HUF or Hindu Undivided Family is defined under the Hindu Law as a family that consists of all persons lineally descended from a common ancestor, including wives and unmarried daughters. All male adults in the family are called Co-Parceners, and all female members of the family are called Members, and the head of the family Karta (Generally the eldest male).
Who Can Create HUF
Any hindu individual male can create HUF as soon as he gets married to a hindu female. Its not necessary to have children to create HUF. Persons from other religion are not eligible to create HUF except Jain and Sikh who can create HUF even though they are not governed by hindu law.
HUF Consists of
Karta: KARTA is generally the father of the family who has the right to do all the things for the family and takes all the decisions on the behalf of the family.
Co-Parceners: Coparcener is the person who has the right to demand the share of the property of family if he/she wants to part away with the family with his/her share.
Member: Are the family members who dont have right to demand the share of the property.
What all is required to Create HUF
Apply for a PAN Card
HUF Stamp
Open a Bank account.
HUF Declaration(Will Be Shared in Next Post)
KEY POINTS IN CREATION OF HUF
- You can Create HUF only after getting married.
- You can not transfer your own assets/money into HUF.
- HUF's are allowed to open Savings account although its a non Individual entity.
- An HUF can recieve any amount in gift from bigger HUF's (HUF of Father, HUF of Grandfather)
- Any gifts received by the members of HUF (birthday, marriage, etc.) can be treated as assets of HUF.
- If you have ancestral property and earning some income from this property, then it is better to transfer this asset to HUF and savetax up to exemption limit applicable to individual.
- Existence of property or multiple members is not a pre-requisite to create HUF.
- You can transfer the money received on sale of ancestral property /assets into your HUF.
- The income from property of HUF can be further invested in instruments such as shares, mutual funds, etc. and will be assessed under HUF.
- HUF enjoys tax exemption of Rs. 1 lakh under Section 80C in respect of LIC premium, NSC, ELSS, 5 year bank deposits etc.
- Stranger can gift HUF but nor more than 50000 rupees as per section 56 ofincome tax act.
- HUF income and individual income are different and to be taxed differently.
- In HUF there could be all the females’ members also when the husband dies and she has no sons.
- HUF also enjoys wealth tax exemptions available to individuals.
Recent amendments in HUF rules(HINDU SUCESSION ACT in 2005)
- The daughter could also be a Coparcener like the sons of the HUF.
- Daughter also continues to be a Coparcener after her marriage of that family whether she also will be a member of HUF of her husband.
- The degree of the Coparcener limited to four degree(Great Grandson) and not all the members of the family are Coparcener.
- For creating the HUF one need to get married, there is no need to have child or children for creating the HUF.
- The female could also be a KARTA as the amended when the father unfortunately dies and she has no brother. In that condition the daughter or the mother can be the KARTA.
- in HUF there could be all the females’ members also when the husband dies and she has no sons.
- The HUF can’t be a partner of the firm as the HUF is not a person whereas the KARTA of HUF can be a partner of the firm.
- HUF can pay remuneration to the KARTA of family for the interest and expenditure to run the family business.
Illustration
Mr. Sachin Sharma, if he is married then he can create an HUF in the style of "Sachin Sharma HUF." Now suppose there are 4 adult members in the family consisting of his wife Asha Sharma, married son Ashish Sharma and daughter in law Shalini Sharma, and all are earning and being taxed as per highest tax slab. Suppose there are deposits and investments in the name of HUF and HUF also earns an income of 1.5 lacs. Then income of Sachin Sharma HUF will not be considered as an income of any member of the family, but the income of HUF which is seperate income in the eyes of law.
Whats more, HUF enjoys the tax benefits which only an individual enjoys, i.e.income upto 1 lac sixty thousand is tax-free and that entity will not be liable to pay any tax. However if this income would have been added in the income of any of the family member, then they had to pay tax on that income as per highest tax slab.
Now, what becomes more interesting that Son of Mr. Sachin Sharma, Ashish Sharma can also create another HUF Sachin Sharma HUF, for which he will be Karta and continue being Co-parcener/Member of the HUF created by his father "Sachin Sharma HUF". Now this Sachin Sharma HUF will again become seperate entity enjoying all the tax benefits an individuals gets.
In this particular example we have seen that although there are 4 members in the family but 6 different entities in the eyes of law enjoying the tax benefits which are applicable to individuals.
Now even if all the bembers have exhausted the benefits by investing 1 lacs each under section 80C, they can invest additional 2 lac from the 2 HUF accounts even if the investment is in the name of HUF only or any of the members of HUF.
This illustration shows how powerful tax saving tool an HUF is.
