HUF stands for Hindu Undivided Family. It is a collective family unit formed for tax-saving purposes by aggregating or pooling assets. It is a joint family structure where the HUF is considered a distinct entity separate from its individual members.
The HUF includes Hindus, Buddhists, Jains, and Sikhs. It obtains its own Permanent Account Number (PAN) and files tax returns independently. The HUF is headed by the ‘Karta,’ who manages the HUF’s business affairs. The assets of the HUF typically consist of ancestral property, gifts, proceeds from the sale of joint family property, property acquired through a will, or contributions made by HUF members into the common fund.
What is HUF?
A Hindu Undivided Family (HUF) is a unique legal and tax entity specific to Hindu families in India. It is based on the concept of a joint family that includes all family members across generations, with the eldest male member typically acting as the head or “Karta” of the family. HUF typically has assets that come from ancestral property, a gift, a property acquired from the sale of joint family property, a will, or property donated to the common pool by members of HUF.
Members of the HUF
- All members of a Hindu family, including wives, children, daughters-in-law, and grandchildren, can be part of the HUF.
- Within the HUF, male members are called coparceners, and female members are referred to as members.
- Only coparceners have the legal right to request the partition of the HUF, dividing its assets among the members.
- With the amendment in the Hindu Succession Act in 2005, daughters now have equal rights as sons in a HUF. They become coparceners in the HUF from birth, granting them the same privileges and responsibilities as male members. This means that daughters can demand their share of HUF properties just like sons.
Taxation of HUF
HUF is taxed separately as it possesses its own Permanent Account Number (PAN) and files an independent tax return. By virtue of its separate existence from its members, HUF is recognized as a distinct entity, which allows for the creation of a separate joint Hindu family business. The HUF is subject to taxation at the same rates applicable to individuals. The HUF is eligible to claim deductions under Section 80 and other exemptions in its income tax return.
Insurance policies can be taken by the HUF on the lives of its members. In cases where HUF members contribute to the functioning of the HUF, the HUF can provide salary payments to them, and these salary expenses can be deducted from the HUF’s income. Investments can be made using the income of the HUF, and any returns derived from these investments are taxable in the hands of the HUF.
HUF Rules
- HUF should be formed by a family.
- HUF is automatically created when a member gets married.
- HUF consists of a common ancestor and all descendants, including daughters and wives.
- Buddhists, Hindus, Sikhs, and Jains can form HUF.
- HUF commonly holds assets received through wills, gifts, or ancestral property.
- A dedicated bank account should be opened in the name of HUF, along with obtaining a PAN number.
- Members can contribute their income to the common corpus of HUF.
- Tax benefits are applicable to deposits made under relevant sections.
- The division of the HUF corpus requires agreement from all coparceners.
FAQs
What is a Hindu Undivided Family (HUF)?
A Hindu Undivided Family (HUF) is a legal entity consisting of individuals who are descendants of a common ancestor. It includes a family unit comprising parents, children, grandchildren, and sometimes even great-grandchildren. HUFs are governed by Hindu Law and are primarily used for tax-saving purposes in India.
Who can form an HUF?
An HUF can be formed by a Hindu, Sikh, Jain, or Buddhist family. It cannot be formed by individuals from other religions. The family must have a common ancestral property or an income-generating asset to create an HUF.