be achieved pursuant to the clubbing provision under section 64 (2) of Income Tax Act.
Also, unless you have a sound track record of the business in name of HUF, any banking institution will not be in a position to provide any financial assistance to such HUF.
Please feel free to revert should you require any further clarification.
Thanks & Regards,
Payal Chhajed
Hi,
This is very much possible however, HUF property has the right vesting in all members of your family which can create a risk later. If you are ok with the risks, it can work. One more point, if you tax return is picked for scrutiny and the tax officer is able to see this tax planning, he may term the routing of money and investment as deliberate tax avoidance and may charge you penalties. The second risk of detection will always be there.
Thanks
Damini
Hi,
These arrangement will not work because of Clubbing provisions in Income Tax Act.Rental Income of HUF will be clubbed in your hands only as property was owned from your source.
Secondly Bank needs a sources of business Income proof for giving loan ,so HUF will not get loan.
Hope it helps
HUF can only be formed if you are married.
Difference between Tax planning & Tax evasion is very thin, you need to ensure you do not fall into later.
I suggest you take home loan on your name, as you will be able to claim Deduction of Interest on Home Loan U/s 24 (upto Rs 2 lac), along with Principal amount u./s 80C. In case of taking this all under HUF you may miss out on benefit of Home loan.
Hi
The way you are looking to opt will create problem and you will be liable for tax once case gets open.
