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What is HUF?

HUF is not defined under income tax act but it is same as defined in Hindu law. As the name suggest, this is for Hindu families only, however buddhist, jain, sikh are counted as hindu only for the purpose of formation of HUF.
It consists of all persons lineally descended from a common ancestor (i.e. Wife, children and children’s spouse if living together). The head of the family (i.e. father/any elected person in case of death of father) is called karta which operates the business of the HUF. Father, sons and daughters are the coparceners of HUF and have a right to demand partition. Since Wife is not a coparcener of HUF and cannot demand partition, but wife is the member of HUF. However married female continues to have the coparcenary interest in her father’s property.
HUF usually has assets which come from gift, a will, or ancestral property, or property acquired from the sale of joint family property or property contributed to the common pool by members of HUF.
Hindu Undivided Family (‘HUF’) is treated as a ‘person’ under section 2(31)​ of the Income-tax Act, 1961. That implies that it is a separate entity in the eyes of law. Separate Income Tax Return has to be filed for HUF also.

How HUF is formed?

HUF does not arise from contract, but it is a creation of Law. After marriage as soon as a child is Born, HUF comes into existence.

What documents are required for HUF formation?

1. PAN application form duly filled in and signed by the karta
2. An affidavit by the karta of the HUF stating the name, father name’s and address of all the coparceners.
3. Copy of documents like proof of identity, address and date of birth in respect of all individual and karta of HUF.

Tax Benefits on the formation of HUF:

As HUF has a separate legal identity, there are various tax benefits available to HUF also.
1. HUF has its own PAN card, therefore you can files separate income tax return other than individual account and split your family income.
2. HUF is entitles to open saving accounts same as individual saving accounts.
3. Deductions and exemptions can be claimed under the income tax act as it is taxed separately.
4. HUF can take an insurance policy on the life of its members.
5. HUF is taxed at same individual rates.
6. Investments can be made from HUF income, any returns earned or received from these investments are taxable in the hands of HUF.
7. Salaries paid to HUF member for contribution in functioning can be claimed as expense.
8. Capital gains is not attracted in case of asset distribution on partition.
9. No clubbing of income u/s 64.
10. No tax liability on gift.
11. Can Transfer individual property to family.
12. Members of HUF can get loans from HUF.

Frequently Asked Questions

Yes, A family consists of all persons lineally descended from a common ancestor and include their wives and unmarried daughters.
No, HUF arises only from status.
The persons who acquire by birth an interest in the joint family property. Coparcener enjoys the right to enforce partition.
A property, which a man inherits from any of his three immediate male ancestors, i.e. father, grandfather and great grandfather.
A son can have smaller HUF with his wife and children, while he continues to be a member of his father’s HUF. In his father’s HUF, he is mere a member and in his own, he is a karta of HUF.
No, Muslim family cannot form HUF since they are not covered under hindu law.

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