An Overview Of The Hindu Undivided Family
A Hindu Undivided Family (HUF) is a separate legal entity that consists of a family with all the members lineally descended from a common ancestor. The head of a HUF is called the Karta of the family. The senior-most male member of the family is the Karta, and he manages the HUF. The members other than the Karta are coparceners. There is a minimum requirement of at least two people to constitute a HUF; a single individual cannot form a HUF.
Further, a HUF has its PAN card, which is used for business and is independent of its members. Moreover, the existence of a HUF is independent of the existence of its members.
The Hindu Undivided Family is considered a person for assessment under Section 2(31) of the Income-tax Act, 1961.
Essentials of Hindu Undivided Family
There are three essentials of a Hindu Undivided family. They are:
- The members of a HUF shall be Hindus and not Muslims or Christians.
- There should be a family, i.e., more than one person.
- Such a family must be living jointly and Undivided.
Capital of the Hindu Undivided Family
Any of the following things can be categorized as a source of capital of a Hindu Undivided Family :
- Common ancestral property
- Profit from the business of HUF
- Money or property is received as a gift or by virtue of will.
However, HUF is not entitled to any salary income.
Members in a Hindu Undivided Family
A HUF consists of a Karta and coparceners.
- Karta : The senior-most male member of a family is the Karta of the family. He will be the head of the family and look after the family.
- Coparcener : All the other members of the family are coparceners. This means that all the members have the right to ancestral property by birth.
Taxation of Hindu Undivided Family
Separate income tax returns
Since a HUF is a single entity, the taxation is different from its members. The taxes are paid from the income of HUF only and not from the member's income. They are taxed separately.
Deduction of Taxes
HUF is eligible for deduction of taxes as per Section 80 and other provisions providing exemptions allowing such deductions.
Members can take insurance policies in the name of a HUF, and such amounts are deducted from the net income of the HUF in that financial year.
Salary of the members
A HUF can give salary incomes to the members of the family as per their contribution in the family and the business. Taxes are not deducted from the HUF; instead,they are put on the individual salaries of the members.
Advantages of a Hindu Undivided Family
Creating a Hindu Undivided Family can offer many benefits. Some of them are as follows:
- HUF is recognized as a separate legal entity in the territory of India except for Kerala.
- The PAN card for a HUF is separate from its members, and thus, the taxes are to be paid separately by members and the HUF.
- A person can become a member of HUF by way of adoption.
- Easy availability of loans and credits by banks in the name of HUF.
- The Karta of the HUF is authorized to sign the documents pertaining to HUF on behalf of other family members.
- A HUF has a perpetual succession, i.e., the existence of HUF remains intact upon the death of Karta.
- Upon the creation of HUF, additional tax benefits can be enjoyed by such entities.
- Women can also be co-partner to their husband if her husband is Karta.
- Different taxable units of HUF can be formed.
- The assets or savings spent by the HUF will be deducted from the net income for tax, so it is a perfect way of saving taxes.
Documents required for Hindu Undivided Family
Here are the things required for registration:
- PAN card
- Identity Proof ( Aadhar card/ Voter ID/ Driving license)
- Proof of residence ( Electricity bill )
- Signature of Karta and other members of the HUF
- Hindu Undivided Family Deed
Steps to form a Hindu Undivided Family
A Hindu Undivided Family can be created in few simple steps which are:
Unique Name and Capital for the Hindu Undivided Family
For creating a HUF, a unique and meaningful name must be chosen. The common ancestral property or property received by HUF via will can be a capital for such HUF. Both name and capital are essential steps for the registration of a Hindu Undivided family.
Form a HUF deed
A deed should be created for a HUF. Such a deed shall include the declaration by Karta and other members of the family about the powers vested in the Karta and the details of the membership and capital for such a HUF.
Obtaining a PAN Card
The Karta of a Hindu Undivided Family must obtain a PAN card used for financial transactions henceforth. Such a document will be used for filing income tax returns for the entity. The Karta of the HUF shall duly sign the application.
Opening a Bank Account for HUF
A bank account is necessary for the functioning of a HUF to maintain the funds and transactions of the HUF. This bank account is only for HUF's business purpose and not for any members' savings.
Points to remember while creating a Hindu Undivided Family
- A HUF can only be formed by the members of a Hindu Undivided Family.
- The membership is not created if it is given by status as per Hindu law.
- A new member can be added upon marriage to an already existing member of such a family.
- Buddhists, Jains and Sikhs can also form a HUF.
- A separate PAN card is an essential document for creating HUF.
- There should be a common ancestral property in a Hindu Undivided Family.
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Frequently Asked Questions
For a housing financing firm to be registered, the following requirements must be met:
Companies Act 2013/1956; NBFC; Net Owned Fund (NOF) Registration & Objects
HUF stands for Hindu Undivided Family.
It is the right of a person to inherit their ancestral property since birth.
Earlier, only male members had coparcener rights. But after the 2005 amendment in the Hindu Succession Act, women were also given coparcener rights.
No, it is a separate legal entity but not a juristic person as per the law.
The next senior-most male member of the family will become the Karta.
Yes, a coparcener has such rights.
: Yes, a non-resident of India can be a member of HUF in India.
No, the membership to the HUF is not created by the parties; it is a status given by the law.
Yes, it can become a shareholder in a company since it is a separate identity as per the law