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What is an HUF
All you need to know
What is HUF?
The term HUF stands for ‘Hindu Undivided Family’. It consists of all descendants of a common male ancestor, including their wives and unmarried daughters. While not defined in income tax law, HUF is defined under Hindu Law as a family unit.
The family continues to exist even after the death of the common ancestor, with the next eldest male member becoming the head, or ‘Karta’, effectively the family’s manager. Even if all male members pass away, the HUF persists.
Under Hindu Law, a ‘Hindu Undivided Family’ (HUF) cannot be created by an agreement between two parties or by a group of unrelated people. Buddhists, Jains, and Sikhs can also form HUFs.
Conditions to Form an HUF:
1.Family Formation: HUF can only be formed by a family.
2.Automatic Creation: HUF is automatically created for new family members upon marriage.
3.Composition: Typically includes a common ancestor and all his descendants, including daughters and wives.
4.Eligible Groups: Buddhists, Jains, Hindus, and Sikhs can form HUFs.
5.Assets: Often includes assets received through wills, gifts, or ancestral property.
6.Bank Account and PAN: Once formed, a bank account should be created in the name of the HUF, and a PAN number will be generated for the HUF.
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Documents Required
Photograph of all the Partners
PAN Card
Identity Proof (Karta)
Address Proof
HUF Deed
Bank Account Details
Benefits of getting LLP Registration
Boost Your Tax Savings:
- Double the Tax Benefits: HUF acts as a separate taxpayer, allowing you to claim additional deductions and exemptions beyond individual limits. Imagine your family claiming tax benefits twice – once for each member and again for the HUF!
- Tax-Free Gifts: Gifting money (up to ₹50,000) to an HUF is exempt from income tax, offering a strategic way to optimize your family’s tax liability.
Streamline Estate Planning and Asset Management:
- Fair and Clear Inheritance: All coparceners (family members) in an HUF have equal rights to its property. This includes unborn children, ensuring a pre-defined and fair distribution of assets across generations.
- Simplified Inheritance Process: Property can be inherited by the HUF, potentially avoiding disputes among legal heirs and simplifying the inheritance process.
Easy Setup and Management:
- Simple Formation: Setting up an HUF requires a straightforward document called a “HUF Deed” outlining the family structure. There’s no complex legal process involved.
- Dedicated Finances: The HUF can maintain its own bank accounts, allowing for better control and management of family finances.
Things to Consider:
- Tax Implications: While HUFs offer tax benefits, remember it’s a separate entity with its own tax filing requirements. Consulting a tax advisor is recommended.
- Legal Matters: HUFs are governed by Hindu Law, with specific rules regarding coparceners and inheritance. Seeking legal advice can ensure everything is set up correctly.
General FAQs on HUF
Q1: Who is the Karta of an HUF?
A1: The Karta is the head of a Hindu Undivided Family (HUF) and is traditionally the senior-most male member of the family.
Q2: Can a Woman be HUF Karta?
A2: Yes, a woman can be the HUF Karta. Although traditionally only males could be Karta, a landmark case in January 2016 by the Delhi High Court ruled in favor of a female being the Karta of an HUF. However, this has not yet been incorporated into the Income Tax Act.
Q3: If a person is survived by his wife and two daughters, can they form an HUF? Can there be an HUF with only female members?
A3: Yes, they can form an HUF. Following the 2005 amendment to the Hindu Succession Act, an HUF can be formed by a Hindu widow and her unmarried daughter, as the daughter is considered a coparcener.
Q4: Who are HUF Coparceners?
A4: Coparceners are male members of the HUF who have the right to demand partition of the HUF property. Female members can also be coparceners if they are from states like Maharashtra and Tamil Nadu or under the Hindu Succession (Amendment) Act, 2005, which grants daughters equal rights as sons.
Q5: Can a daughter claim a share in her father’s property if her father passed away before the 2005 amendment?
A5: No, both the daughter and the father must be alive on the date of the amendment for the daughter to benefit from it. If the father had passed away before the amendment date, she cannot claim a share in her father’s property.
Q6: Are there any minimum number of coparceners required for an entity to be taxed as HUF?
A6: For an entity to be taxed as an HUF, it should have at least two coparceners. If an HUF consists only of the husband and wife, it will not be taxed as an HUF except where funds are received from the partition of a larger HUF.
Q7: Should a HUF always be a resident of India?
A7: No, a HUF can be a non-resident if its control and management are situated outside India.
Q8: If the Karta of HUF resides outside India but the HUF is managed by other members in India, will HUF be a non-resident?
A8: No, the residential status of an HUF is based on where it is managed. If managed from India, it will be considered a resident HUF, irrespective of the Karta’s location.
Q9: Can the members of the HUF and the HUF separately claim a deduction under Section 80C?
A9: Yes, the HUF can claim a deduction under Section 80C as a separate taxable entity. However, the same investment or expense cannot be claimed by both the member and the HUF.
Q10: Upon the demise of the Karta, who takes over the title ‘Karta’?
A10: The eldest male member of the family becomes the Karta upon the demise of the previous Karta, even if the deceased Karta’s wife is alive.
Q11: What happens if the eldest male member of the family is an NRI?
A11: The HUF is considered a resident if its affairs are managed in India, regardless of the Karta’s non-resident status.
Q12: Are there any incomes which are not taxed as income of HUF?
A12: Yes, certain incomes are not taxed as HUF income, such as:
- Income from self-acquired property transferred to HUF without proper sale consideration.
- Personal income of the members and “Stridhan.”
- Income from an individual property of the daughter vested into HUF.
Q13: Can a HUF get Senior Citizen Benefits?
A13: No, while individual members above 60 can avail senior citizen benefits, the HUF as an entity cannot.
Q14: What are the two schools of Hindu law, and what is the difference?
A14:
- Dayabaga School of Hindu Law: Prevalent in West Bengal and Assam. No right to property by birth; rights are acquired upon the death of the father.
- Mitakshara School of Hindu Law: Prevalent in the rest of India. Rights to property are acquired by birth.
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