Estate planning · HUF
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If HUF runs a business, the HUF can pay a reasonable salary to the Karta for managing the HUF. This salary is deductible from HUF income (reducing HUF tax) and is taxed as salary income in Karta's personal return, but only at their marginal slab. If the Karta's marginal rate is similar to HUF's, this is neutral. If HUF earns at 30% and Karta has low personal income, the shift saves tax.
Income Tax Act, Sec 99 (old 64(2)) | Sec 40(b) for partnership context
Reasonableness test applies, typically ₹5,000-₹25,000/month is accepted by AOs without question.
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