'If you are married and a Hindu': Zerodha's Nithin Kamath has a hack to lower your income tax outgo

Still struggling with your income tax filing? Zerodha co-founder and CEO Nithin Kamath in a recent post on X highlighted the benefits of a lesser-known tax-saving route -- the Hindu Undivided Family (HUF).

HUF offers substantial benefits for married Hindus looking to optimize their tax savings.

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"If you're married and a Hindu, you can use a HUF to plan and save your taxes. HUF is treated as a separate entity, so all these deductions will apply separately to HUF along with the individual deductions," he posted on X. 

"So, transferring any property yielding rental income to the HUF, opening a demat account in the HUF name, transferring money to the HUF bank account, accepting gifts, etc."

Many users on X reacted positively to Kamath's post. Former IAS officer KBS Sidhu commented, “I have always suggested that any Hindu who marries should create an HUF on the very same day. It is a common misimpression that a person needs to be blessed with a son to be able to form an HUF. Moreover, people following the religions of Sikhism, Jainism, and Buddhism are also eligible for the benefit of HUF.”

CEO of Dazeinfo, Amrit Misra, commented in response to Kamath's post, "I have always suggested that any Hindu who marries should create an HUF on the very same day. It is a common misimpression that a person needs to be blessed with a son to be able to form an HUF. Moreover, people following the religions of Sikhism, Jainism, and Buddhism are also eligible for the benefit of HUF."

So how exactly does HUF work?

HUF is recognized as a separate entity under the Income-tax Act, 1961. It holds its own Permanent Account Number (PAN) and files tax returns independently.
A HUF consists of direct descendants of a common ancestor, along with wives and children of male descendants. The head of the family, known as the "karta," leads the HUF, while other family members are coparceners or members. According to the Hindu Succession Act of 1956, coparceners are those with legal rights to ancestral property by birth.

HUF can be formed with just two members, one of whom must be a coparcener. For tax purposes, HUF must have at least two coparceners. While a husband and wife can create an HUF, the wife is considered a member, not a coparcener.

Married daughters can be members of their husband's HUF while retaining coparcener status in their father's HUF. Jain and Sikh families are also eligible to form HUFs.