What is an HUF?

 

 

The term HUF stands for ‘Hindu Undivided Family’ and comprises of all descendants of a common male ancestor and includes their wives and unmarried daughters. The term of HUF is not defined in income tax law; it is defined under the Hindu Law as a family.

 

The family continues to exist even after the death of the common ancestor and the next eldest male member becomes the head of the family or the “Karta”. In financial terms, we can call him ‘manager of the family’. Even on the death of all the male members, the HUF continues to exist.

 

One of the major benefits of forming a HUF is that a HUF is considered a separate legal entity and is thus eligible to obtain a PAN card and have a bank account opened in the name of the HUF. 

 

The term ‘Hindu Undivided Family’ (HUF) is defined under Hindu Law. so it can’t be created by an agreement between two parties, nor can it be formed by a group of people who do not constitute the family. Buddhists, Jains, and Sikhs can also form HUF.

 

Documents Required for Forming HUF

 

 

1. Passport size Photograph of all the members and Karta.

 

2. PAN and Aadhar card of all the members and Karta.

 

3. ID proof of all themembers and Karta. (Driving License/Voter ID/Passport)

 

4. Address Proof of all the members and Karta.(Electricity Bill/Telephone Bill) not older than 1.5 months having name of the respective members and Karta.

 

5. Registered Office Address Proof (Electricity Bill/Water Bill/Gas Bill or any other utility bill) not older than 1.5 months

 

Specific Requirements:

 

1. A HUF must have a registered office in India. Documents like bank statement or electricity bill should be recent.

 

2. A utility bill, rent agreement or sale deed and an  NOC (Non-Objection Certificate) from the landlord with his / her consent to use the office as a registered office of a HUF must be submitted as well.

 

 

Steps to Form Your HUF

 

 

1. Experienced and dedicated personnel assigned for engagement.

 

2. Collection of required documents along with a simple checklist.

 

3. Verification of the Documents as required for forming by our experts.

 

4. Drafting and execution of HUF deed by our Assigned Personnel and will be sent to the partners for obtaining the signature

 

5. It is to be noted that all partners must sign the documents on stamp paper, and a copy of the same should be sent back to us.

 

6. Obtaining PAN

 

 

Advantages of HUF

 

 

• One of the major benefits of the Hindu Undivided Family is that it is considered a separate legal entity. By creating an HUF, you get an additional PAN Card which would be legally acceptable as well as to avail the tax benefits. As the new PAN CARD in the name of an HUF is created, the family can pay its tax individually.

 

• HUF is very easy to form. It comes into existence merely by a HUF Deed. It is a formal legal document on a stamp paper which clearly states the names of the ‘Karta’ and the co-parceners (other members)

 

• Monetary gift up to INR 50000 may be received in cash, cheque, draft, etc by an individual/ HUF  is free from income tax. Also, a gift by Karta to his daughter on her marriage is exepmted from taxation.

 

• Each member has an equal right to the property owned by an HUF. New members that get added to the family by way of birth or marriage also have an equal share in the property. An even unborn child in the womb of the mother will have equal rights.

 

• Inheritance can be accepted in Hindu Undivided Family’s name. The legal heir would have a vested interest in the legacy after the death of the person who made the Will, his children are also considered legal heirs to the property so inherited.

 

 

Conditions to be fulfilled to form an HUF:

 

 

• HUF should only be formed by a family.

 

• HUF is automatically created for newly added member of the family at the time of their marriage.

 

• HUF in general consists of a common anscentor and all of his descentors including their dughters and wives,

 

• Buddhists, Jains, Hindus and sikhs are able to form HUF.

 

• HUF often has assets which come as will, gift or ancentral property,

 

• Once the HUF is created, the bank account should be created in the name of the HUF. A PAN number will be generated in the name of HUF.

 

 

What income is taxable as HUF income?

 

 

Any income that arises on the investment of HUF funds (like interest earned on loans given by an HUF) or on the utilisation of HUF assets (like rent earned on letting out HUF property) would be regarded as HUF income. It is important that the income be earned using HUF funds or property only. If the income arises on account of the personal exertions of the karta or any other member and not on investment of HUF funds, such income would generally be regarded as the individual income of the karta or the member.

 

 

If an HUF contributes funds to the capital of a partnership firm, profit and interest received (from the firm) by a partner who represents the HUF is regarded as HUF income. This is because the income in the partner’s hands arises on investment of the HUF’s funds. However, if the karta is also paid a salary by the firm for efforts put in by him, such funds would be regarded as the karta’s individual income. Speculative profit can be regarded as the income of an HUF, particularly in cases where the HUF has paid margin money or deposits for such transactions.

 

 

Forming Your HUF  with UpriseLegal

 

 

With our experienced and skilled personnel, We at UpriseLegal makes process of forming your HUF very smooth and helps you in each and every step of HUF formation. We follow law to the core and uses our knowledge to avoid any hassles in your business so that you can rise and grow! You may get in touch with our compliance manager on 9172512402 or email us at info@upriselegal.in for free consultation.