Registration of Hindu Undivided Family (HUF)

HUF is an acronym for Hindu Undivided Family. A Hindu Undivided family comprises of descendants of a common male ancestor. It includes their wives and unmarried daughters. HUF comes under the Hindu Law as a family. The family still continues even after the death of the common male ancestor. In such cases, the next oldest member in the family becomes the head of HUF. The head in a HUF is also known as “Karta.” Karta means a manager who manages the family. Another interesting fact about HUF is it still continue t9o exist even after the death of the male members. 

As a HUF doesn’t come under the Income-tax law, so, you can form a HUF to save taxes. You can pool in the assets to create a HUF. Any Hindu family can collaborate to form a HUF; it is taxed separately from its members. The Buddhists, Sikhs, and Jains can also form a HUF. 

Tax implications on HUF 

Any HUF in India is distinct from its member. Thus, under Section 80, A HUF can claim all the exemption under the income tax laws separately. For instance, if you, along with your spouse and two children, decide to create a HUF, then all of you can claim for deduction under section 80C. Since HUF has its own PAN and file returns separately, so a separate family business is established. The entity is separate from its members.

A HUF is taxed at equal rates as any other individual. But a HUF can claim the deductions made under section 80C; they can take an insurance policy for their members. A HUF can also pay a salary if any of its members contribute to HUF. This salary can be deducted from the income of the HUF.

Further, HUFs can also make investments if they want. But any returns from these incomes are taxable for HUF

While forming a HUF offers you many advantages, you should also meet some criteria to form a HUF. Following are the conditions to create a HUF:

1) Any Individual cannot form HUF alone; it is only possible to form with a family.

2) A HUF automatically forms at the time marriage. A newly added member becomes a part of HUF.

3) Any HUF formed must have a common male ancestor. It includes the daughter and wives as well.

4) Only Hindu, Buddhists, Jains, and Sikhs are eligible to form a HUF. 

5) The Assets of the HUFs usually comes as a gift or will from the ancestors. 

6) Once you create a HUF, then you must create a bank account in HUF’s name.  

7) A PAN number is also generated in HUF’s name.

Forming a separate Leal entity

 One of the essential benefits of forming a HUF is the Hindu Undivided family is considered as a distinct legal entity. Under section 80C, they can claim all the exemptions of the income tax laws separately. But HUFs must obtain a PAN card and Bank account in the name of the HUF. 

Tax-free gifts:

 Another crucial benefit that you after forming a HUF is; A HUF can receive up to INR 50,000 as gifts in the form of cash, Cheque, drafts, and many more. A HUF is free from income tax laws. A Karta of HUF can also gift his daughter in marriage. All these gifts exempt from Income tax.

HUF Act:

 Forming a HUF in India is easy. HUF comes into existence by Act called HUF Deed. A HUF Deed is a legal document on stamp paper that states the name of the head and other members of HUF. 

Tax benefits:

 When you form a HUF, you can have an additional PAN card. This PAN would be legally acceptable everywhere. Thus, you can avail of tax benefits. The new PAN card that you obtain is eligible to pay its Tax individually. 

Equivalent Rights:

 Another significance of forming a HUF is all the members get equivalents rights to the assets of the HUF. Even the new members that add to the HUF through marriage or Birth will receive equivalents rights on the assets. The unborn child in mother’s womb also has equal shares on the property.

Birthright:

 Inheritance or Birthright is acceptable in HUFs name. The legal Heir in a HUF will inherit an interest in the legacy of the person making a will. Even his children will also be considered as the legal heirs of the asset inherited.