Out of all the various forms of business, Hindu Undivided Family or HUF is also one. HUF is a legal form of business only in India. Family members come together and form a HUF. Income Tax Act does not define HUF but it is treated as a person under 2(31) of Income Tax Act
Topics covered in this article are
1. What is HUF?
2. Members of HUF
3. How to form a HUF?
4. Tax assessment of HUF
5. Income not taxed as income of HUF
6. Dissolution of HUF
1. What is HUF?
As defined under the Hindu Law, HUF is a business formed by a family which includes persons lineally descended from common ancestors. The family members in HUF includes the wives and unmarried daughters.
Features of a HUF
· HUF is not formed by any contract. It is automatically created in a Hindu family. This includes Jain and Sikh families even though they do not fall under the preview of the Hindu Law
· HUF is treated as a separate legal entity for assessment purposes
· A HUF is controlled by Karta i.e, the eldest member of HUF
· HUF has perpetual succession. When Karta dies, next oldest member becomes Karta
· A minor shall also be eligible to be a member of HUF and enjoy the benefits
2. Members of HUF
· All the family members of a family can be a member of HUF
· Karta is the eldest person who controls the HUF
· All the other members such as sons, unmarried daughters, children, daughter in law can be a member of HUF
· The members of HUF are called as coparceners
3. How to form an HUF?
As mentioned above, HUF is formed automatically without need for any contract or registration. There are certain conditions to be fulfilled for an HUF to be created. They are-
1. HUF Deed creation
· HUF can be registered by creating a HUF deed. Although it is not mandatory registering shall make the HUF a legal entity
· Deed is a document signed on stamp paper in which the name of Karta, coparceners and the initial capital of HUF shall be mentioned
2. PAN Application
· HUF is a separate legal entity. So, it should have an own PAN which Karta or any other member can register on behalf of Karta
· PAN application should be made through Form 49A
· Income tax filing of HUF shall be done through the PAN of HUF
3. Open a bank account
· To carry out all the transactions of the HUF a bank account in the name of HUF should be opened
· Personal transactions of members should not take place through such bank account
4. Tax assessment of HUF
A registered HUF has to pay tax as it is a separate legal entity and its income is taxed separately from members income
· Income of a HUF should be assessed under different heads of income
· Income earned by members of HUF in the form of fees, remuneration as a director or partner in a company in which funds of HUF are invested, is treated as family income
· HUF shall be allowed deduction under section 80C of Income Tax Act
· Tax slabs/rates of a HUF are same as that of an individual
5. Income not taxed as income of HUF
· Personal income/property of members of HUF are not taxable as income of HUF
· A personal property transferred by a member as joint family property without adequate consideration is not taxable as income of HUF
· Income from ‘Stridhan’ is the property of women of the family hence not taxable
· Income from individual property of a daughter is not considered as income of HUF
6. Dissolution of HUF
HUF is a perpetual succession. It continues to exist even if the Karta or any family member dies. Every HUF holds joint property which leads to creation of HUF. So, in order for an HUF to dissolve partition of HUF’s property is made. The partition can be done at any given time. The partition can be partial also. In a full partition all the members cease to be the members of HUF. In partial partition some members cease to be the members of HUF while others are still part of it.
Frequently Asked Questions
1. Is HUF taxed separately?
HUF is a separate legal entity so all the income earned in the name of HUF shall be taxed separately
2. Can a female be Karta of a HUF?
As per the new regulations, a woman can be the Karta of a HUF
3. What is the eligibility to form a HUF?
A HUF should consist more than one member/coprcener and Karta to be legally formed.
4. Can a minor be member of HUF?
Yes. A minor can be a beneficiary in a HUF. He shall be only included in profits of the entity