What is Hindu Undivided (HUF) Family and its Benefits?

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What Exactly Is HUF?

The Hindu Undivided Family (HUF) is not defined by the Income Tax Act, although it is covered under Hindu Law. HUF is defined as all those who are lineally descended from a common ancestor, as well as unmarried daughters. HUF is founded by the status of a family, not by a contract, and it is created automatically in any Hindu family. A common ancestor is required for the formation of a HUF.

How Do You Form A HUF?

A HUF, which is a joint family, must have at least two members. When a couple marries and starts a family, they automatically become a HUF. It is not required for the couple to have children. It is also not necessary to own an estate or property in order to form a HUF. Although Buddhists, Jains, and Sikhs are not covered by Hindu Law, they can be taxed as a HUF. In Hindu Undivided Family, the income created belongs to the entire family rather than to a single individual. As a result, the HUF’s income is taxed. HUF is, of course, considered as a separate entity for tax purposes. HUF must have a separate PAN card and file separate IT returns.

One of the primary advantages of the Hindu Undivided Family is that it is regarded a separate legal entity. This qualifies HUF to a distinct PAN card and bank accounts in its name. Once a HUF is created, the eldest member of the family is designated as the “Karta” and receives an additional exemption. Furthermore, the tax slabs are smaller than for conventional corporations. Women could not be the Karta of a HUF until January 2016.

However, in a groundbreaking case, the Delhi High Court ruled in favour of a woman as the Karta of a HUF. The judgement has not yet been included into the Income Tax Act.

How to Make a Hindu Undivided Family

There are three phases to producing a HUF. They are listed below:

Step 1: Make a HUF Deed

It is a formal legal document printed on stamp paper that clearly shows the names of the ‘Karta’ and the co-participants (other members). In addition, each family member makes another statement in which they announce the name ‘Karta’ and agree that

The ‘Karta’ holds the authority of the HUF account and has the power to supervise all transactions of the Hindu Undivided Family account on their behalf. The members specified in the deed are the sole members of the HUF.

Step 2: Request a Hindu Undivided Family PAN Card

Because the Hindu Undivided Family is treated as a separate organisation for tax reasons, it requires a separate PAN card. To apply for a PAN Card, you must complete Form 49A. It is possible to accomplish it both offline and online.

Step 3: Create a HUF bank account.

A HUF must have a separate bank account that receives all payments. It is possible to open it in any bank.

How Does HUF Get Taxed?

• HUF is entitled for section 80 deductions and other applicable exemptions.

• Permitted to purchase insurance plans for its members

• Can also give its members a salary if they contribute to the HUF’s operation.

• Investment from HUF income is permitted, and the returns on such investments are taxable.

Hindu Undivided Family Earnings

Any money obtained from the following may be considered HUF income:

• Earnings from company and profession

• Earnings from real estate

• Capital appreciation

• Additional sources

The HUF is not entitled to receive salary income because it is a separate legal entity. Furthermore, any income earned from HUF investments is assessed and taxed individually.

Formalities Involved in Forming A Hindu Undivided Family:

• Create a corpus – A capital asset can be used to create the Hindu Undivided Family. It could be any ancestral property, assets obtained as a gift from relatives, or assets passed down through a will.
• Register a deed – A deed on stamp paper announcing the foundation of the Hindu Undivided Family is necessary. It should include information about the Karta and the other participants. Furthermore, the sources of funds in the corpus are mentioned. Following the execution of the declaration deed, the Karta may apply for a permanent account number (PAN) for the Hindu Undivided Family as a separate legal entity.
• Opening a bank account – Once the PAN has been assigned, open a bank account in the HUF’s name.

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