HUF means Hindu Undivided Family. A HUF automatically comes into existence when a person gets married and start his family It’s not necessary that this new family should also have kids. The day when a Boy or a Girl get married, they have formed a HUF.
HUF is a family with husband, wife and children (and children’s spouses if any) living together. You can save taxes by creating a family unit and pooling in assets to form an HUF. HUF is taxed separately from its members. Therefore, deductions (such as under Section 80) or exemptions allowed under the tax laws can be claimed by it separately.
Under Hindu Law, an HUF is a family which consists of all persons lineally descended from a common ancestor and includes their wives and unmarried daughters. An HUF cannot be created under a contract, it is created automatically in a Hindu Family.
Karta of a HUF is the senior most male member of the family and in financial terms he can also be called manager of the family. In this account a corpus is created where every family member can pool their income. The corpus will be handled by or authorized to handle by Karta (head of the family). Signature of karta will be required for every transaction from the bank. These accounts are similar to individual saving bank accounts; there will be various tax benefits that are available for an individual’s account while the income of members is being pooled in HUF account.
Ancestral Property: Ancestral property may be defined as the property which a man inherits from any of his three immediate male ancestors, i.e. his father, grandfather and great grandfather. Therefore, property inherited from any other relation is not treated as ancestral property. Income from ancestral property held by following families is taxable as income of HUF:
- a) A family of widow mother and sons (may be minor or major) ;
- b) Family of husband and wife, having no child ;
- c) Family of two widows of deceased brothers ;
- d) Family of two or more brothers ;
- e) Family of uncle and nephew ;
- f) Family of mother, son and son’s wife ;
- g) Family of a male and his late brother’s wife.
Note: Property obtained by daughter from joint family property would be her absolute property. Any income therefrom is chargeable to tax in her hands in the individual status only. This will also apply to any legal heir obtaining property in the capacity of a descendent.
Basic criteria for an HUF
There are some essential conditions that must be fulfilled to qualify as an HUF. These are outlined below:
- Only one member or co-parcener cannot form an HUF;
- The joint family continues even in the hands of females after the death of the sole male member;
- An HUF need not consist of two male members. One male member is enough. For example, a father and his unmarried daughters may form and HUF.
Taxability of HUF Income
HUF has its own PAN and files a separate tax return. A separate joint Hindu family business is created since it has an entity separate from its members.
1 Deduction from gross total income: An HUF is entitled for deductions available under Chapter VI-A (as applicable) while calculating its taxable income.
2 Rate of Tax:
An HUF is taxed on same slab rates which are applicable to an Individual.
An HUF is liable to pay Alternate Minimum Tax if the tax payable is less than 18.5 per cent (including cess and surcharge) of “Adjusted Total Income” subject to prescribed conditions.
How to form an HUF?
While there are tax advantages of forming an HUF, you must also know some conditions –
One person cannot form HUF. An HUF is formed by a family.
An HUF is automatically created at the time of marriage.
HUF consists of a common ancestor and all of his lineal descendants, including their wives and unmarried daughters.
Hindus, Buddhists, Jains and Sikhs can form HUFs.
HUF usually has assets which come as a gift, a will, or ancestral property, or property acquired from the sale of joint family property or property contributed to the common pool by members of HUF.
Once an HUF is formed it must be formally registered in its name. An HUF should have a legal deed. The deed shall contain details of HUF members and the business of the HUF. A PAN number and a bank account should be opened in the name of the HUF.
It is a type of partition in which some of the willing co-parceners get out of the HUF and rest of them continue the HUF. The partial partition may be property-specific when some of the properties are divided among the co-parceners and balance continue to be the property of the HUF. When a claim of total partition has been made by any co-parcener on behalf of HUF, the assessing officer shall inquire about it. For this, he shall serve a notice to all the co-parceners of the HUF and enquire whether the total partition has taken place and if yes, then on which date it is effected.
A HUF can be formed with just two members, one of whom is a co-parcener. But for an entity to be taxed as a HUF, it should have at least two co-parceners. For example, when any HUF consist of only husband and wife, then there is only one co-parcener (the wife is a member but not a co-parcener) and therefore, in such case income can’t be taxed in hands of HUF. It will be taxed in the hands of individual co-parceners. Unmarried daughters would always be a co-parcener and have the equal right over the property just like a son. The status of a married daughter in her father’s property is that of a co-parcener.
Since HUF is one person as per Income Tax Act, a proprietor of a business can be an individual or a HUF. A proprietorship concern is not governed by any specific law as such, and therefore there is no bar on HUF becoming a proprietor of any concern.
For filing the Income tax return of an HUF click here https://www.mycorporation.in/india/income-tax-return-online-check-refund-status-efiling-of-itr