In this article we have discussed all about HUF in India.The business carried out by the members of a Hindu undivided family as joint Hindu family business. HUF is a separate legal entity; it has a separate taxable entity. HUF has its own PAN. Any Indian Hindu male with another member of family can form an HUF to either run his own HUF or to execute Proceeds of divided HUF from his father or ancestors. HUF can take an insurance policy on the life of its members. HUF can behave like an individual taxpayer and get all tax benefits including deduction under section 80C, 80D and home loan interest.it is governed by the Hindu law.it is controlled by ‘Karta’. The members of the family are known as “Co-parceners” of Hindu undivided estate.
Even today’s era, HUF formation makes a lot of sense if you are planning to run a business if you are planning to own a property or business which can support your family after you. Buddhists, Jains, and Sikhs can also form a HUF. Formation of HUF helps in saving the tax. As HUF is taxed apart from the members, so the deductions and exemption under section 80 can be claimed separately from co-parceners. Thus, if you have a joint family running a business or are willing to start a business then you should get yourself register under HUF.
- CAPITAL & MEMBERS; For a HUF creation major requirement of capital and members.
Capital can be in the existence of ancestral property. The minimum no. of members required is two, who can be spouses too.
- MAKE A HUF DEED; A HUF to be created should have proper name. Select a proper name for the HUF. The members can choose a suitable name before starting a HUF business form. A HUF should have a legal deed. The agreement / deed should have all the details, including the name of Karta, all the members, address and source of funds, capital, and ancestral property. Deed will simplify that the business or the formation of HUF is valid and true.
- APPLY FOR PAN; After making the declaration deed, a Permanent Account Number i.e., PAN is to be applied for, by the Karta as all the financial transactions must carry PAN. Obtaining PAN is a mandatory requirement for HUF.
- OPEN A BANK ACCOUNT; A bank account in the name of the HUF must be opened after the allotment of PAN. The HUF is now a separate legal entity. Tax saving instruments will have to be invested in the bank account and tax returns must be filed on behalf of the HUF, by the Karta.
Here some merits of formation of HUF:
- Easy formation
- Quick decision & effective control
- Continuity of business
- Economic security
Here some demerits of HINDU UNDIVIDED FAMILY
- Limited funds
- Lack of management skills
- Limited membership
- Dominance of Karta
- Tax benefit of 20% Tax on Long-term Capital Gains.
- Separate exemption limit under Income-tax Act of Rs. 2,00,000
- Section 80D deduction for maintenance including medical treatment of a dependant who is a HUF member.
- No tax Audit of HUF business if Turnover within Rs.1 crores. (AY)
HUF can own house and borrow take home loan as well and claim tax benefits under section 24(b) and 80(c).
Important note: This does not lead to legal advice or
legal opinion and is personal view and for information purpose only. It is prepared on the basis of facts available and applicable law.It is suggested to go through applicable provisions of law,latest regulations,judicial announcements, circulars, notifications and clarifications etc before taking any action based on above content.You agree here by that for any action taken on basis of above information in any manner writer or is not responsible or liable for any omission,reliability,accuracy,completeness,errors or authenticity.This work by professional is just for knowledge purpose and does not constitute any kind of solicitation of work or advertisement.
Freqently asked questions of All about HUF in India
One person cannot form HUF; a family can only form it. A HUF is automatically created at the time of marriage. HUF consists of a common ancestor and all his lineal descendants, including their wives and unmarried daughters. Hindus, Buddhists, Jains, and Sikhs can form HUFs.
Daughters have equal right in father’s property, can become Karta of HUF.
– Creating a HUF Deed is not mandatory and PAN Card and Bank Account can be opened without HUF as well, but it is always better to have a written document in place.
– A HUF can open a Bank account in any bank. The types of Bank accounts that can be opened by a HUF are Savings Account, Current Account or Term Deposit Account.