All About HUF

Hindu Undivided Family

BENEFITS UNDER INCOME TAX ACT

Income received by members from HUF property or income, exempt u/s. 10(2) in

the hands of member;

Benefit u/s. 23(2) of the Act for one self occupied property for the own use of the

family;

Deduction u/s. 24(b) of the Act up to INR 200 k for interest on loan for acquisition

of self occupied property;

Presumptive taxation of business income u/s. 44 AD;

Distribution of capital assets on total or partial partition of HUF not regarded as

transfer u/s.47(i) no capital gain to HUF;

Exemption from capital gains u/s.54 (residential house property), 54B (rural

agriculture land), 54F (investment in first or second residential house), 10(37)

(compulsory acquisition of urban land);

OTHER ASPECTS UNDER INCOME TAX ACT

Gifts up to INR 50 k not taxable u/s.56 (2) (vii), however if amount exceeds 50

k, full amount is taxable. (HUF does not have any relatives, hence taxable gift
up to basic exemption limit can be taken from relatives of members);
Clubbing of income in case of individual property thrown into family hotchpot
by any Member of HUF u/s. 64(2);
Benefit of adjustment up to basic exemption limit from taxable short term
capital gain u/s.111A or long term capital gain u/s.112;
Partial partition of HUF is not recognized under income tax law, HUF
continues to be assessed in the status as such.

HOW CAN YOU CREATE YOUR HUF?

HUF is creature of law and automatically comes into existence on the marriage
of a Hindu male.
Birth of a child is not necessary for the purpose of recognition of the status of
HUF.
HUF can acquire properties by partition of larger HUF or ancestral property or
by way of Gift (however gift by members attracts clubbing provision)
So if you are married and does not have any capital into your HUF, your HUF
still subsists and you can infuse capital by way of gifts.

HOW CAN YOU INFUSE CAPITAL INTO YOUR

HUF?
For an HUF consisting of only husband and wife; which on the date of marriage
does not have any ancestral property or property received on partition of larger
HUF can get it only in the form of gifts.
There are two different views expressed by courts:
An HUF with only one coparcener can accept gifts in the status of HUF

An HUF with only one coparcener can not accept gifts in the status of HUF

because the single coparcener has all the rights over the property as
Individual.
To be conservative, you can go with the second view, once a child is born (male
/ female) gifts can be taken from anyone within the basic exemption limit every
year (ideal way would be to take gifts from your father or mother)
Any accretion to the income of HUF is its own property and there are no

clubbing provisions for the same.

HOW CAN YOU TAKE TAX BENEFIT?

Once you are regularly infusing capital into your HUF, your HUF will

have its own property which will earn income in the form of interest,
etc.
Income of HUF is taxable in its own hands separately from Individual.
So you can take all the benefits under Income Tax Act, 1961 with respect

to the income of the HUF as mentioned in the aforesaid slides while

filing the income tax return of your HUF.

PRACTICAL ASPECTS
Make a declaration of HUF (an affidavit on a stamp paper of INR 100)
Apply for a PAN card in the status of HUF
Open a separate bank account in the name of Karta on behalf of HUF
Make formal gift deeds in respect of gifts received from relatives of

member (the source of gift for the donor should also be recorded)

Maintain Separate books of accounts for HUF

Keep the individual money and property separate from those of HUF
File annual return of income for the HUF claiming the benefits

DOCUMENTS REQUIRED FOR PAN

Proof of Identity of Karta

Proof of Address of Karta

Proof of Date of Birth / Marriage of Karta
For HUF, an affidavit made by the Karta of Hindu Undivided Family
stating name, fathers name and address of all the coparceners on the

date of application and copy of any of the above documents in the

name of Karta of HUF is required is required as proof of identity,
address and date of birth.

DOCUMENTS REQUIRED FOR BANK

ACCOUNT:
Bank account should be in the name of HUF
Photograph of Karta
Proof of identity, address of Karta
Pan number in HUF's name
HUF Declaration : A declaration form where every member has to make a

signature stating the name of Karta and declare

They are the only members of HUF.
Karta to have sole authority over HUF account

Every transaction on behalf of HUF account, made by each member of the

family is governed by karta.

DOCUMENTS REQUIRED FOR DP ACCOUNT:

Photograph, ID, Address proof of Karta

Bank Statement in the name of HUF, Cancelled Cheque

PAN card of HUF
List of co-parceners in the HUF, along with an authorization given to

the Karta by the said co-parceners to open and operate the DP and
Trading accounts.
DP should be HUF DP A/c

POINT TO BE NOTED FROM

HINDU LAW TO BE KEPT IN
MIND BEFORE IMPLEMENTING

RISKS INVOLVED:
HUF property can not be transferred by WILL, Karta cannot sell the

property and dispose the proceeds in his individual desire.

Family can decide mutually for disproportionate distribution among

members by partition through mutual consent.

Any coparcener can ask for partition and equal share from the family

property.
In case of court dispute provision of Hindu Law shall apply.
Therefore, there are chances that you may end up spending INR 100 to save

tax of INR 30, this aspect needs to be kept in mind while indirectly
throwing personal property into family net.

GENERAL ASPECTS

WHY IS AN HUF TREATED SEPARATELY?

Despite being a Secular country, Indian constitution allows Hindus, Muslims,
Christians and Parsis to be guided by a separate Personal Law. As such the
concept of HUF is only privy to Hinduism only.
It originated from the culture of joint family status and common assets among

Hindus.
HUF is treated as a separate entity (person) under Section 2(31) of the Income
Tax Act, 1961 and section 3 of the Wealth Tax Act, 1961. Many of the tax
exemptions or deductions available to an individual are equally available to an

HUF separately under the tax laws.

The Hindu Law contains separate rules for distribution of properties of an HUF
different from those for the property of an Individual.

WHO IS A HINDU?
The term Hindu was originated to designate the countries and population
situated around and near the river Sindhu, it was first used by Iranians.
Persians termed it as Indus, Greeks borrowed it as Indos, English as Indus
and Romans as India.
Article 25(2)(b) of the Constitution stipulates that the reference to Hindus

shall be construed as including a reference to persons professing the Sikh, Jain

or Buddhist religion.
Therefore, the term Hindu under the law means:
A person who is a Hindu by religion, including its various forms like,

Virashaiva, Lingayat or Brahmo Samaj, Prarthana Samaj or Arya Samaj;

A person who is a buddhist, Jain or Sikh by religion;
Any other person who is domiciled in India but is not a Muslim, Christian,
Parsi or Jew by religion.

WHAT IS A HINDU UNDIVIDED FAMILY?

In general, HUF means a body of persons lineally descendant from a

common ancestor including their wives and unmarried daughters, who are
staying jointly.

The head of the family who is the eldest male member generally is treated

as Karta of the HUF. Karta is entrusted with the duty of management of

the HUF assets for the benefit of the family.

Members lineally descended from the common ancestor up to four degree

are Coparceners of HUF. Any coparcener can ask for partition of HUF.

After amendment to Hindu Law in 2005, daughter born in the family also

acquires same right as son of being a coparcener and continues to be so

even after her marriage.

Wives and mother are members of the HUF but not coparceners.