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How to Save Taxes on Stock Dividends in India Using HUF?

Posted on 31 Aug 2025
Author: Sayan Sircar

Tags: Tax

12 mins read
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This article explains how HUF taxation works, the rules on transfers and gifts, and the best strategies to build a dividend-paying portfolio under HUF ownership.

How to Save Taxes on Stock Dividends in India Using HUF?

This article is a part of our detailed article series on the concept of tax saving using HUF in India. Ensure you have read the other parts here:

How to set up a HUF to save taxes in the right way?

This article explains what you need to do to save tax by creating a HUF.

Frequently asked questions on saving tax via Hindu Undivided Family (HUF): the complete guide

This article compiles an exhaustive list of FAQs on the concept of tax saving by creating an HUF.

📚 Table of Contents

How are Stock Dividends Taxed in India?
HUF Dividend Tax Savings Calculator
- How to Use the HUF Dividend Calculator
- How Much Amount can you Transfer into the HUF to Invest for Tax-free Dividend Income?
How to Correctly Use the HUF to Save Tax on Dividends and Interest Income?

Using the Hindu Undivided Family (HUF) as a tax-planning tool is on the radar of many families.

A Hindu Undivided Family (HUF) is a separate “taxable person” in terms of tax payment with its own PAN card and bank account. Any income (rent, interest or capital gains) from assets correctly transferred to the HUF will be taxed separately.

This article will examine a unique case of utilising the HUF to reduce taxes on a stock portfolio that regularly distributes dividends.

How are Stock Dividends Taxed in India?

Creating a stock portfolio that pays out dividends is a valid strategy for a retirement portfolio, where the stocks in the portfolio generate regular dividends that you can use for day-to-day expenses.

The problem is that dividends are added to taxable income and taxed at the current applicable tax rate. If you are working and creating this stock portfolio, then you will be paying tax on the dividends, since you will be in the 30% or higher income bracket.

Dividends became taxable in India at the slab rates of the investor from the Assessment Year 2021-22 onwards. This change was implemented in the Finance Act of 2020, where the Dividend Distribution Tax (DDT) was abolished, and the responsibility of paying tax on dividends was shifted to the shareholders (stocks) and unitholders (mutual funds).

Any dividend received before 1st April 2020 was tax-free in the hands of the investor, while the company or fund declaring dividends paid DDT. This situation was reversed for dividends received after 1st April 2020.

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HUF Dividend Tax Savings Calculator

Use this free calculator to estimate how much tax you can save by creating a Hindu Undivided Family (HUF) for dividend income in India. Since the HUF is its own taxable entity, any dividend income is taxable in the hands of the HUF.

How to Use the HUF Dividend Calculator

Enter your salary income.
Enter your dividend income.
Add your marginal tax rate.
See your tax savings instantly.

HUF Tax Savings Calculator

All inputs and outputs are in ₹ lakhs.

Salary income (members) e.g., 30.00

Dividend income (portfolio) e.g., 2.00

Tax on salary (members) Enter actual tax on salary in ₹ lakhs

% marginal rate on dividend income

Include cess/surcharge if applicable

HUF basic exemption Set to 0–3.00 as per regime

(amounts in ₹ lakhs)	Without HUF	With HUF
Saved tax	--

How Much Amount can you Transfer into the HUF to Invest for Tax-free Dividend Income?

Myth: You can transfer unlimited money to HUF and save taxes.

Fact: Transfers from members get clubbed back. Only ancestral property, certain gifts, or partitioned assets avoid clubbing.

Unfortunately, while members of the HUF can transfer any amounts into the HUF without incurring gift tax, the income on that transfer will be clubbed into the hands of the members who made the transfer.

There is no limit to the transfer itself to make it gift-tax free, such as ₹50,000/year. However, suppose the HUF generates income on this, via interest or dividends. In that case, that income is clubbed into the hands of the member who made the transfer, thereby negating any tax savings.

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How to Correctly Use the HUF to Save Tax on Dividends and Interest Income?

A simple plan where you and your spouse open the HUF with the sole purpose of transferring, say, ₹1 lakh/year into it to create tax-free dividend or interest income will not work due to clubbing.

To understand if you should create your own HUF:

Instead, this is how you can transfer capital into the HUF, which you can use to create the portfolio you are looking for without triggering clubbing:

Ancestral property transfer

Any ancestral property passed down, via father/grandfather/great-grandfather, to the HUF will be exempt from both gift tax and tax on future rent or capital gains. There will not be any clubbing.

Property transfer via will

As in the above case, a property transferred to the HUF via a will, whether from a member or a non-member, is also similarly tax-free.

Gift from non-members

Non-members, who are not a part of the HUF, are automatically not relatives of the HUF. We know that from non-relatives, only gifts up to ₹50,000/year are tax-free. Therefore, if a HUF receives up to ₹50,000/year as gifts from non-members, it is tax-free.

Growth of assets already in the HUF

If the HUF invests its own assets and gets income/rent/capital gains, then that is tax-free and not clubbed.

Partitioning an existing HUF

Any assets transferred into a different HUF by splitting (partitioning another HUF) are similarly tax-free.

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