Brief about Hindu Undivided Family (HUF)

Topic Covers:

1. Introduction
2. Formation of HUF
3. Legal recognition
4. Tax Implications

Hindi Undivided Family (HUF)

According to the Income Tax Act HUF i.e. Hindu Undivided Family, is described as a separate entity, which means that its assessment and tax liability will be calculated as a separate entity.  HUF has its separate PAN card.

HUF can be formed by the Hindu caste as well as Buddhists, Jains, and Sikhs. But Muslims, Christians, or Parsis cannot form HUFs.

Formation of HUF

To form the HUF, it is necessary to have at least 2 members. Even family has 2 male members, a father and son, they can form a HUF. There are 2 female members, if there are mother and daughter, then they can also make HUF, and if there are a husband and wife, then they can also make HUF. According to Hindu law, HUF is created as soon as marriage takes place.

HUF consists of Members, Coparceners, and Karta –

1. Members – All persons who are part of HUF are called members of HUF
2. Coparceners - According to Hindu law, coparceners are those members who are born in a Hindu undivided family and have legal rights in their ancestral property.
   The following members are the coparceners in HUF
   1^st generation – Male member (senior most male)
   2^nd generation – Child (Male and Female both)
   3^rd generation – Grandchild (Male and Female both)
   4^th generation – Great grandchild (Male and Female both)
3. Karta –
   Generally, Karta is the senior most Coparcener of the HUF, but in the case of Karta's death, the eldest surviving coparcener automatically becomes Karta. But if all the members mutually agree, then the other coparcener of HUF can also be made karta.  One can also be a member in 2 HUFs. Like a female can be a member in her father's HUF and also in her husband's HUF.

Legal recognition:

A deed should be made for the legal recognition of HUF so that the PAN card of HUF can also be applied and a bank account can also be opened.

The deed of HUF can also be prepared on plain paper. But it is suggested that to prepare it on the proper stamp paper and also get it notarized. And whenever there is a change in the HUF, the deed should be modified.

The deed should contain various information -

• HUF Name and Address (HUF name is generally the name of the eldest coparcener, next to which "HUF" is predisposed, for example, if a person named Suresh Kumar creates his HUF, then his HUF name will be Suresh Kumar HUF)
• HUF Commencement date,
• Details of the coparceners name, address, photo, and signature
• Details of Gift.

A HUF lasts up to the 4th generation, and up to the 4th generation, all coparceners have the same rights in the HUF.

However, on the demise of the 1st generation, the 5th generation will be considered as the 4th generation.

This means that if you are a member of a HUF, then you also have the right to the property of your grandfather's father (great-grandfather).

HUF taxation:

Karta is the manager of the HUF. He is a representative of the HUF. The income of HUF is assessable separately under the income tax act.  The Income of Karta in his individual capacity is assessable as an individual.

The income of HUF is covered in 4 heads –

1. Income from House property
2. Income from Business
3. Income from capital gain, and
4. Income from other sources.

Tax Benefits available to HUF:

1. HUFs also have the option to choose the old and new tax regime like the individual assessee. HUF also charged at the slab rate like individual
2. For HUF basic exemption limit is ₹ 2,50,000.
3. HUF is not eligible to take benefit of section 87A i.e. tax rebate. But it is eligible to take benefit of chapter VI-A deductions like section 80C, 80D

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