HUF it stands for Hindu Undivided Family. Hindu Undivided Family (HUF) is a family arrangement where many generations who are bound by common relationships are living in the same household. Under Section 2(31) of the Income Tax Act, 1961, HUF is treated as a ‘person’. HUF is governed under the Hindu Law. Where the head of family is known as Karta and the other family members are known as parceners or co-parceners.
Formation of HUF helps in saving the tax. As HUF is taxed apart from the members, so the deductions and exemption under section 80 can be claimed separately from co-parceners. Thus if you have a joint family running a business or willing to start a business then you should definitely get yourself register under HUF.
Who can be the members of the HUF?
- Wife of the karta
- Children of the karta
- Daughter-in-laws of the karta
- Grandsons of the karta
- Great grandsons of the karta
- An adopted child can also become a member of the HUF
Advantages of creating HUF
- Tax savings
- HUF enjoys all deductions and exemptions under the Income Tax Act because the Income Tax Act and Wealth Tax Act recognize the HUF as an independently taxable entity
- For investment in tax free money instruments, corpus can be used
- Tax rates are less compared to other business registrations
- HUF has its own PAN and separate legal entity.
- HUF enjoys a perpetual succession.
Formation process of HUF
- Submit scanned copy
- Form corpus: To establish the corpus of the HUF, you have to use capital asset which can be assets gifted by relatives/friends, or ancestral property, or received through a will
- Make a deed: A deed on stamp paper has to be prepared declaring the formation of the HUF and it should have all the details like name and address of the karta and the co-parceners and source of funds in the corpus. Then after making the declaration deed, a Permanent Account Number i.e. PAN is to be applied for, by the karta as all the financial transactions must carry PAN
- Open bank account: A bank account in the name of the HUF has to be opened after the allotment of PAN. The HUF is now in function. Tax saving instruments will have to be invested in the bank account and tax returns have to be filed on behalf of the HUF, by the karta.
At I Connect Financial Solutions we help throughout the formation process of HUF, we prepare all the legal documents, we make deed according to your requirements and provide assistance for opening a bank account too. Firstly we understand, acknowledge and then give our best services.
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