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What is HUF ?

“Hindu Undivided Family (‘HUF’) is treated as a ‘person’ under section 2(31) of the Income-tax Act, 1961 (herein after referred to as ‘the Act’). HUF is a separate entity for the purpose of assessment under the Act.

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.

Jain and Sikh families even though are not governed by the Hindu Law, but they are treated as HUF under the Act.”

Documents Required for HUF

  • HUF will have a unique PAN card; this PAN card along with the PAN of Karta should be produced.
  • A declaration form will be provided 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.
  • Residential proof of Karta
  • Identification proof of Karta
  • Apart from the points mentioned above there can be other documents or conditions depending on the bank where HUF account is opened.

How Is HUF Taxed?

 Allowed to take insurance policies for its members
 Can also pay salary to its members should they contribute to HUF functioning
 Investment is allowed from HUF income and returns from such investments are taxable.

 Income Of HUF

Any income that is derived from the below may be regarded as income of HUF:

 Profit from business including profession
 Income from house property
 Capital gains
 Other sources
Given that the HUF is a separate legal entity; it is not entitled to any salary income. Also, any income that is derived from investments made by the HUF is assessed and taxed separately.

Who Should Opt For HUF?

HUF arrangement suits those taxpayers who have income from ancestral property and expects to inherit these assets (both real and financial). A taxpayer will be able to divert the inheritance to the HUF account and thus preventing personal tax liability from increasing. In addition, HUF is also beneficial to taxpayers with a higher savings rate.