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Updated on: 07 Aug, 2023 03:01 PM

A HUF, in simple terms is called a hindu undivided family but how does the law defines it? Let's get through it.

The Hindu law defines a HUF as a family that consists of all persons lineally descended from a common ancestor which includes unmarried daughters and wives. It consists of female members as well as distant blood relatives in the male line.

A group of people cannot create a HUF rather it comes into existence naturally when a family comes into picture. It means that membership does not emerge through a contract but comes from your status in Hindu law and even though jain/ sikh families are not governed by Hindu law, still they can be treated as a HUF. It is interesting to know that a HUF enjoys recognition throughout India except Kerala.

Now, let us get the deep insight of the concept of HUF through some key points:

  1. HUF is considered a separate legal entity under the Income Tax Act, 1961.
  2. It may be a resident or non resident depending on where the control and management of HUF resides.
  3. One cannot transfer his own assets or money into HUF.
  4. The tax slab that applies to a HUF is same as of individual.
  5. Apart from the basic exemption of ? 2,50,000, it is also eligible for deduction u/s 80 C.
  6. HUF is also liable for tax audit u/s 44AB by a Chartered Accountant same as an individual, if it's turnover from business exceeds ? 1 crore.
  7. Due date of return filing by HUF is 31st July of the assessment year. In case HUF is liable to tax audit, then due date shall be 30th September of the relevant assessment year.
  8. Karta is required to sign all documents of HUF on its behalf.
  9. An adopted child can become a member of HUF but not a co-parcener, i.e he/she cannot ask for the partition of HUF.

Now, let us tell us discuss various modes of creating corpus for HUF. these are:

  • Gifts, or
  • Joint Labour, or
  • Will, or
  • Partition, or
  • Blending individual property with HUF, or
  • Reunion.

We are sure that by now you must have a basic idea about HUF. Let us know, how creating a HUF can be beneficial for you.

One thing which everyone will agree is our aim for more & more savings. And this is where HUF helps you the most. A major advantage of creating a HUF is Extra PAN Card. This will help to split the family income thereby resulting into more tax savings. Since, HUF is a separate legal entity, it enjoys its own tax deductions u/s 80 C, Sec 80 D, 80 DD, 80 G, Sec 24, Sec 54 of the Income Tax Act.

Let us prove it to you with an example.Suppose, Mr A earns income of ? 10,00,000 as salary. He also receives rental income of ? 5,00,000 from his ancestral property. He invested ? 1,50,000 as per sec 80 C to claim deduction. See the info-graphic below to see how it's beneficial to have a HUF.

As you can see from the above solution, huge tax saving of ? 1,36,475 (2,24,025-87,550) is possible only because of HUF.

There are many ways through which huge amount of tax saving can be done through HUF. To name a few methods, taking out Life Insurance policies in the name of its members or investing in 5 year bank fixed deposits (Sec 80 C ) etc. Sec 24 provides deduction of interest on borrowed loan, thus HUF is entitled for this deduction of INR 2,00,000/- on self occupied property. Further, income of HUF from dividends/ mutual funds/ shares are fully exempt.

Now we know about many benefits of HUF, you'd surely like to know how you can form a HUF?

A HUF is formed naturally. When you marry, a HUF comes into existence with you and your spouse as it's members. To provide it a legal status, certain documents are required to be registered with the department.

  • HUF Deed: It's a legal written document which lists the names of members, karta etc. This deed also defines the role of Karta like he is authorised to hold HUF's bank account, make investments on behalf of it's members etc. Make sure your HUF has a well defined and drafted deed.
  • HUF PAN: You can apply for PAN of HUF through Form 49A. You can furnish this form online/ offline. Getting a PAN is a must because without it you cannot file return of HUF. And without return, you cannot claim various deduction and exemption benefits.
  • HUF Bank Account: This bank account will enable you to make all investments on behalf of HUF. Also, it is mandatory to have a separate bank account for HUF.

Saving income tax is an easy task given that you are aware of law guiding the provisions. The main aim of our blog is to enlighten you about the benefits and importance of HUF. As both individual and HUF enjoy same benefits, it is simply the best of both worlds.

For more such super cool tax-saving tips, keep following our blog and social media pages. Also, now you can file you return online for FREE! Simply visit Tax2Win and file your ITR in the most hassle-free way ever. Happy Filing ????

CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.