• Can HUF be created later on to save income tax on rental income?

We have a property jointly owened by my mother, me and my elder brother. this property was purchased by my father 30 years back and after his death this was tranferred to all of us through succession . this building is on rent with a bank. we all three recieve rental income in our indvidual accounts. Now rent has increased and bank has started deducting TDS. my elder brother suggested to convert it into an HUF to save tax. I am not interested for it, is it allowed as per law? Is this proposal really beneficial to me? how to dissolve  it if i want to sell my share, can there be problems for my children to inherit my share of property after my death? can my elder brother make his HUF with his wife and children for only his share in this property to save tax on his individual rent ?
Asked 11 months ago in Property Law from Ludhiana, Punjab
Religion: Hindu
1) HUF can be formed and the rent can be shown as the whole family income (HUF) and it can be taxed separately.open bank account in name of HUF with  stamp, ID Proof and the proof of the members of the family of HUF.apply for PAN card in name of HUF 

2) the least tax would be payable by the family if the Rental Income is taxed in the hands of the HUF. 

3) it is beneficial to you as at present rental income is being received in individual accounts . once it is shown as family income (HUF) you would save on taxes 

4)  If other co-parceners of HUF demand the partition of HUF only then one can get his/her share of the HUF
Ajay Sethi
Advocate, Mumbai
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brother can create HUF with his wife and children  to save on taxes of his rental income 
Ajay Sethi
Advocate, Mumbai
23123 Answers
1214 Consultations
5.0 on 5.0
The concept of HUF says that apart from individuals there is another separate entity called “Family” which can also have its own assets and liabilities and even regular source of income, which should be taxed separately. For example, if an ancestral residential property is rented out, then the rent arising would be considered as Family’s income and not as income of individual. In real life this rent is shown as income of one individual and he pays the tax on it, however a HUF can be formed and the rent can be shown as the whole family income (HUF) and it can be taxed separately.
A false impression amongst people is that HUF needs to be created whereas the truth is that an HUF comes automatically into existence at the time of marriage of an Individual and no formal action needs to be taken for the same. However, in case a person who wants to specifically register for creating an HUF, he can furnish a creation deed on a stamp paper.

In your case, there is no compulsion on you to form a HUF along with your brother, if you do not want to join your brother to form or create a HUF property, you may seek partition of your your share in the property and separate possession of the same.  Your brother can create his own HUF with his family and his children alone with his share of property.


T Kalaiselvan
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