/Benefits Of HUF (Hindu undivided family)
Hindu undivided family

Benefits Of HUF (Hindu undivided family)

Hindu Undivided Family is a separate tax entity in addition to an individual person who is a member of such an undivided family. So let me explain what is undivided family, if the property is not partitioned among sons and daughters is known as undivided family. Hindu, Sikh Buddhist, Jain can have HUF as a separate tax entity and they can claim all benefits given under wealth tax and income tax, given to resident Indian individual.

Isn’t it great, you must read various sections under which an Hindu Undivided family can claim taxes.

Who can not form HUF

Muslims, Parsis, Christians can not form HUF or they do not get the status of HUF. Because status under HUF do not come from contract, it comes from Hindu law.

An individual can’t form HUF, Having family is the requisite condition. So to save more you can plan to tie knots…this was on lighter note.

Who can form HUF

To constitute HUF, lineal descendants with common ancestors is must.

it includes those who by birth acquire some rights in property, where the property can be movable or immovable.

Who are the parties to the HUF

Karta

Karta also known as the HUF manager, and he is eldest among coparceners, has the right to manage the property and business. He can take the decision as the head of the family. What to sell, buy or rent the property not only this he also decides, how to spend the money generated from HUF.

Karta can take action even without the permission of the rest of the family. he has full authority to take loans or enter in contracts on behalf of the family, normally this is done for the good of the family.

In the event of death of Karta, the eldest son becomes Karta if eldest son is not in position than the next son become Karta.

If a person does not have a son, then in this unfortunate event, on death of father only unmarried daughter can become Karta.

Coparceners

They have the right in ancestral property and also have the right to demand partition.

Only male member had right in ancestral property Before Hindu succession act 2005 and they were only entitled to demand partition in HUF property. Till that time only male members were called coparceners.

After amendment to Hindu succession act 2005, daughters are also included, and all point of references to son equally applied to daughters also.

Under the law up to 3 lineal descendants are coparceners, try and understand it better with an example. lineage should be like …father-sons-grandson-great grandson, these are included in coparceners.

Members

Members includes the following people

Daughter in law, son in law, Daughters children

Members do not have right over a HUF property. They can exercise these through only coparceners, but they are entitled to maintenance, which includes, food, clothes, marriages, shelter etc.

How HUF came in existence

HUF comes automatically into existence as soon as you get married. And as mentioned earlier an unmarried man cannot form Hindu Undivided Family.

For Scholars specially,

There are two kinds of schools governing HUF. one is Dayabhaga law and the other is Mitakshara law.

Dayabhaga law..in this law father is the sole owner and exclusive possessor of joint family property.

no one can enforce the partition as long as father lives. This law mainly followed in West Bengal and Assam.

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Mitakshra law…This law says that the property vest in HUF not in individual .so it can be partitioned in the lifetime of the father also.so this law followed in rest of the country except Kerala where HUF is not recognised.

some important points

There can be female HUF also. where the couple has only daughter and husband passes away. so, in this case, mother-daughter duo can be continued as HUF.

Another case where a female can be Karta is if she has no brother.

If anyone converts himself into another religion, like Christianity, Islam than he ceases to be HUF.

Daughter can continue to be coparcener even after her marriage.

There can be HUF within HUF, as son can have his own HUF, while he continues to be a member of father HUF.

Benefits of taxation under HUF and how it taxed

An individual can reduce his tax liability by resorting to HUF. Once you get married you can form Hindu Undivided Family. so indirectly the family tax liability reduces.

HUF has its own pan, so a separate tax return is to be filed. since the entity created is considered to be separate from its members.

One can take insurance on the life of its members. Members can avail salary benefits

It taxed as same as an individual.income can be invested in various instruments.

income sourceincome source of Aincome source from HUFindividual HUF
gross income22000002200000
income from rent, under HUF600000600000
other factors come under HUF200000200000
income comes counted on gross income500000500000
Deduction sec 80 c150000150000150000
Taxable income270000020500001150000
TAX59440543369823690

MR A has saved 137017 on total tax payable by creating HUF

How to create HUF.

Create a deed – it is not mandatory to create a deed, but if you have created than its good for you to have things in black and white.

This is a formal document on stamp paper which consist name of, Karta, member, coparceners, and the name of HUF.

The name of HUF is a combination of Karta and HUF. Example…Ram HUF.

HUF members have to give informal document that they are giving authority to Karta to run HUF.

Apply for PAN

HUF have a separate pan number. Karta can apply for pan card in form 49 on behalf of HUF. Once Karta gets a pan number, he can avail all the benefits of individual taxpayer

Open a bank account

Karta can open account on his name.

This account exclusively belong to HUF.

karta has the operating rights of bank account, though he can give authority to other members also.

Transfer of assets

GIFT – unknown people can transfer assets to Hindu Undivided Family in the form of gift.Any gift received upto Rs.50k, are not taxable. The maximum amount you can transfer to HUF is Rs.4 lakh, out of Rs.4 lakh, Rs.2.5 lakh is not taxable. The remaining Rs.1.5 lakh can be invested in sec 80c to get tax benefit. Investing money in ELSS could be one very option.

Relatives can also give a gift.

ANCESTRAL PROPERTY – Ancestral property can be transferred to HUF (Hindu Undivided Family) with the help of valid will. The process is completely tax-free. You can also fund HUF with the money, which you got after splitting big HUF.

HUF PARTITION

HUF partition is two types and its complicated process so please consult your CA while doing so.

Total partition – in total partition, HUF gets divided between all its members. After the completion of this process HUF does not exist. This partition recognized by Indian law.

Partial partition – in this, some of the members and coparceners can leave HUF and rest of them can co-exist together. Indian law does not recognize partial partition.

coparceners can only initiate the partition process.

Procedure – partition process is completed between its members and coparceners. Tax assessing Officer reviews the entire process of partition after it is reported. He goes through all finding and details of the partition procedure. and authenticates that procedures are followed with no lapses. While doing all this process, you are I advise you to please involve tax consultant. Dispute may arise in this kind of situation.

Features of HUF

Tax benefits…you can avail tax benefits by reducing your tax liability to a great extent.

The formation of HUF is simple and it’s easy to set up.

All coparceners have equal rights on HUF, so if you want to sell HUF than all members consent is necessary.

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HUF partition could be a complicated process.

The motive behind the formation of HUF should be clear because, with the increase in size, the process becomes very complicated. All newborn also become a member of HUF.

If you need help in formation, feel free to write back on help@finiqi.com. Our competent team will love to assist you. This can give huge tax reliefs for years and takes a nominal cost of formation.

Engineering graduate, and now pursuing career in personal finance management